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

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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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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