Your Biggest Retirement Asset is Your Estate’s Biggest Liability

When I start working with a new couple in their early retirement years, I often find the same problem repeatedly. 

Overstuffed registered accounts like RRSPs and RRIFs. These accounts are one of the biggest liabilities for an estate strategy. Yes liability, not asset. 

Let’s explain it differently.

A married couple accumulates $400,000 each in their respective RRSPs. Combined they have $800,000 in registered assets. Going into retirement, their assets grow and they take out the required minimums from their RRIF.

Sadly, one partner dies. Their survivor spouse is the successor annuitant of their account and now their registered account has the $800,000. Shortly after, they also pass away and the account is still worth $800,000.

The four adult children are the beneficiaries of the estate, and they all assume their portion of the RRIF will be $200,000 each. Two plan to pay down their mortgages, the third wants to take a 25^th wedding anniversary cruise and the last one is going to be able to help their child with tuition for medical school.   

Or will they?

The $800,000 is 100% taxable income to the deceased on their final return. Therefore, 53.53% is going to be taxed away. Beneficiaries are shocked when $395,487 (approximately) is the income tax bill.

More pain comes, as the asset drops into the estate, so the pain is enhanced by another 1.5% tax applied by Ontario’s Ministry of Finance Estate Administration Tax (probate).

The inheritance dream bubble bursts as reality sets in that less than $100,000 is coming to each beneficiary. As the estate is in probate, it is expected to take upwards of 9 months to settle before assets transfer.

No one is happy.

When we work with retirees, we discuss how to restructure their accumulated savings. We show them how to set up their legacy so that it moves as tax efficiently as possible, without probate, directly into the hands of their beneficiaries.

This is how we make retirees happy. 

Wealth takes a lifetime to accumulate and when no one discusses the final estate plan, tax and probate will disintegrate a lifetime of smart financial decisions. 

At Tayler Insurance & Estate Planning we help grow your wealth, minimize taxes and plan to protect your legacy. Secure your financial future  contact us Tayler Insurance today.