RRIF or RRSP Insurance
If a client dies
with RRIF or RRSP holdings and the client does not
have a spouse to whom the assets can be rolled over,
or dependent child or grandchild, then the full
amount of that RRIF or RRSP will be taxable income
in the year of death.
Often, if the
client wished to pass that money on to a beneficiary,
the client would purchase life insurance in an amount
equal to the potential taxes payable. The insurance
would be used to pay the tax and the assets would
pass in whole to the intended beneficiary. The government
would get its tax dollars and the beneficiary would
get the asset.
Under the new
charitable giving rules this application of life
insurance can be taken one step further. A client
could buy life insurance coverage equal to the value
of the RRIF or RRSP and leave that insurance benefit
to a favourite charity via the client's will. Upon
the client's death the life policy will be paid
to the estate of the deceased, the estate will transfer
the proceeds to the charity, and the charity will
issue a tax receipt to the estate. The end result
is that the tax credit available as a result of
the charitable donation will offset the tax payable
due to deemed disposition on the RRIF or the RRSP.
The client avoids the payment of taxes on the RRIF
or RRSP at death, and will have made sure that the
beneficiary takes the full amount of the asset,
while the charity receives a sizable donation.
The changes to
the charitable giving rules are perhaps the most
significant to this area of tax planning that have
been seen in a decade. They have arisen from a desire
for the government to shift the funding burden fro
itself to the general public. Both charities and
individual and corporate clients stand to gain tremendously
from the new rules.
For further advanced Estate Planning such as the
above consult a Financial Planner at
Financial Planners Ltd.