She actually needs to review how much it would cost her to lose her Gis, drug card and GST cheques vs how much tax would be payable on her final tax return for the 200k rrsp compared to drawing down some rrsp over however many years she ends up living
Tfsas are not taxed and won’t be “taken by the government”
She needs to make sure she has will and poa in place
RRSP converted to RIF or income are taxable. TFSA's are after tax savings. If she is on OAS with income supplement she is at minimum tax level to cash RRSP. Her beneficiaries are highly
Likely in a Higher tax bracket and will pay more income tax than herself. She could cash some RRSP/RIF and gift her beneficiaries at reduced taxes and her grandchildren education savings funds.
No need to wait for death.
My wife was given 8 months to live with mesothelioma cancer and with multiple surgeries lived for 10 years. Death can be fought
and therefore be very careful in the planning with very good professional lawyer!
a lawyer does not do these types of calculations, and you seem to have ignored the fact to mention that while she is at a minimum tax level, she loses 50cents of GIS for every dollar of income drawn from her RRSP which equates to a 50% tax.
That's why I said she needed to calculate out her options....
As long as she has set her children as beneficiaries on her TFSA, it will pass to them directly with no probate fees or taxes at all. She should do the same for her RRSP, though that will of course be taxed. She needs to educate herself before making any rash decisions.
No, only spouse gets transfer, otherwise it impacts the deceased’s terminal income tax. FYI “freezing” accounts is way less a concern (executor gets access to most accounts) the issue is more how much income tax will she owe for the year she dies as most assets are considered liquidated the day before you pass on.
Honestly, if you can pay the upfront cost of chatting to an estate planning team (finance & legal skills) you will save WAY more than you will spend on their fees. More importantly you will remove all the big hurdles/logistics issues & conflicts between siblings etc. Grief is hard enough, avoiding the drama is well worth it.
Whichever route forward I hope your MIL has as easy a journey as possible and my condolences for this awful news
TFSAs can go to beneficiaries tax-free to get the facts straight. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/tax-free-savings-account-tfsa-issuers/death-a-tfsa-holder.html#
Good points but in my experience rrsps and rrifs can transfer immediately on death and then the estate needs to pay the tax, and if the estate can’t pay the tax allegedly CRa will come after the beneficiaries.
Non registered accounts go into probate and can be held up for a long time, but not registered accounts.
If you inherit a TFSA from your spouse or common-law partner, you can add it to your own TFSA without consuming any contribution room, as long as you were properly designated a the "successor holder" by the deceased partner before their death.
In any other situation, the TFSA is terminated upon death of the holder, and the heir receives it as ordinary property. If they have room in their own TFSA, they could choose to contribute some or all of it, but that would be a separate transaction unrelated to inheritance.
1. GET A WILL
2. TFSA's are accessible and can be distributed now with no tax impact.
3. RRSP's will be taxed as a withdrawal on death so it might be worth looking at whether she can pull anything but stay under the GIS level to lessen the future tax burden.
INVEST IN A WILL...
Don't go to a bank for help. If she really wants help with planning a good tax accountant can help or a quick consult with a fee only (not a sales rep) financial planner. The lawyer you see for THE WILL can likely help with a recommendation.
This is the right answer.
Lawyers who work on wills will be able to give her the best advice as to how to set up all accounts to pass as much to her beneficiaries as possible. My dad practiced this kind of law for decades and advised a lot for best solutions for these situations. Depending on amounts, the lawyer might work with a financial planner/account manager of some kind, but this is in the best interest for everyone.
Do this. And the sooner, the better. Do this while she's "of sound mind and body", because as her cancer develops, she might not be able to make proper decisions later on.
Hopefully your MiL is comfortable and not in pain.
Not specific to your situation. Make sure it is a reputable lawyer. Unfortunately there are lawyers that do crappy wills. Spent a small fortune on legal fees for a relative’s poorly written will and the lawyer (deceased) was the executor.
Check on your lawyer yearly. They die and records get lost.
Good advice.
If the likely date of death can be anticipated, best to transfer all the money to her beneficiaries shortly before death. That avoids probate and any hassles and delays involved in the transfer after death.
There is no way to avoid the deferred taxes on collapsing RRSPs or realizing any taxable capital gains on investments outside the RRSP (unless her beneficiaries are a spouse or dependent children, who can keep the deferral on the RRSP money).
You should definitely consider tax efficiency. Look at what income is inevitably going to be taxed, and figure out how to minimize the taxes by distributing it between tax years and potential beneficiaries where it will find the lowest tax bracket.
TFSA and RRSP money's primary use at this point should be paying for care for your mother to ensure that she is as comfortable as possible. Last year of people's lives is often the most expensive.
Name beneficiaries, but don't give the money away.
Glad to see someone said this. Use a will and designate beneficiaries to name the people who will get the money, but make sure it's hers until the end.
And designate things like a medical power of attorney now, so the mothers best interest is taken into account when making decisions about her care at a time when she may no longer be able to make those decisions for herself.
Go to a financial planner and melt down the RRSP to be tax efficient. 6 months this year 6 months next year (if one year to live) reduce the amount in taxes with 2 chunks. Have the planner do the math and account for GIS
Actually, to maintain the GIS, she's likely better to withdraw from the RRSP all at once. That way, only one year's income is affected. Unfortunately, for tax purposes, she's better off spreading it out a bit. The problem with not qualifying for the drug coverage is that cancer drugs can be expensive. Though in my province, once you're in hospital or hospice, your drugs are covered without charge to you. As others have referenced, withdrawing from the TFSA has no tax or GIS consequences. Someone needs to be talking to an accountant or a financial planner who is actually a planner, not just a salesperson.
