Q&A: Wants to collapse a RRIF
Question: My mother-in-law is in a nursing home and will remain there the rest of her life. She has a RRIF with a credit union in Ottawa in the amount of $25,000. The full amount is held in the account in the form a GIC for a three-year term which becomes renewable only on Dec. 30, 2009.
As there is a current urgent need for money to pay for the nursing home expenses, I have tried to cash in the full amount of her RRIF so the proceeds will cover her nursing home costs and other medical expenses. I have the Power of Attorney for property to handle her financial matters.
I attempted to have her total RRIF collapsed immediately and was told that this cannot be done and that she must keep all the funds in the RRIF until she dies. I advised the manager that they could withhold 30 per cent of the $25,000 as is required by law and release the balance and have it placed directly into the savings account that she also has at this credit union. They say that this cannot be done under any circumstances and that an individual has to in fact die prior to having a RRIF terminate.
Can you please let me know if they are correct in saying this? I was always under the impression that a RRIF is relatively similar to an RRSP in that they can be cashed out as long as the individual pays the required 30 per cent withholding taxes up front. – Ben S.
Gordon Pape answers: If you have not misinterpreted the credit union in some way, what they are telling you is nonsense. There are no limits on the maximum amount that can be withdrawn from a RRIF in any given year. If someone wants to collapse a plan and pay the taxes that will result, they are free to do so.
I find it hard to believe that the manager of the credit union could give you such incorrect advice so I suggest you go back and ask two questions.
1. Is this a RRIF or is it in fact a LIF (life income fund)? If the latter, then there are indeed limits on the amount that can be withdrawn each year. But even if that is the case, if the LIF comes under the jurisdiction of the Ontario government there are provisions for getting at some or all of the money which may apply here.
2. Is the manager referring to withdrawals from the RRIF or to the GIC that is the plan’s only asset? A GIC is normally locked in until maturity, although some financial institutions will make an exception in hardship situations on payment of an interest penalty.
Perhaps a further discussion that centres on those two points will enable you to reach a satisfactory resolution of this situation.
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