Q&A: Both parents passed away

Question: I am looking for advice in regards to RRIF and estate taxation. My father passed away Nov. 6, 2012 with a RRIF value of approximately $9,000 with a withdrawal of $2,000 for the year. My mother was named beneficiary.

Unfortunately, she passed away Dec. 15, 2012 with a RRIF value of approximately $23,000 with a withdrawal of $5,000 for the year. I am an only child and was named beneficiary of the RRIFs, trustee, and executor of estate.

Is there pension splitting in regards to RRIFs at death? Could I at least keep respective values of $9,000 and $23,000 for each of my father’s and mother’s personal income tax?

Also, I will have their personal residence for sale. Can this be dealt with on a separate tax report under my mom? – Sylvie S.

Gordon Pape answers: You will need to file separate final tax returns for your parents for the 2012 tax year. Based on the form T1032, Joint Election to Split Pension Income, it does not appear that the RRIF withdrawals are eligible for income splitting, as it requires that both spouses be Canadian residents and living together as of Dec. 31. However, I urge you to consult a tax professional for clarification on this.

Your mother would have inherited your father’s RRIF on a tax-free basis after he passed. When she died, the total amount in her RRIFs was deemed have been withdrawn for tax purposes and the value of the two plans must be included in her income in her final 2012 tax return.

As for the house sale, if it was their principal residence any capital gain is not taxable. But that only covers the period until your mother died and the home passed to you. If you do not make the house your principal residence and it appreciates in value before you sell it, that portion of the gain would be taxable in your hands. In this situation, it would be wise to have it appraised immediately to establish current value.

This is not a straightforward situation and there may be other complexities involved. I strongly suggest you should consult an accountant who is experienced in estate law to help with the preparation of their final tax returns.

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