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Email this11:02 am
April 6, 2013
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Bill said
…
To me it's kind of the executor's job,…
I agree. Executor would have had the "big picture" and could have spotted the situation.
What did the executor have to say about the situation?
1:00 pm
April 6, 2013
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I think the role that the executor of the wife's estate in this is relevant as the timing of the events is unusual.
Wife made the $20,000 contribution to her RRSP in March 2020. She passed away before summer 2020 before earning any income for that $20,000 RRSP contribution to be used against.
It is now April 2021. Contents of her RRSP has been transferred to husband's RRSP, only about a year later. That's a really quick settlement of her estate.
I have doubts that probate was obtained, her 2020 tax return was done, and the CRA tax clearance certificate was obtained so quickly after she passed away.
I doubt CRA would issue a tax clearance involving tax year 2020 when CRA would not have even received uploads of the T3 slip, T4 slip, T5 slip, and TFSA transaction data from the financial institutions for year 2020 until early in 2021!
I think the executor needs to explain why registered accounts were being closed and funds were disbursed out of the estate before the estate's tax situation is finalized.
Had her RRSP accounts been left intact, one of the notices of assessment from CRA would show $20,000 of undeducted RRSP contributions. A $20,000 RRSP withdrawal could have been made to take advantage of that. Alternatively, a T3012A application could have been made to refund/undo that unused $20,000 contribution.
5:38 pm
October 27, 2013
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There is a lot that is still unknown here. Who is the executor of the wife's estate? Was surviving spouse beneficiary or successor annuitant on her RRSP? Those are two key facts I have not yet seen disclosed.
I note the OP says the financial advisor has 35 years experience but refers to the FA as 'his' FA, not necessarily that of his now deceased spouse. Were all of deceased spouse's financial assets, home and vehicle, where possible, in JTWROS accounts with the OP negating much in the way of what has to be probated.
IOW, it is entirely possible for the RRSP assets to have been passed quickly and/or without fuss to the OP if he was successor annuitant. Within a few months* actually, not a year later. With a copy of the Will and a death certificate, that would be enough for a FI to release/transfer the RRSP. The fact it took the FA (or Executor?) almost a year to do it is surprising to me.
Typically with a surviving spouse that is the other party to JTWROS accounts, few executors would feel a need to get a CRA tax clearance certificate. A Final T1 return could have been filed already (this month) along with a T3 Trust return. I filed both of these the first week of April 2016 for my mother who had passed away April 2015.
* My bro and I (as named beneficiaries) had the proceeds of our mother's registered assets distributed to us within 3 months of her death from her discount brokerage.
6:59 pm
April 6, 2013
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The problem with disbursing the RRSP's so quickly is that it is now impossible to refund/undo any undeducted RRSP contributions. As well, some tax planning opportunities are then gone.
For example, the personal amount is not prorated in year of death for people who were resident the entire part of the year they were alive. So, if the deceased had no significant other income, around $13,000 could be withdrawn from RRSP's and not attract any net income taxes. The RRSP beneficiary would then be given a $13,000-smaller direct RRSP transfer plus $13,000 outside free and clear.
I'm assuming that some kind of partial RRSP withdrawal could be done.
If that direct transfer from the wife's RRSP cannot be undone, then the unused $20,000 RRSP contribution deduction must be used somehow.
If there were any non-registered assets there were transferred at cost to the surviving husband, the estate could elect on the 2020 tax return to have some of them transferred at fair market value instead. That would result in taxable capital gains on the wife's final return. The unused RRSP deduction can then be applied.
Surviving husband could then have an adjusted cost of up to $20,000 / 50% = $40,000 higher on those assets. He would then have the equivalent of a $20,000 deduction later when he sells.
8:51 pm
April 23, 2021
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I was very surprised it took so long to process the transfer as she died at the beginning in July and he picked up the death certificate and a copy of the will within two weeks. It was the beginning of April before it was transferred. He handled all of my wife and myself RSSP and TFSA as well as some other investments i could not shelter and investments made with my companies excess funds. Since he charges me 1.25% of the total I hope he is offering advice for that amount. He email footer list himself as a Portfolio Manager with letters behind his name of CIM and CFP. I think at the very least i need to take a more active inveiglement in my investments. We maybe talk twice a year and then that is only at my assistance. He frequently cancels or moves around those calls. it almost like I am bothering him by asking to speak with him.