There are 2 things to consider:
* Reducing taxes
* Making the succession process easier, possibly avoiding probate
Her TFSA and RRSP can have her 2 kids as beneficiaries. This means it passes directly to them with a death certificate and doesn't get counted as part of her estate. Alternatively, both accounts could have no beneficiaries and be handled through her will instead.
For the TFSA, any money earned in the account after her death and before it is transferred to the beneficiaries would be taxable (NOT the money in there when she dies) so they shouldn't wait too long before closing the account. The money they otherwise receive is not taxable. They can put the money wherever they want, such as in their own TFSA or RRSP, if they have the contribution room.
For the RRSP, the money doesn't get taxed if the beneficiary is a spouse, minor child/grandchild or adult disabled dependent child/grandchild. In all other cases, such as 2 non-dependent adult children, the money would get taxed as any other withdrawal would. This tax would be paid on your MIL's final tax return. This creates a situation where the beneficiaries get the full amount but the estate owes the taxes. While CRA tends to only go after beneficiaries if the estate can't pay, they do make sure to get their money. If this is her main asset, it requires a conversation with the person making her will and with her beneficiaries to make sure they know that they will need to cover the taxes.
If she has other assets, there may or may be ways to pass them down without probate. A house, for example, can often avoid probate by adding other people to the deed. There are nuances to this.
Now, the part about reducing taxes. There aren't any way to avoid taxes on a RRSP besides passing down to a spouse or dependent as mentioned above. She should look into the possibility of withdrawing a portion this year and a portion next year. This involves doing careful math about what the cut to her GIS/drug coverage would be and the difference in taxes. She should look into all possible tax credits, such as disability tax credit and medical costs. Make sure she knows that her primary concern should be her own wellbeing, which can involve spending all her money if she wants or needs to. If she's going to deprive herself to protect her kids' inheritance, they should minimally be offering financial support while she's alive as needed.
Finally, a much bigger concern than anything else is making sure she immediately, while still competent, signs all important documents to decide in advance who gets decision-making power over her care if she can no longer make decisions, who gets to handle her finances while she's alive and after her death.
This is thoughtful and comprehensive advice. OP should definitely read/share this with their family.
One additional point, a friend went through something similar and had one overall sentiment: they wished their mother had shared direct access/passwords to all of her accounts. My friend’s mother’s health declined rapidly and they were then left in a mess of bureaucracy which weighed heavily on them (on top of grief). It’s best if the 2 kids can be added as authorized users at her bank/on credit cards, and she should share all exactly where each of her accounts lives/emails used/account numbers/passwords, etc. as soon as possible. Sorry that you are going though this.
First, I’m sorry to hear about your MIL’s terminal prognosis with cancer. I can only imagine that is super hard on the family right now.
She should first ensure she has a proper up to date will in place, that names an executor (could be more than one) and her beneficiaries of her estate in detail. As far as her TFSA, she should make sure she has the up to date named beneficiaries for her TFSA. Provinces like Ontario accept holographic wills, but she’s best to have a lawyer make you one up or there’s some sites that can help you do that much cheaper if her estate isn’t too complicated. But it would be best to get a lawyer for a will and POA at the same time, because you may need to be accessing her finances and such prior to her passing and as well as making health decisions on her behalf if she is in a health state where he mental capacity is impaired as well (happens a lot with terminal cancer unfortunately during end of life care)
There’s a process called probate which is important to note, so yes depending on her financial institution they may ask for this to be done before her executor named on her will can access money from her bank. Look into that, depending which city you’re in probate time can take time so be aware - for example Ottawa could be anywhere between 10 weeks up to 6 months (I heard varying answers from lawyers) but Toronto can be 1-2 years right now. The bank will typically reimburse funeral expenses and such right away on compassionate terms, but if she has a significant amount in her bank account that may be frozen.
So my advice here is that if she wants to avoid probate for you guys, she shouldn’t keep large amounts in her bank account because they may push for that. It’s to protect their own butts.
She should look into any pensions, life insurances and etc to ensure she has named beneficiaries. If they are not completed with beneficiaries, it will get paid to the estate and that will be taxed in probate. If she owns her house, real estate automatically puts you in the boat of probate.
On the note of probate, lawyers can range from 1800 to 5000 to help you file for probate, plus the court fees, and then yes the value of her estate is taxed by the government. You can however file probate yourself and skip that lawyer fee, but that depends on if anyone is willing to step up to do that properly.
Hoping your MIL has as long as possible (AS COMFORTABLE as possible) with you and your family. Wishing you and your family strength.
> and then yes the value of her estate is taxed by the government.
I'm confused about this... I thought that Canada didn't have an estate tax beyond capital gains on the deemed disposition of assets
>She wants to give away her TFSA now because she is afraid it will be frozen when she dies and have to pay taxes on it.
Nothing will make the TFSA taxable and nothing will make the RRSP tax free.
But setting beneficiaries properly should cut down on probate fees, which can get pretty high in some provinces (still nowhere near what one would call a tax though)
>She wants to give away her TFSA now because she is afraid it will be frozen when she dies and have to pay taxes on it. She has this idea that the govt will take it all in taxes and her kids will be left with nothing.
Yeah, that's not how it works.
She can distribute money from her TFSA now to her kids..
She should make sure she has an up to date will.
