Using your RRSP/RRIF in Planned Giving
Saving for your retirement through a Registered Retirement Savings Plan (RRSP) is one important component of a complete financial plan. Your plan should also consider what happens to your RRSP or RRIF (Registered Retirement Income Fund) when you pass away.
One common misperception people will express is this: “I thought my RRSP funds – or at least the accumulated interest earnings – were tax free!”
Upon your death, where a surviving spouse (or eligible dependent child) is not named as beneficiary, these registered assets are deemed to be disposed of and 100% of the balance is added to your income (in the year of death). The tax liability resulting from this disposition will be borne by your estate. If other income was earned prior to death, these registered assets could easily be subject to tax at the highest marginal tax rate (i.e. on a $400,000 RRSP or RRIF portfolio, approximately $200,000 in tax will be collected by Ottawa).
Wouldn’t you rather see a Christian schools benefit from what would otherwise be due in tax?
Features of RRSP/RRIF gifts:
- These are simple to arrange through a change in beneficiary (or alternate beneficiary)
- Such a gift is revocable – the donor retains the option to change who receives it
- This will generate generous tax credits for the donor’s estate
- An RRSP/RRIF gift is not subject to probate fees, if it is gifted outside of the will
How it works
For most donors, an RRSP or RRIF will add significantly to their income in the year of death. Since Canadians can now receive tax credits for charitable gifts of up to 100% of their income in the year of death (and retroactively to the year preceding), it often makes good estate planning sense to gift assets like these directly to the Foundation by naming it as a beneficiary (or alternate beneficiary) or by making this a specific bequest gift in your will. There are two basic ways to use your RRSP or RRIF to make a charitable gift.
- Name your estate the beneficiary of your RRSP or RRIF after your spouse (or eligible dependent child), and have the estate donate an equivalent value to the Foundation. Your will must include a specific bequest to the Foundation that is equal to the value of the RRSP or RRIF, either as a fixed dollar amount or as a percentage of the total estate. You may also gift the asset specifically by naming its account number and financial institution. If your spouse survives you, then the spouse’s will must provide for a similar bequest. A donation receipt will be issued to the estate to offset the taxable income from the registered funds.
Using this method, the asset is included in the estate and probate fees of approximately 2% are payable on the full amount. If you gift the asset specifically and subsequently change financial institutions but fail to update your will, the gift will not occur.
- Name the Foundation as the beneficiary (or alternate beneficiary) on your RRSP or RRIF documents with the financial institution. Upon your death, or that of your spouse, the Foundation receives the balance of the assets directly from the financial institution. The estate receives a tax receipt from the Foundation to offset the income taxes it will owe. Because the asset passes outside of the will (or estate), no probate fees are payable, resulting in further savings for the estate.
Using this method, the Foundation receives your gift in a timely fashion and as a result, your gift begins to benefit the school(s) almost immediately.
Gifting with an RRSP or RRIF comes with varying tax and estate planning implications. Before proceeding, please consult the Executive Vice-President of our Foundation and/or your own professional advisor.