Who pays tax on my dead mother’s RRSP withdrawal?

It may be possible to reverse a transfer of RRSP funds—but it won’t be easy

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From the December 2016 issue of the magazine.

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Q: My mother passed away recently and her RRSPs were transferred to my father. Can he choose to cash in a portion of mom’s RRSPs this year and have them taxed on her final tax return instead of claiming this withdrawal on his own 2016 tax return?

—Cate Morrissey, Dartmouth, N.S.

A: It is very difficult to put toothpaste back into the tube once you’ve squeezed it out. Unfortunately, the same goes for your ma’s RRSP, now that it has been transferred to your pa. Ron Graham, an Edmonton-based CFP, says that while it may be possible to reverse the transfer, “most RRSP trustees would be hesitant to undo something that has already been done.” I understand why the idea came up. In some cases, it would make sense to pay the tax on the RRSP from the deceased spouse’s final tax return, if the tax rate is lower than for the surviving spouse. Graham advises executors, “to understand that the deceased’s RRSP does not have to be transferred directly to the surviving spouse’s RRSP.” Instead, the RRSP assets can be deregistered and the after-tax amount paid to the designated beneficiary. Then that person could decide how much to contribute to his or her RRSP depending on their individual circumstances—how much contribution room they have left, the benefit of the tax deferral, and any need for the money in the short term. I would have a professional look at the numbers and see if the tax advantage of a do-over would be significant to your father. If you believe that it will be worth his time and energy, make the call to your financial institution and see if a reversal is possible. Recognize that the probability is low, but your persistence may pay off.

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2 comments on “Who pays tax on my dead mother’s RRSP withdrawal?

  1. I think the fiscal laws are secondary to civil and common laws. In Quebec where the protective civil laws exist, justice John Bishop ruled that if no specific will instruction was given in donating an RRSP to a spouse it is assumed that the expectation of a full roll over is what would be a protective measure for all. In some cases, the net after-tax amount left for the estate beneficiaries could be less than if the recipient of the RRSP paid taxes after the rollover. In fairness to the estate beneficiaries, civil law does not allow this and fiscal laws must follow suit.

    Reply

    • Michel:
      My Dad is is long term care, Mom has passed away, my sister and I are the beneficiaries and power of attorney. Is there any way to avoid the 40% tax on the RRSP prior to his death?

      Reply

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