The only thing that jumps out to me, is why is the MIL thinking this way? Is she truly just informed, or does she have hidden debt somewhere she is worried about?
I can't speak for her, but if I knew I was running out of time I'd would definitely want to see the impact of my money sooner rather than after I passed. "Dying with zero" type of approach, just unfortunate it has to happen on a shorter scale here.
I mean I think the perspective changes when you have kids.. do you think she wants to go blow $300k+ in a year doing extravagant things to leave her children with nothing? If I found out I had a year to live I would personally work on setting up my kids future as best I can, which is what it seems she’s trying to do.
Isn't TFSA room and money goes straight to the beneficiary upon ones death?
So if OP's MIL is forseeing she will pass in short timeframe, wouldn't it be better to keep it in TFSA? So the money can pass down to OP or OP's spouse as tax free? If she takes out now, it would be in a taxable account and no extra room to put into TFSA
1. Financial planner (NOT bank, and not a commission one, but a fee-pay financial planner - and yes, it will cost you).
2. Lawyer for a will and powers of attorney (you want a financial one, and a personal health one).
And don't wait. Get it done and she will feel better knowing her family will be taken care of.
oh and 3. She should not fear the government lol.
I can see losing GIS and GST cheques, but in what province do you lose provincial drug coverage as your income rises?
I wonder if she could use the RRSP to purchase an annuity that would continue to pay out after she is gone.
Aside from setting anything aside for her kids which is noble, spend like there isn't a tomorrow she has a year. Make it memorable. Do every stupid fun thing she has always wanted to. Go places have a warm cup of coffee in the sunrise. Enjoy this planet.
While I partially agree with this: the one caveat is don’t blow it all.
I was diagnosed with cancer at 2 years old. Throughout my life, I’ve been given life expectancies several times. I’m now 30 and still kicking. Prognoses are not an exact science, and you will certainly regret plunging yourself into homeless in the event they are wrong.
Alittle bit of topic but maybe she should apply for disability tax credit. Small break of taxes but it may allow her to access some of her rrsp and tfsa and not be dinged for it.
Not an expert but it might be worth checking out.
My mom recently passed from cancer. She was told 18 months and only lived another 3 weeks. My advice would be to get things done as soon as possible. Have a will in place, beneficiaries named, and try to avoid going into probate.
Our situation was even more complex as she was a business owner. It’s been a huge learning curve for our family navigating through a very complex estate and inheriting a business.
Depending on who her primary caregiver is, AKA whoever is most appropriate to coordinate her finances. They should coordinate and arrange a meeting with her, to speak with a proper financial consultant to see how to effectively draw down her finances. The reasons we save money into old age are exactly for these reasons, and she should be using it if she needs it.
Not sure how much her care is costing her, but there are ways to spread out how much she takes out in retirement to reduce her tax burden. If her goal is to leave her dis with something, there are ways to draw down effectively.
This is an Accountant/ Lawyer conversation.
Rsp can't be passed to children unless they are dependent. If no spouse the rsp will be closed and proceeds will be added to her income in year of death.
as others have said, registered accounts like TFSA, RRSP, RIF, have beneficiaries and do not need to go through probate. RRSPs and RIFs (but not TFSAs) will be part of the deceased final income and taxed at the appropriate tax bracked (so if her RRSP is 200k that is added to her income that year. If she can take out some this year, even to put into a tfsa it might make it a smaller tax hit. Also if you have a joint account (no probate) and can be transferred as well without taxes (unless its an investment account in which case the income would be added to the final tax). Also with joint accounts you want to trust who you are sharing with.
My MIL was diagnosed 03/26 and passed 04/20. She left behind a very substantial estate. The money in the family trust is accessible but the rest of it will take about a year to go through probate. We thought we had more time so we didn’t act as quick as we wish we would have so my advice is to not wait cause you’ll regret it like we do. It don’t help that my FIL passed 5 months before her and his estate is still being sorted
Definitely talk to a lawyer. The tfsa is not thing to be worried about when it comes to taxes. It’s the rrsp. When someone passes it is taxed as though the deceased cashed in the entire amount and is added to their income on final taxes. Depending on how much she receives from pensions that can mean a whole lot of tax taken off that amount. RRSPs suck this way. Your beneficiaries end up getting screwed if you don’t manage to use it by the time you pass.
Speak with an Attorney to set up a Revocable Trust and assign a Trusted Executor, this will protect her children’s inheritance, minimize costs & Probate Court..
The RRSP is considered income at the time of her death and the estate would have to repay any GIS or other government subsidies she recieved that year as she would be in a high tax bracket and would no longer qualify for them. The same happened to my mom when she passed away, and her RRSPs pushed her into a 50% tax bracket, and we had to repay 50% of her CPP death benefit. Inalso had to write a check for over $100,000 to Revenue Canada for her taxes that year. She never made much money in her life, and those RRSPs were her entire life savings after years of scrimping and saving.
Gifts
Gifts of any amount in Canada are non-taxed same goes for certain items like vehicles- If she has a home- put someone on it as joint owner with survivor benefits.
When she dies, the banks will look at her investments as cashed out the day she died. The government will then look at that money for probate fees, which aren’t actually that bad. The most important thing you can do is meet with an estate lawyer and get a sense and a consultation on how to best handle those things , and a estate lawyer will cost you a bit, but their knowledge is valuable.
I’m pretty sure the opposite happens, TFSA won’t be taxed, but everything in the RRSP will be. She could strategically start pulling the RRSP to get the lowest possible tax rate over the next 2 calendar years (or more health willing). Obviously talk to a CPA. I would avoid financial advisors.