My wife had no other assets to transfer outside of her RRSP and TFSA accounts that were transferred in April. My accountant is going to be sending me copies of my and my wife returns Monday. I will post the net result based on his recommendations. I think i am screwed but i will let the group no either way. thank you for all your assistance.
12:33 am
November 18, 2017
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AltaRed: you say...
To add even more confusion which may no longer matter, one simply cannot give a spouse funds to contribute to their own RRSP and for them to take the deduction.
Is this true? I have always interpreted the rules as saying that, if the RRSP holder has the deposit room, and the cash, nobody at CRA cares where they got the money.
OR - are you intending to say "them" refers to the person giving the money taking the deduction? That is clearly not permitted.
For our original poster... RRSP eligibility is calculated on PREVIOUS years' income, so one can't make an RRSP contribution in the current year based on the current year's income (especially not projected income). It's past midnight, but I think I'm thinking clearly enough to wonder how such a contribution could have been made in the first place.
RetirEd
RetirEd
1:59 am
October 21, 2013
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It wasn't clear to me before, but now I understand that the FA and the accountant are two different people; and the accountant is the one who is the personal friend.
"CFP" means "Certified Financial Planner". This is a regulated profession (perhaps self-regulating; I'm not sure) which requires specific education, passing certification exams, and incurs responsibilities towards the clients. It's much more than a mutual funds salesperson. I am not familiar with all the details on this, but you should look up the rules that govern this profession. There will be a formal complaints process. You may with to consult a lawyer who specializes in such issues. Young professions like this are always trying to improve their credibility with the public, so should be concerned.
I think you need to bone up on this if you are to have any hope of recompense.
From my distant perspective, this is what I see:
1. inordinate and unexplained delay in RSP transfer of wife to you.
2. High expense fee, at 1.25%. I don't know how much money you have, but I wouldn't pay more than 1% personally if I were hiring such a person. Remember that most of what they do is boiler plate. He may have too many clients to give your file the attention it deserves, especially after 35 years! Such fees can be negotiated. Generally, the more money you have with this person, the lower the percentage fee should be. Since you name a number of kinds of investments, I suspect you could get a better rate, but it does depend on amount. Certainly if you have a million invested, you shouldn't pay more than 1% in my opinion. Others may have a different opinion.
3. While I can't speak for the standards of the profession, I think a reasonable person would expect that someone who is a professional financial planner ought to know enough to consider whether the RSP contribution of a deceased person is a match for that person's income and thus deductible. While this may be an unusual situation, it is not unheard-of if it is your business to know such things, to notice what the client may not notice. Similarly, there are many people who contribute to RSPs relatively early in life with the intention of taking the deduction later when their income is higher, as a matter of financial planning strategy - which their CFP may have actually recommended. It follows that if someone using this strategy dies before taking the deduction, the financial planner needs to be on the ball and know what to do about it.
I believe that instead of transferring the RSP to you, the FA should have recommended simply cashing it in. No deduction, and no tax (because it was money she already had; no income earned). Whose idea was it by the way, to make that contribution early in the year? I'm guessing it was the FA's idea. I hear that you don't think it makes a difference as he has control of all the money anyway, but it would have made a difference if your wife had lived. Deferred tax is money he can invest ad make a profit on, and that is one of the reasons these guys love RSPs, the sooner the better; and they know you are not too likely to withdraw it so they will have it a long time. I would say he did not act in your best interests.
I can't say whether he owes you legally because I simply don't know enough about the standards of the profession, but he owes you morally. He was in charge of the planning and he ought to have foreseen this issue. He failed . You might be able to negotiate a settlement with him, perhaps no fees for the next year or something like that if not cash in hand. I would think he would rather settle with you than have you take a legal route.
