Money Management Newsletter: Taxes
and Estate Matters
Exercise caution when trying to avoid probate
Since June 1, 1992 when
probate fees in Ontario were increased, we have noticed many clients taking
extra precautions registering the ownership on GICs
funds as well as designating beneficiaries
on their RRSPs
fees in Ontario are now $5 per $1,000 of estate
value for the first $55,000 and $15 per $1,000 thereafter with no
maximum. The former fee structure was limited to $5 per $1,000 of estate
Some cautions are in order however:
Ownership on GICs and mutual
funds are now more frequently made joint
with right of survivorship so that if one owner passes away, funds will
pass outside of probate to the remaining joint holders of the investment.
However, be aware that:
1. CDIC coverage combinations
with one institution will be reduced if all registrations are in the same
joint names (i.e. For two people, the limit would be $60,000 rather than
a possible $180,000).
2. Joint registrations, especially
with children will reduce flexibility and control of investments (i.e.
child falls out of favor; some companies want joint agreements signed
by all parties). Creditors of the joint holder can attack the joint holder's
share of the investment.
3. Ensure that proper income tax
reporting procedures are followed to avoid attribution problems.
With registered funds (RRSPs, RRIFs) naming a beneficiary
within the plan will allow proceeds to pass to the beneficiary, outside
of probate, upon the planholders demise. Be very cautious however, of
the potential income tax repercussions for your estate.
If the named beneficiary is a legal spouse, a tax free
rollover is permitted to an RRSP or RRIF in the beneficiaries name (there
are separate rules for dependent children). Probate is also bypassed.
If any other type of beneficiary is designated i.e.
a charity or non-legal spouse, funds will pass out of probate to the beneficiary,
however the estate will be left with the tax liability since a tax free
rollover is not permitted in his case. Tax liabilities can be as high
as 48% (in Ontario) of the RRSP or RRIF value with a maximum of 30% withheld
at source by a financial institution.
If the estate does not have any liquid
assets with which to pay the tax liability, the executors
and heirs may have to dispose of other assets such as the family home
to raise funds (the beneficiary may refuse to part with any of RRSP/RRIF
In situations where an individual wishes to pass registered
funds onto someone who is not eligible for a tax free rollover, it may
be prudent to name the estate as beneficiary and let the will provide
for fund allocation after all taxes and fees have been paid. Probate fees
will apply in this case but it may save a lot of grief for the heirs.
In all cases legal advice should be obtained when determining
registrations or beneficiaries.
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© , Fiscal Agents Money Management Newsletter
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