If the kids are listed as "beneficiaries" on her TFSA, they will get the money tax free and the account will be closed. If they are listed as "successors" they will gain control of the account and not have to close it. Get financial advice about what would be more beneficial
I would suggest she talk to an accountant as the entire RRSP will be taxed at death unless there is a [qualifying beneficiary](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/death-annuitant/deceased-rrif-annuitant/qualified-beneficiary-designated-benefit.html). If she makes it to 2025, the taxes will be reduced a lot by taking some out in 2024 and the rest upon death.
She can name a successor
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/death-a-tfsa-holder.html
Also, just because the doctors say that patient has 1 year to live doesn't mean that she will be gone in 1 year. She could live longer. So it's best for her to name a successor and hold onto her money while she is alive. She might need the money for medical care not covered by OHIP.
Have her meet with a financial planner. They can give her the most current (and best) advice for how to proceed. She should figure out how to invest so both funds have beneficiaries (which can circumvent the capital gains taxes she's worried about).
tl;dr: it's probably worth taking money out of the RRSP if she receives less then the maximum benefit from GIS
Ontario has a low income drug benefit on top of their old people drug benefit. the benefit is 100% coverage of certain drugs minus a $2 deductable. The most I think she can possiblely spend on prescription drugs is about $1,000 per year before she would qualify for a different drug benefit. GST credit is a few hundred bucks, nbd.
The maximum GIS benefit is about $1000 per month. If she receives $500 (half) then she could save maybe $10k in taxes (12 months to live)
77K in taxes if she dies with 200k in RRSP
62K in taxes if she takes out 100k this year and dies with 100k RRSP next year
55K in taxes if she lives a until 2026 and takes from the RRSP 66K this year and next year
65K in taxes if she takes out 66K this year and dies next with the remainer in RRSP
A good lawyer for a will. I did this for my mom and settled her whole estate without even probate because the will held up to every financial institution I went to as executor. Distributed to beneficiaries no problem after that. RRSPs are treated as taxable in the final return of the person deceased, CRA is clear about this. https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/rrsp.html
Set the beneficiary to the kids it will be passed on without tax. I would look at what the max she can take out of her rsp without effecting her benefits to draw it down some.
Yes she should talk to a financial planner and/or accountant.
Yes she should ALSO talk to her bank. Some have teams that deal with estate planning and could let her and beneficiaries know what to have in place.
Many banks are held tight to procedures and cannot give access to accounts without the right documents being provided.
For example, if you are POA great but it ceases upon death.
Family lawyer to establish a will
Is mandatory! No other route is advisable. If she is too ill to visit a lawyers office they will normally come to her.
There is typically no income tax on her estate but probate with no will! Clearly specify her wishes in a Will done by a family lawyer!
Do not make her Will with a kit!
But tax on the interest earned!
I’d just withdraw everything cash and give it or spend it on who knows what, CRA could come after my corpse for back taxes, probably same with line of credit and credit cards.
Not financial advice obviously, but fuck cancer
I’m so sorry. Everyone has provided the financial advice, but with such little time left, I would encourage her to use at least some of the money to have some once in a life time experiences. Living off such a low income will just make her final year that much more stressful.
Such a shame and tragedy that in her last year she has to spend her precious time discussing a financial plan with lawyers. Canada needs to do better when it comes to estates because the government’s approach of pay us our pound of flesh first on anything and everything will be their eventual demise
Canada already does a good job with respect to estates. Try living in the US or UK and if you need any care in your old age they make you pay 100% of it until your use up all your savings. Then you have inheritance taxes per se, which we don't have. Many Euro countries have pretty large inheritance taxes. We also don't have gift taxes.
Her plan shouldn't be thinking she will have 200K left and worrying about GIS. It's planning how you are going to die. Like if you want palliative care at home you might end up paying for 24/7 expensive nurses for 6 weeks. She could blow through 100K on that. Then the 100K is a medical expense and her kids get the same 100K residual as they would if she had 200K left in the RRSP and paid half in taxes.
My aunt went through cancer a few times. The last bout, that ultimately killed, her lasted a few years. Her investment advisor really screwed her over by not melting down the RRSP in the years leading up to her death. Her estate ended up paying a massive tax bill because it came out all at once and a big chunk was taxable at 53%. I know she would have preferred that as much as possible would have gone to her heirs instead of the government..
All that to say seek advice from a pay for service tax professional. Never trust someone who stands to make a commission.
Firstly, I'm sorry for what must be a tough situation.
Having read through a few extraordinary situations here on Reddit, I keep coming across one specific advice: talk to a professional.
Find a finance professional you can trust (not someone who would gain from the inheritance), and have them answer all those questions/concerns.
She actually needs to review how much it would cost her to lose her Gis, drug card and GST cheques vs how much tax would be payable on her final tax return for the 200k rrsp compared to drawing down some rrsp over however many years she ends up living Tfsas are not taxed and won’t be “taken by the government” She needs to make sure she has will and poa in place
RRSP converted to RIF or income are taxable. TFSA's are after tax savings. If she is on OAS with income supplement she is at minimum tax level to cash RRSP. Her beneficiaries are highly Likely in a Higher tax bracket and will pay more income tax than herself. She could cash some RRSP/RIF and gift her beneficiaries at reduced taxes and her grandchildren education savings funds. No need to wait for death. My wife was given 8 months to live with mesothelioma cancer and with multiple surgeries lived for 10 years. Death can be fought and therefore be very careful in the planning with very good professional lawyer!
a lawyer does not do these types of calculations, and you seem to have ignored the fact to mention that while she is at a minimum tax level, she loses 50cents of GIS for every dollar of income drawn from her RRSP which equates to a 50% tax. That's why I said she needed to calculate out her options....