Are you the executor? Even if you are, you have relied on another professional to assist you, so that person is responsible for their actions. Did you involve a lawyer in dealing with the estate?
I think you should get your ducks lined up and then have a conversation with him. He's not going to do anything for you if you don't ask.
And, for the future, don't EVER put your money into the hands of someone whose qualifications you don't understand again.
2:36 am
October 21, 2013
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Another thought just crept out from the far recesses of my brain.
I am pretty sure that there is a form you can fill out at the time when you do cash out of an RSP for any funds on which tax was previously paid (i.e. she would have at some point paid tax on that 20K unless it was an inheritance or somehow not subject to tax).
Perhaps someone else has mentioned this. I did not read the entirety of above posts. If not, perhaps Bill or Norman can check. My vision is not so great and it is a burden for me to look such things up quite often.
You would have to keep careful track of that contribution and her older tax returns in order to make this claim if I am right. I don't think there is a time limit on it as to when you cash it in. You may need or want to keep it separate though. Any money that it earns would still be subject to tax; it's just the investment that would be protected.
If you get a good rep at CRA, they may be able to direct you on this, if I'm right. But sometimes they don't know. For example, you will find it written all over the place (and in phone calls to CRA) that, once you set up "pension sharing" for CPP, that it can't be undone, but this is not true. There is a form where you can apply to have it undone if there is a reason to do so. Something similar may apply to this. Maybe your accountant would know if you prodded him.
I hope I'm right, but I do recall reading about this a long time ago.
3:40 am
April 23, 2021
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Quote
To add even more confusion which may no longer matter, one simply cannot give a spouse funds to contribute to their own RRSP and for them to take the deduction.
Is this true? I have always interpreted the rules as saying that, if the RRSP holder has the deposit room, and the cash, nobody at CRA cares where they got the money.
For our original poster... RRSP eligibility is calculated on PREVIOUS years' income, so one can't make an RRSP contribution in the current year bases on the current year's income (especially not projected income). It's past midnight, but I think I'm thinking clearly enough to wonder how such a contribution could have been made in the first place.
Just to clear about this as it has been mentioned multiple times.
My wife had her own income (and bank account). it was here income that was deposited into her RRSP. she had contribution room from previous years.
Also I am thinking it might be prudent to not file her 2020 tax return by the April 30th due date until we have explored all avenues available to us.
3:42 am
April 23, 2021
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I also wonder in the 2020 return will be her final return as on Dec 31st the RRSP and TFSA were in her name? They were name transferred to me until the 2021 tax year.
6:03 am
September 11, 2013
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Your wife's final return will include the period up to date of death, if there is further taxable income after that date earned by the estate you'll need to get a trust account number and file a T3 return for the subsequent estate period. You'll have to decide if you want to file late or file on time and amend later if necessary. Amending previously assessed returns is not a big deal usually.
Who is the executor?
7:41 am
April 6, 2013
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One should not take it for granted that CRA will allow amendment.
CRA will allow previous returns to be amended because of error. But, they have been known to reject amendments that look like retroactive tax planning.
As Bill mentioned, there will be another return because her RRSP was not closed until 2021. Return will not be for her personally but for her estate.
As well, you'll be receiving a T4RSP slip for 2021 with a Box 18 (refund of premiums) amount that you need to report on line 12900 of your 2021 return as income from an unmatured RRSP.
It would be desirable for this to apply for $20,000 of her RRSP:
Generally, the CRA considers a deceased annuitant to have received, immediately before death, an amount equal to the fair market value (FMV) of all the property of the unmatured plan at the time of death. The FMV of the property is shown in box 34 of the T4RSP slip issued to the deceased annuitant. You have to include this amount in the deceased's income for the year of death.
But, this happened:
If all of the property held in the RRSP is to be paid to the surviving spouse or common-law partner, and that payment is directly transferred to their RRSP, RRIF, or to an issuer to buy the surviving spouse or common-law partner an eligible annuity (as specified in the RRSP contract) before the end of the year following the year of death, a T4RSP slip will not be issued in the deceased's name. In this case, the surviving spouse or common-law partner has to report the payment on their return and claim a deduction equal to the amount transferred.
