Q&A: Estate dilemma
Question: I am a widow, age 62. I am employed and have an annual income of $50,000. I have two children who are the beneficiaries of my estate. I have about $200.000 in RRSPs and own a condo with no mortgage which is valued at approximately $250,000. Is there any way of avoiding estate taxes on the RRSPs upon my passing? I have no other investments. Would having a first right of survivorship help? – Marsha N.
Gordon Pape answers: First, let me clarify a point. There are no estate taxes in Canada. When you die, your RRSP will be cashed out for tax purposes and the total included in your final income tax return, which means it will be taxed at the applicable marginal rate. There is no way around this as long as the money remains in an RRSP (or RRIF).
Assuming you have no reason to anticipate dying any time soon, you may want to consider gradually drawing down the RRSP once you stop working and your employment income drops. At that point you will presumably be in a lower tax bracket so the government won’t take as much of your RRSP savings. You could then gift to your children whatever portion of the money you don’t need to live on. As long as they are adults, there are no tax consequences to doing that.