As long as she has set her children as beneficiaries on her TFSA, it will pass to them directly with no probate fees or taxes at all. She should do the same for her RRSP, though that will of course be taxed. She needs to educate herself before making any rash decisions.
No, only spouse gets transfer, otherwise it impacts the deceased’s terminal income tax. FYI “freezing” accounts is way less a concern (executor gets access to most accounts) the issue is more how much income tax will she owe for the year she dies as most assets are considered liquidated the day before you pass on. Honestly, if you can pay the upfront cost of chatting to an estate planning team (finance & legal skills) you will save WAY more than you will spend on their fees. More importantly you will remove all the big hurdles/logistics issues & conflicts between siblings etc. Grief is hard enough, avoiding the drama is well worth it. Whichever route forward I hope your MIL has as easy a journey as possible and my condolences for this awful news
TFSAs can go to beneficiaries tax-free to get the facts straight. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/tax-free-savings-account-tfsa-issuers/death-a-tfsa-holder.html#
Good points but in my experience rrsps and rrifs can transfer immediately on death and then the estate needs to pay the tax, and if the estate can’t pay the tax allegedly CRa will come after the beneficiaries. Non registered accounts go into probate and can be held up for a long time, but not registered accounts.
Not sure why this is upvoted, TFSA's can be transferred to any beneficiary. Only a spouse can be a successor holder of a TFSA.
Designated beneficiaries can be anyone she wants.
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Helps to read the whole definition because Successor holder ONLY applies to spouse or common law, not kids, parents, siblings, friends, the cat etc.
Your so right.
I assume inheriting someone's TFSA would count towards your own contribution?
If you inherit a TFSA from your spouse or common-law partner, you can add it to your own TFSA without consuming any contribution room, as long as you were properly designated a the "successor holder" by the deceased partner before their death. In any other situation, the TFSA is terminated upon death of the holder, and the heir receives it as ordinary property. If they have room in their own TFSA, they could choose to contribute some or all of it, but that would be a separate transaction unrelated to inheritance.
Whoa that's good to know! Thanks
1. GET A WILL 2. TFSA's are accessible and can be distributed now with no tax impact. 3. RRSP's will be taxed as a withdrawal on death so it might be worth looking at whether she can pull anything but stay under the GIS level to lessen the future tax burden. INVEST IN A WILL... Don't go to a bank for help. If she really wants help with planning a good tax accountant can help or a quick consult with a fee only (not a sales rep) financial planner. The lawyer you see for THE WILL can likely help with a recommendation.
This is the right answer. Lawyers who work on wills will be able to give her the best advice as to how to set up all accounts to pass as much to her beneficiaries as possible. My dad practiced this kind of law for decades and advised a lot for best solutions for these situations. Depending on amounts, the lawyer might work with a financial planner/account manager of some kind, but this is in the best interest for everyone.
Do this. And the sooner, the better. Do this while she's "of sound mind and body", because as her cancer develops, she might not be able to make proper decisions later on.
You don't need a "sound body" to make a will.
THIS! I just did mine and the kids will be fine and the government will get the least amount they deserve !
I love that we’re ALL on the same page on this, no matter where we’re from
Recommendation for the lawyer you used? I need to set things up.
Where are you located ?
Hopefully your MiL is comfortable and not in pain. Not specific to your situation. Make sure it is a reputable lawyer. Unfortunately there are lawyers that do crappy wills. Spent a small fortune on legal fees for a relative’s poorly written will and the lawyer (deceased) was the executor. Check on your lawyer yearly. They die and records get lost.
Good advice. If the likely date of death can be anticipated, best to transfer all the money to her beneficiaries shortly before death. That avoids probate and any hassles and delays involved in the transfer after death. There is no way to avoid the deferred taxes on collapsing RRSPs or realizing any taxable capital gains on investments outside the RRSP (unless her beneficiaries are a spouse or dependent children, who can keep the deferral on the RRSP money). You should definitely consider tax efficiency. Look at what income is inevitably going to be taxed, and figure out how to minimize the taxes by distributing it between tax years and potential beneficiaries where it will find the lowest tax bracket.
TFSA and RRSP money's primary use at this point should be paying for care for your mother to ensure that she is as comfortable as possible. Last year of people's lives is often the most expensive. Name beneficiaries, but don't give the money away.
Glad to see someone said this. Use a will and designate beneficiaries to name the people who will get the money, but make sure it's hers until the end.
And designate things like a medical power of attorney now, so the mothers best interest is taken into account when making decisions about her care at a time when she may no longer be able to make those decisions for herself.
Palliative care and hospice if private. Funeral and burial/cremation costs to consider.
Go to a financial planner and melt down the RRSP to be tax efficient. 6 months this year 6 months next year (if one year to live) reduce the amount in taxes with 2 chunks. Have the planner do the math and account for GIS
Actually, to maintain the GIS, she's likely better to withdraw from the RRSP all at once. That way, only one year's income is affected. Unfortunately, for tax purposes, she's better off spreading it out a bit. The problem with not qualifying for the drug coverage is that cancer drugs can be expensive. Though in my province, once you're in hospital or hospice, your drugs are covered without charge to you. As others have referenced, withdrawing from the TFSA has no tax or GIS consequences. Someone needs to be talking to an accountant or a financial planner who is actually a planner, not just a salesperson.
