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Discussion Starter #1
Hi there - I'm hoping someone can help me with an Estate related tax question.

An Aunt recently passed away and I've been named Executor. I've compiled a litst of assets and found that the majority of her savings were held in GICs but a portion of her estate consists of term deposits held as RRSPs.

I'm trying to get a handle on the value of the Estate after all expenses and taxes are paid. I understand that the 'Estate' will have to pay income taxes for the year, but am wondering if anyone knew roughly how much of the RRSP holdings would be lost to taxes as all the assets are liquidated and distributed as per my Aunt's will?
 

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Unless she has a spouse, I believe that her RRSP is completely collapsed and tax is paid by her on the total amount.
 

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If you are asking this question because you are considering distributing part of the assets BEFORE finalizing things - don't. Your role exposes you to all kinds of risks. Don't add to them.

There is no tax on the allocation of assets to beneficiaries. Nor is there any need to liquidate assets. The taxes will not be different. You can choose to leave the assets as (say) GICs and distribute the actual GIC.

Go the the issuer and find out how to transfer title. Find out from them if/how they allow estates to liquidate, and the the fees they would undoubtedly charge.

There are two personal tax returns to be completed. The 'normal' one for the year of death. And the extra one they allow for the wind up of the estate within a year. These are just like normal personal income tax returns.

You pay tax on what you would normally consider income (interest, dividends, capital gains, pensions, RRSP draws, etc). You also pay tax on unrealized gains in the values of assets. These are called deamed dispositions.

There is no market giving you a value for GICs and Term Deposits. I would think you are safe to to either value them at their face value if you distribute them 'in kind', or use the net cash received after the issuer allows you to cash them in.

If there is a capital loss created as a result of this process, you can apply that loss differently from what normal people can do. Someone should jump in here with the details. I am out of date.
 

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This is a situation in which professional tax advice is probably a really good idea.

In addition to the two returns which Leslie alluded to (the "normal" return and the final return), you can file a "rights and things" return which allows you to include the value of property (such as unmatured GICs) that a taxpayer owns on death and that would have been included in income if the taxpayer had survived to realize or dispose of these properties.

You would only do this if there is tax advantage to doing so. Here's the relevant CRA page.
 

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Steve41 had the right answer to your specific question, and leslie's observation about settling all the taxes before paying out anything to beneficiaries was wise. Assuming your aunt did not have a spouse who could be the designated successor account holder of the RRSP, the RRSP has to be collapsed, and the entire value is deemed to have been paid out to your aunt's estate for income tax purposes. You have to make sure the income taxes are paid before distributing it. It would also be part of her "estate" for purposes of assessing probate fees.

What I'm not too sure about is if she designated a beneficiary other than a spouse. I'm pretty sure the plan must still be collapsed, and Estate must pay income taxes on the "deemed withdrawal". But I think the assets would pass to the beneficiary outside of the estate, and not be subject to probate. That raises the question of what if estate doesn't have the money to pay the taxes. Does the institution levy witholding taxes, so beneficiary would not receive the entire amount anyway?

PS: according to a cautionary article I just found in the Financial Post the entire RRSP amount would pass to the beneficiary, but the estate is still left holding the bag for the taxes.
http://www.financialpost.com/personal-finance/tax-centre/story.html?id=269826
 

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but am wondering if anyone knew roughly how much of the RRSP holdings would be lost to taxes as all the assets ...

That would depend on her income tax bracket. Theoretically the plan is collapsed on the date of death, and the FMV at that time is RSP Income for the Final Return. Depending on the nature of the assets the financial institutions may not actually liquidate them until some time later, in which case any earnings (or capital losses) after the date of death are income and/or losses to the Estate, to be reported on an Estate (Trust) Return at a later time. If my recent experience with one chartered bank is indicative, the financial institution will be of no help whatsoever in separating what was earned before death and after - you will have to make your own estimate/calculation.
 

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Today in a Winnipeg Free Press article by David Christianson, a well-known financial planner in Manitoba, this topic is touched upon.

His article states that, "Beneficiary designations can be made so that the RRSP or RRIF avoids probate fees and passes directly to the beneficiary, though payment to anyone but a spouse (or a minor or disabled beneficiary) will result in the entire amount included in the terminal tax return of the deceased."

The entire article can be found at http://www.winnipegfreepress.com/business/time-to-take-a-look-at-changes-to-rrsp-rrif-rules-83013262.html. It's title "Time to Look at Changes to RRSP, RRIF Rules" covers a variety of issues.
 

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Discussion Starter #9
Thanks for all the replies - you've all provided valuable insight and things for me to consider.

Just to provide a few more details...her spouse pre-deceased her and she has no dependant children (i.e. RRSP is taxable). The registered portion of her holdings amount to approximately 25-30% of the Estate ($200k +/-). I do plan on getting professional tax advice and don't plan on making any distributions until all taxes are paid.

I'd like to get a ballpark estimate of the value of the Estate after all taxes are paid. Does anyone know how much of a $200k RRSP would be given back in taxes when collapsed?
 

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Here's a good tax calculator at the Earnst & Young web site:

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2009-Personal-Tax

How much she'll pay in taxes will depend on which province she lives in. For example, if she has a $200,000 net income in Manitoba she will pay $76,756 in income tax. In Ontario it would be $73,658 and in BC $68,669. Of course these amounts are just ballpark figures as per the calculator. The final figure may vary as she may have tax credits that she will be able to claim to reduce the income tax that needs to be paid.
 
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