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.

Summary

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 Ogden Financial Planners Ltd.