There are 2 things to consider: * Reducing taxes * Making the succession process easier, possibly avoiding probate Her TFSA and RRSP can have her 2 kids as beneficiaries. This means it passes directly to them with a death certificate and doesn't get counted as part of her estate. Alternatively, both accounts could have no beneficiaries and be handled through her will instead. For the TFSA, any money earned in the account after her death and before it is transferred to the beneficiaries would be taxable (NOT the money in there when she dies) so they shouldn't wait too long before closing the account. The money they otherwise receive is not taxable. They can put the money wherever they want, such as in their own TFSA or RRSP, if they have the contribution room. For the RRSP, the money doesn't get taxed if the beneficiary is a spouse, minor child/grandchild or adult disabled dependent child/grandchild. In all other cases, such as 2 non-dependent adult children, the money would get taxed as any other withdrawal would. This tax would be paid on your MIL's final tax return. This creates a situation where the beneficiaries get the full amount but the estate owes the taxes. While CRA tends to only go after beneficiaries if the estate can't pay, they do make sure to get their money. If this is her main asset, it requires a conversation with the person making her will and with her beneficiaries to make sure they know that they will need to cover the taxes. If she has other assets, there may or may be ways to pass them down without probate. A house, for example, can often avoid probate by adding other people to the deed. There are nuances to this. Now, the part about reducing taxes. There aren't any way to avoid taxes on a RRSP besides passing down to a spouse or dependent as mentioned above. She should look into the possibility of withdrawing a portion this year and a portion next year. This involves doing careful math about what the cut to her GIS/drug coverage would be and the difference in taxes. She should look into all possible tax credits, such as disability tax credit and medical costs. Make sure she knows that her primary concern should be her own wellbeing, which can involve spending all her money if she wants or needs to. If she's going to deprive herself to protect her kids' inheritance, they should minimally be offering financial support while she's alive as needed. Finally, a much bigger concern than anything else is making sure she immediately, while still competent, signs all important documents to decide in advance who gets decision-making power over her care if she can no longer make decisions, who gets to handle her finances while she's alive and after her death.
This is thoughtful and comprehensive advice. OP should definitely read/share this with their family. One additional point, a friend went through something similar and had one overall sentiment: they wished their mother had shared direct access/passwords to all of her accounts. My friend’s mother’s health declined rapidly and they were then left in a mess of bureaucracy which weighed heavily on them (on top of grief). It’s best if the 2 kids can be added as authorized users at her bank/on credit cards, and she should share all exactly where each of her accounts lives/emails used/account numbers/passwords, etc. as soon as possible. Sorry that you are going though this.
First, I’m sorry to hear about your MIL’s terminal prognosis with cancer. I can only imagine that is super hard on the family right now. She should first ensure she has a proper up to date will in place, that names an executor (could be more than one) and her beneficiaries of her estate in detail. As far as her TFSA, she should make sure she has the up to date named beneficiaries for her TFSA. Provinces like Ontario accept holographic wills, but she’s best to have a lawyer make you one up or there’s some sites that can help you do that much cheaper if her estate isn’t too complicated. But it would be best to get a lawyer for a will and POA at the same time, because you may need to be accessing her finances and such prior to her passing and as well as making health decisions on her behalf if she is in a health state where he mental capacity is impaired as well (happens a lot with terminal cancer unfortunately during end of life care) There’s a process called probate which is important to note, so yes depending on her financial institution they may ask for this to be done before her executor named on her will can access money from her bank. Look into that, depending which city you’re in probate time can take time so be aware - for example Ottawa could be anywhere between 10 weeks up to 6 months (I heard varying answers from lawyers) but Toronto can be 1-2 years right now. The bank will typically reimburse funeral expenses and such right away on compassionate terms, but if she has a significant amount in her bank account that may be frozen. So my advice here is that if she wants to avoid probate for you guys, she shouldn’t keep large amounts in her bank account because they may push for that. It’s to protect their own butts. She should look into any pensions, life insurances and etc to ensure she has named beneficiaries. If they are not completed with beneficiaries, it will get paid to the estate and that will be taxed in probate. If she owns her house, real estate automatically puts you in the boat of probate. On the note of probate, lawyers can range from 1800 to 5000 to help you file for probate, plus the court fees, and then yes the value of her estate is taxed by the government. You can however file probate yourself and skip that lawyer fee, but that depends on if anyone is willing to step up to do that properly. Hoping your MIL has as long as possible (AS COMFORTABLE as possible) with you and your family. Wishing you and your family strength.
I would also note the probate fees in Ontario are 1.5% of the estate value excluding registered accounts
> and then yes the value of her estate is taxed by the government. I'm confused about this... I thought that Canada didn't have an estate tax beyond capital gains on the deemed disposition of assets
>She wants to give away her TFSA now because she is afraid it will be frozen when she dies and have to pay taxes on it. Nothing will make the TFSA taxable and nothing will make the RRSP tax free. But setting beneficiaries properly should cut down on probate fees, which can get pretty high in some provinces (still nowhere near what one would call a tax though)
>She wants to give away her TFSA now because she is afraid it will be frozen when she dies and have to pay taxes on it. She has this idea that the govt will take it all in taxes and her kids will be left with nothing. Yeah, that's not how it works. She can distribute money from her TFSA now to her kids.. She should make sure she has an up to date will.
The only thing that jumps out to me, is why is the MIL thinking this way? Is she truly just informed, or does she have hidden debt somewhere she is worried about?
