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Overcoming the Tax Liability of Your RRSP/RRIF (RRSP/RRIF Conserver)

Description

RRSPs and RRIFs are taxable on death unless inherited by a spouse and transferred to a spouse’s plan. If single, or upon death of the surviving spouse, the estate must pay substantial tax (as much as 50%) before the assets are transferred to heirs. The RRSP/RRIF Conserver provides the funds to pay the tax, without depleting the value of the inheritance for the family.

Your client establishes an insurance policy with an insurance amount adequate to cover the projected tax payable on the RRSP/RRIF at life expectancy. The policy is to provide tax-free insurance proceeds to offset the tax liability. For a married or common-law couple, the plan is joint life, last to die, assuming that the surviving spouse inherits the deceased spouse’s RRSP/RRIF, and therefore the tax liability is at the death of surviving spouse. For a single client, a single life policy is established.

The recommended insurance plan is a Universal Life policy – increasing insurance pattern with level insurance costs. Premium deposit amounts are dependent upon client’s financial circumstances. It is recommended that premium deposits be completed before retirement age or as soon as possible (within 3 to 10 years). That way, your client can take advantage of the tax-preferred status of UL investments to pay the insurance cost on a before-tax basis. The insurance costs are withdrawn from the policy’s Account Value. The beneficiary options are payment directly to the heirs or to the deceased’s estate if needed to provide estate liquidity to pay the tax. However, insurance proceeds received by the estate are subject to provincial probate fees.

    Ideal Client
  • Making maximum RRSP contributions, no mortgage. Has additional funds to invest in tax-advantaged UL
  • Projected RRSP/RRIF at age 80 (life expectancy) will be at least $200,000
  • Anticipates that for retirement income, only the minimum RHIF payments are needed (other sources available)
    Suggested Approach
  • For a retired couple with substantial RRSPs/RRIFs:
    Are you aware that there is a very large tax liability building up in your estate? Did you know that the tax will be close to 50% of the value of your RRSPs? There is a way to solve this problem at a much lower cost.?
  • For a client making maximum RRSP contributions:
    RRSPs are an ideal way to save for retirement. However, are you aware that there is a very large tax liability building up in your estate? Did you know that the tax will be close to 50% of the value of your RRSPs? There is a way to solve this problem at a much lower cost.

For more information on how to personalize based on your own situation contact FSE Financial Group Broker at 403-253-7007

 
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