Q: I have been living common-law with my partner for nine years now. I have no income and am totally dependent on him financially. I have very small savings of under $3,000. My question is if he was to pass before me, is there a way that I would be able to draw from the estate while it is in probate to carry the bills and such? What would be the best course of action for me to ensure I can live comfortably if he passes?
A: Thanks for your question Liv. Closing an estate can be complex and it is good to start talking about this now so you have a plan in place. Access to funds, ease of transition, and taxation are all important factors to consider.
Keeping up with the bills
With regards to ensuring you can continue to pay the bills, bank accounts are frozen after death and converted to an estate account. If you are named as the executor of the estate you can draw on the bank account to pay expenses when you provide the necessary documentation, copies of bills, death certificate, a copy of the will etc. However, if you want to ensure there is no lapse in availability to pay the bills and with the most ease its best to set up a joint bank account where all your bills come out of. This way you will have access to the bank account without having to file anything.
Ease of transitioning funds
Adding beneficiaries on registered accounts can also ensure quick access to funds. You want to ensure you are listed as the beneficiary on all RRSP, LIRA or LRSP, and TFSA accounts. When a beneficiary is listed on the account having the funds transferred into your name is faster and you avoid probate. Generally, all you will need to provide is the death certificate and identification for yourself. This also applies to life insurance policies.
Taxation of an RRSP
Being the named beneficiary on an RRSP account can also have tax benefits. When the owner of an RRSP dies it is deemed that they have withdrawn their RRSP in the year of death. Therefore the whole amount would be taxable as income in that year. However, as a common law spouse, you are considered a “qualified beneficiary” therefore RRSPs can roll over to your name on a tax-deferred basis. If the estate is the beneficiary on an RRSP and then you are named the beneficiary in the will you can still use this advantage, however, the tax will be due and you will have to apply for a refund of the taxes with the CRA which will be a much longer process.
Taxation of a TFSA
For any TFSA accounts, you can be named as a “successor holder” being the common law spouse. This allows you roll over the TFSA into your name without the need for any TFSA room, ensuring that you will not be taxed on any future growth of the investments after death.
Lastly, you want to keep track of where all the investment accounts and insurance policies are. Sometimes accounts can be scattered all over. I’ve seen people with an RRSP in a group plan at work, and other RRSP accounts at three to four other institutions. The first step here would be to consolidate the accounts now so that investments are only held through work and maybe one other institution. Then create a log of where investments, bank accounts, and life insurance policies are held and who to contact. If you have an advisor talk to them about the “what ifs” and create a plan for transferring the funds. It is important to have those conversations with your advisor and your spouse before the unthinkable happens.
Andrew Fox is a certified financial planner with Fox Wealth Mangement in Calgary
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