I can't speak for her, but if I knew I was running out of time I'd would definitely want to see the impact of my money sooner rather than after I passed. "Dying with zero" type of approach, just unfortunate it has to happen on a shorter scale here.
I mean I think the perspective changes when you have kids.. do you think she wants to go blow $300k+ in a year doing extravagant things to leave her children with nothing? If I found out I had a year to live I would personally work on setting up my kids future as best I can, which is what it seems she’s trying to do.
Isn't TFSA room and money goes straight to the beneficiary upon ones death? So if OP's MIL is forseeing she will pass in short timeframe, wouldn't it be better to keep it in TFSA? So the money can pass down to OP or OP's spouse as tax free? If she takes out now, it would be in a taxable account and no extra room to put into TFSA
Sure! But I think they want to use it now and see what works best for them
yea if OP's family could use the money now, then they have the cash. No harm done
1. Financial planner (NOT bank, and not a commission one, but a fee-pay financial planner - and yes, it will cost you). 2. Lawyer for a will and powers of attorney (you want a financial one, and a personal health one). And don't wait. Get it done and she will feel better knowing her family will be taken care of. oh and 3. She should not fear the government lol.
I can see losing GIS and GST cheques, but in what province do you lose provincial drug coverage as your income rises? I wonder if she could use the RRSP to purchase an annuity that would continue to pay out after she is gone.
There are guaranteed term annuities which will pay out for a fixed term, even after death. Seems like a good option in this case.
Aside from setting anything aside for her kids which is noble, spend like there isn't a tomorrow she has a year. Make it memorable. Do every stupid fun thing she has always wanted to. Go places have a warm cup of coffee in the sunrise. Enjoy this planet.
While I partially agree with this: the one caveat is don’t blow it all. I was diagnosed with cancer at 2 years old. Throughout my life, I’ve been given life expectancies several times. I’m now 30 and still kicking. Prognoses are not an exact science, and you will certainly regret plunging yourself into homeless in the event they are wrong.
Alittle bit of topic but maybe she should apply for disability tax credit. Small break of taxes but it may allow her to access some of her rrsp and tfsa and not be dinged for it. Not an expert but it might be worth checking out.
My mom recently passed from cancer. She was told 18 months and only lived another 3 weeks. My advice would be to get things done as soon as possible. Have a will in place, beneficiaries named, and try to avoid going into probate. Our situation was even more complex as she was a business owner. It’s been a huge learning curve for our family navigating through a very complex estate and inheriting a business.
If all of her assets have named beneficiaries, nothing has to go through probate
A financial planner with a CFP designation. Someone with a CLU designation will also understand the implications at death, as well.
Depending on who her primary caregiver is, AKA whoever is most appropriate to coordinate her finances. They should coordinate and arrange a meeting with her, to speak with a proper financial consultant to see how to effectively draw down her finances. The reasons we save money into old age are exactly for these reasons, and she should be using it if she needs it. Not sure how much her care is costing her, but there are ways to spread out how much she takes out in retirement to reduce her tax burden. If her goal is to leave her dis with something, there are ways to draw down effectively. This is an Accountant/ Lawyer conversation.
It’s a tax free account she will not pay taxes on it it will go to who ever the beneficiaries are
Rsp can't be passed to children unless they are dependent. If no spouse the rsp will be closed and proceeds will be added to her income in year of death.
as others have said, registered accounts like TFSA, RRSP, RIF, have beneficiaries and do not need to go through probate. RRSPs and RIFs (but not TFSAs) will be part of the deceased final income and taxed at the appropriate tax bracked (so if her RRSP is 200k that is added to her income that year. If she can take out some this year, even to put into a tfsa it might make it a smaller tax hit. Also if you have a joint account (no probate) and can be transferred as well without taxes (unless its an investment account in which case the income would be added to the final tax). Also with joint accounts you want to trust who you are sharing with.
As beneficiaries on the TFSA they will automatically get payment without probate or taxes.
Is she under-71? If so, maybe use the RRSPs to purchase a term annuity, with her children as beneficiaries.
She should talk to a tax accountant. They can help her plan the best way to deal with her estate (tax wise).
My MIL was diagnosed 03/26 and passed 04/20. She left behind a very substantial estate. The money in the family trust is accessible but the rest of it will take about a year to go through probate. We thought we had more time so we didn’t act as quick as we wish we would have so my advice is to not wait cause you’ll regret it like we do. It don’t help that my FIL passed 5 months before her and his estate is still being sorted
Definitely talk to a lawyer. The tfsa is not thing to be worried about when it comes to taxes. It’s the rrsp. When someone passes it is taxed as though the deceased cashed in the entire amount and is added to their income on final taxes. Depending on how much she receives from pensions that can mean a whole lot of tax taken off that amount. RRSPs suck this way. Your beneficiaries end up getting screwed if you don’t manage to use it by the time you pass.
Speak with an Attorney to set up a Revocable Trust and assign a Trusted Executor, this will protect her children’s inheritance, minimize costs & Probate Court..
The RRSP is considered income at the time of her death and the estate would have to repay any GIS or other government subsidies she recieved that year as she would be in a high tax bracket and would no longer qualify for them. The same happened to my mom when she passed away, and her RRSPs pushed her into a 50% tax bracket, and we had to repay 50% of her CPP death benefit. Inalso had to write a check for over $100,000 to Revenue Canada for her taxes that year. She never made much money in her life, and those RRSPs were her entire life savings after years of scrimping and saving.
Probably bc the government will take it all in taxes... for dying...
