RRSP - RRIF Legacy Plan

Wealthy clients usually have large sums in registered accounts, money they don’t need to pay bills. RRSP and RRIF funds are taxed at over 50% in Ontario.

A $2 million RRSP/RRIF is really worth only $920,000 to heirs. Consider donating all or part of your RRSP/RRIF to your own charitable fund and/or other charities and nothing to the tax department (CRA).

Case Study

Overview

Married business owner, age 70. $2 million of RRSP.

1.Withdrawals (or disposition at death) are taxed at 53.5%. Donations to charities generate 50% tax savings. Net out-of-pocket cost to donate a $2 million RRSP intact is 3.5%.

2.Normally, withdrawals of registered funds are subject to withholding tax of 30%. Arrange for CRA to waive withholding taxes at source. Financial institution transferred entire $2 million to the Donor Advised Fund (DAF).

3.DAF now has $2 million which can be distributed to any registered charities in Canada.

4.Structure a Joint and Last to Die (JLTD) 10-pay Life Insurance policy owned and paid for by the DAF, premium $100K/year. Death benefit at life expectancy, age 85, $2 million

Results

Client converted $2 million of taxable RRSP funds (worth only $920,000 to his family), creating a charitable family legacy of $3 million.

Cash surrender value (CSV) and dividends from insurance policy can be used

during donor’s lifetime to make additional tax-free gifts to charity.