That delay may be an opportunity! Her RRSP trust was still in place at the end of tax year 2020 and the RRSP trustee has not filed the paperwork with CRA to close the trust in 2020 because it was not closed in 2020. There is a chance that the transfer could be annulled as an error correction.
The delay may also allow for this:
Sometimes there is an increase in the value of an RRSP between the date of death and the date of final distribution to the beneficiary or estate. This amount has to be included in the income of the beneficiary or the estate for the year it is received. A T4RSP slip will be issued for this amount. For more information, see Chart 6 - Amounts from a deceased annuitant's RRSP, in Chapter 5 of Guide T4040, RRSPs and Other Registered Plans for Retirement.
Could there have been an increase in the value of her RRSP between her death in July 2020 and transfer to your RRSP in April 2021 that could somehow be included in the income of her estate for 2021? If so, maybe her estate can use some of that unused $20,000 RRSP deduction in 2021. Your accountant can probably answer that.
8:14 am
October 27, 2013
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In this case, the now deceased wife made a contribution to her own RRSP early in the year based on contribution room that would have been in her NOA, in anticipation of earning income later in 2020. Investors often do that based on getting an early start on having invested funds earning tax deferred income as early as possible based on certainty they will have plenty of income later that year to 'implement' a deduction on that contribution. In any event, we know what has happened in this case. We just don't know why this 'uncovered' situation was not caught and reversed out OR why $20k in RRSP holdings were not withdrawn (per Loonie's suggestion) to create income to offset that contribution, neutralizing the unused deduction.
We still do not know who the executor is, e.g. surviving spouse, accountant or FA and who dropped the ball with respect to the wife's accounts.
As others have alluded too, the Final T1 return covering the period up to date of death is due for filing in a few days. A T3 trust return will also need to be filed if there is any taxable income earned by the wife's estate (non-registered bank and investment accounts) since date of death. Late filings are frowned on by the CRA.
It is also still not clear to me whether the RRSP and TFSA had the surviving spouse as beneficiary/successor holder (annuitant). It normally would never take a full year for a financial institution to roll those over to a surviving spouse. In either case, now that they have been rolled over, I don't think there is any way to 'unwind' at least $20k of the RRSP and date it to pre-Dec 31 2020 to get sufficient taxable income in the Final T1 return to offset the deduction. Beyond my pay grade though.
5:31 pm
October 21, 2013
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FWIW, I believe that one has to contribute one's own money to RSP but either spouse can provide the funds for TFSAs. The mechanism for contributing to spouse's RSP is a "spousal RSP", which has its own rules.
However, I don't think it matters that much, especially at this stage. It would be difficult to trace in many cases anyway.
If you are thinking of delaying submission of your wife's tax return until after April 30, you should perhaps ask your accountant if it is wise. Also, accountants typically take vacation time in first part of May and may be unavailable then.
Further to my previous comments about the manoeuvre of deferring RSP contribution deductions years down the road, here is an article which discusses it. https://www.cbc.ca/news/business/taxes/tax-time-2015-6-ways-that-deferring-tax-credits-deductions-can-pay-off-1.1204898 It's a few years old but I don't think it's out of date.
I find it hard to imagine that, after 35 years of practice, the FA has never heard of a case where someone was unable to take the deduction because they had died prematurely. I think he should have been prepared for this possibility and dealt with it. If there truly is no remedy, which I doubt, then clients should have been warned of this possibility before they contributed.
The principle of double taxation is not one that I believe is accepted, but i am not knowledgeable enough to point to chapter and verse on that.
@AltaRed, I think we have to assume that the spouse was designated as a successor beneficiary either at the FI or in the will. Otherwise, I don't think it could have been transferred to spouse's RSP. However, if it was only designated through the will and not through the FI, this could conceivably account for the delay as they may have had to wait for probate and/or authorization from a head office somewhere. Of course, a responsible financial planner would have discussed the advisability of designating the beneficiary appropriately when the plan was opened and would have documented this and also documented the response of the client, especially if they chose not to make a designation - along with their reason(s). At least, I would have! Since the wife obviously intended the husband to have the proceeds one way or another, it makes no sense not to have a designation.