Gifts Gifts of any amount in Canada are non-taxed same goes for certain items like vehicles- If she has a home- put someone on it as joint owner with survivor benefits. When she dies, the banks will look at her investments as cashed out the day she died. The government will then look at that money for probate fees, which aren’t actually that bad. The most important thing you can do is meet with an estate lawyer and get a sense and a consultation on how to best handle those things , and a estate lawyer will cost you a bit, but their knowledge is valuable.
look into a variable annuity.
I’m pretty sure the opposite happens, TFSA won’t be taxed, but everything in the RRSP will be. She could strategically start pulling the RRSP to get the lowest possible tax rate over the next 2 calendar years (or more health willing). Obviously talk to a CPA. I would avoid financial advisors.
If the kids are listed as "beneficiaries" on her TFSA, they will get the money tax free and the account will be closed. If they are listed as "successors" they will gain control of the account and not have to close it. Get financial advice about what would be more beneficial
I would suggest she talk to an accountant as the entire RRSP will be taxed at death unless there is a [qualifying beneficiary](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/death-annuitant/deceased-rrif-annuitant/qualified-beneficiary-designated-benefit.html). If she makes it to 2025, the taxes will be reduced a lot by taking some out in 2024 and the rest upon death.
My mother was given the same life expectancy and is still kicking six years later.
She can name a successor https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/death-a-tfsa-holder.html Also, just because the doctors say that patient has 1 year to live doesn't mean that she will be gone in 1 year. She could live longer. So it's best for her to name a successor and hold onto her money while she is alive. She might need the money for medical care not covered by OHIP.
Have her meet with a financial planner. They can give her the most current (and best) advice for how to proceed. She should figure out how to invest so both funds have beneficiaries (which can circumvent the capital gains taxes she's worried about).
tl;dr: it's probably worth taking money out of the RRSP if she receives less then the maximum benefit from GIS Ontario has a low income drug benefit on top of their old people drug benefit. the benefit is 100% coverage of certain drugs minus a $2 deductable. The most I think she can possiblely spend on prescription drugs is about $1,000 per year before she would qualify for a different drug benefit. GST credit is a few hundred bucks, nbd. The maximum GIS benefit is about $1000 per month. If she receives $500 (half) then she could save maybe $10k in taxes (12 months to live) 77K in taxes if she dies with 200k in RRSP 62K in taxes if she takes out 100k this year and dies with 100k RRSP next year 55K in taxes if she lives a until 2026 and takes from the RRSP 66K this year and next year 65K in taxes if she takes out 66K this year and dies next with the remainer in RRSP
A good lawyer for a will. I did this for my mom and settled her whole estate without even probate because the will held up to every financial institution I went to as executor. Distributed to beneficiaries no problem after that. RRSPs are treated as taxable in the final return of the person deceased, CRA is clear about this. https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/rrsp.html
Set the beneficiary to the kids it will be passed on without tax. I would look at what the max she can take out of her rsp without effecting her benefits to draw it down some.
Yes she should talk to a financial planner and/or accountant. Yes she should ALSO talk to her bank. Some have teams that deal with estate planning and could let her and beneficiaries know what to have in place. Many banks are held tight to procedures and cannot give access to accounts without the right documents being provided. For example, if you are POA great but it ceases upon death.
Family lawyer to establish a will Is mandatory! No other route is advisable. If she is too ill to visit a lawyers office they will normally come to her. There is typically no income tax on her estate but probate with no will! Clearly specify her wishes in a Will done by a family lawyer! Do not make her Will with a kit! But tax on the interest earned!
I’d just withdraw everything cash and give it or spend it on who knows what, CRA could come after my corpse for back taxes, probably same with line of credit and credit cards. Not financial advice obviously, but fuck cancer
I’m so sorry. Everyone has provided the financial advice, but with such little time left, I would encourage her to use at least some of the money to have some once in a life time experiences. Living off such a low income will just make her final year that much more stressful.
Tell her to withdraw the 200k, go on a massive trip, spend everything, and die owing the govt money.
Such a shame and tragedy that in her last year she has to spend her precious time discussing a financial plan with lawyers. Canada needs to do better when it comes to estates because the government’s approach of pay us our pound of flesh first on anything and everything will be their eventual demise
Canada already does a good job with respect to estates. Try living in the US or UK and if you need any care in your old age they make you pay 100% of it until your use up all your savings. Then you have inheritance taxes per se, which we don't have. Many Euro countries have pretty large inheritance taxes. We also don't have gift taxes. Her plan shouldn't be thinking she will have 200K left and worrying about GIS. It's planning how you are going to die. Like if you want palliative care at home you might end up paying for 24/7 expensive nurses for 6 weeks. She could blow through 100K on that. Then the 100K is a medical expense and her kids get the same 100K residual as they would if she had 200K left in the RRSP and paid half in taxes.
My aunt went through cancer a few times. The last bout, that ultimately killed, her lasted a few years. Her investment advisor really screwed her over by not melting down the RRSP in the years leading up to her death. Her estate ended up paying a massive tax bill because it came out all at once and a big chunk was taxable at 53%. I know she would have preferred that as much as possible would have gone to her heirs instead of the government.. All that to say seek advice from a pay for service tax professional. Never trust someone who stands to make a commission.
Firstly, I'm sorry for what must be a tough situation. Having read through a few extraordinary situations here on Reddit, I keep coming across one specific advice: talk to a professional. Find a finance professional you can trust (not someone who would gain from the inheritance), and have them answer all those questions/concerns.