6:01 pm
September 11, 2013
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Can be transferred to surviving spouse's RRSP, per CRA, as long as "both the following conditions are met:
the spouse or common-law partner is designated in the RRSP contract or the will as the sole beneficiary of the RRSP,
by December 31 of the year following the year of death, all the RRSP property is directly transferred to a registered retirement savings plan (RRSP).......under which the spouse or common-law partner is the annuitant/member......."
And if you've got contribution room you can contribute to your own RRSP, makes no difference how you came up with the money.
9:40 pm
April 6, 2013
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That's for a direct transfer to the RRSP of a qualified beneficiary.
It looks like an indirect transfer can also be done, according to Amounts paid from an RRSP or RRIF upon the death of an annuitant:
Amounts paid from an RRSP or RRIF upon the death of an annuitant
Amounts received as a refund of premiums can be transferred directly or indirectly to your RRSP, or a RRIF, a PRPP, a SPP or to buy yourself an eligible annuity if you were a qualified beneficiary of the deceased annuitant.
…
RRSP funds would move through the estate. Then, a joint filing of form T2019 is made by the estate and the qualified beneficiary. From the back of the form:
Use this form when payments from a deceased annuitant's RRSP are paid to the annuitant's estate and a qualifying survivor is a beneficiary of the estate. The deceased annuitant's legal representative and the qualifying survivor can jointly file this form to designate all or part of the amounts the annuitant's estate received from the RRSP to have been received by the qualifying survivor as a refund of premiums.
If filed, this election allows both the following:
- the annuitant's legal representative to reduce, up to the amount allowed by subsection 146(8.9) for RRSP's, the amount the annuitant is considered to have received from the RRSP at the time of death and;
- the qualifying survivor to transfer the payments to an eligible plan or fund, or to an issuer to buy an eligible annuity
Fill out a separate form for each RRSP of the deceased, for each year for which payments are made out of the plan to the annuitant's estate and qualifying survivor.
The indirect T2019 method could have allowed $20,000 of the RRSP to be received by the deceased at time of death to make use of the unused $20,000 RRSP deduction. Perhaps, up to another $13,000 of the RRSP to fully make use of the deceased's basic personal amount.
5:45 am
September 11, 2013
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CRA says "If the beneficiary is designated in the RRSP contract or the will and you are satisfied that the designation is valid under applicable succession law, the amounts are to be paid to that person.......If there is no designation of a beneficiary, or the designation is not valid, you make the payout to the estate."
I'm not sure there are options, RRSP contract designated beneficiaries' amounts can't go into the estate, no?
7:17 am
April 6, 2013
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It is a beneficiary designation and not a joint tenant or tenant-in-common situation. Consequently, it is a bequest and the beneficiary can vary where the funds goes.
It seems to be that's what commonly happens. Wife may have designated her husband, not one of the husband's RRSP trusts, as the beneficiary on the RRSP. After her death, husband directs the RRSP trustee to send the funds directly to one of his RRSP trusts instead of receiving a cheque.
I think it is possible for the RRSP beneficiary to come to an agreement with the estate to have the funds go through the estate instead.
7:28 am
April 23, 2021
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I just want to be clear that the problem is not the transfer of funds in any way. The problem is utilizing the Tax relief portion of the transaction. So right now I have $20,000 in RRSP transferred to my RRSP account from my wife's.
We paid 40% tax on the original income. We did not apply it against my wife's income because there was not income in 2020. It is now sitting in my RRSP and when i take it out it will be taxed again. So double tax but no relief is what I am thinking.
7:42 am
April 6, 2013
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TJS96 said
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We paid 40% tax on the original income. We did not apply it against my wife's income because there was not income in 2020. It is now sitting in my RRSP and when i take it out it will be taxed again. So double tax but no relief is what I am thinking.
Double taxation is definitely going to be the case if that direct transfer cannot be undone.
I don't see an obvious way for her unused $20,000 RRSP contribution deduction to be used by someone else.
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