| During a meeting with a new client this week, while completing her TFSA beneficiary form, she stopped to ask me what the difference was between her options to designate a beneficiary vs. a successor holder and while I was explaining, it dawned on me that you might all be interested to know as well because buried in the fine details of the of the application forms for TFSAs, RRSPs and RRIFs is an opportunity to help ensure those who you love more than the CRA are taken care of after you die.
Generally, in all provinces (except Quebec) you can name an individual (or individuals) as a beneficiary for a registered account right on the application form (you don’t have to, leaving it blank leaves it to your estate, which is then distributed by the instructions in your Will) but rushing through the forms, you may miss the small detail of designating a beneficiary vs. a successor holder – and depending on your status (married, common-law, single or widowed) this small detail could make a big difference.
Let’s dig a little deeper and focus on the TFSA; note that this may not apply directly to the RRSP & RRIF.
For your TFSA if you are single or widowed, anybody can be named as beneficiary – and this is your only option. So let’s say I am and I name my friend Jane as the beneficiary. The value of the plan at the time of death will go tax-free to Jane as cash (any growth in the TFSA from the date of death to the date of payout will be taxable to Jane). If Jane wants to shelter her inheritance from future taxes, she could contribute this money to her TFSA or RRSP (but only if she has room), otherwise she is left to invest it in a non-registered account (i.e. taxable) or spend it on avocado toast.
Now, if I am married or common-law, which I am, I can choose to name my husband Mark as either my beneficiary or as my successor holder. If I name Mark as beneficiary, he will receive the cash proceeds in the same way Jane did, however (and here’s the real benefit), if I name him as successor holder, he will receive the value of the account directly into his TFSA regardless of whether he has any contribution room. Pretty neat, huh?
Another type of successor holder you should know about …
While we’re on the topic of being tax efficient with our heirs, another new and attractive account we now have available at RBC Dominion Securities is the JGBRS Account – aka the “joint – gift of beneficial right of survivorship account”.
Like other joint accounts, it has multiple accountholders but what’s different and unique about this account is that one accountholder retains legal and beneficial ownership of the Account (and all its assets), while gifting only the beneficial entitlement to the right of survivorship of the Account to one or more additional accountholders (aka the successor accountholders). So, in other words, if you are the accountholder, you own and control the account during your lifetime (like any other account you have; the successor accountholder(s) have no interest, control or view of the assets) but at the time of your death, ownership of the Account and assets in it pass directly to the successor accountholders via the right of survivorship (and not under a will or other testamentary disposition). The Account and the assets in it need not be probated and will not be subject to probate fees. Even better, since the ownership of the account and assets remains with the Accountholder, there is no taxable disposition on the opening of the Account.
If you’d like to learn more about the JGBRS account or make sure you have your beneficiaries named in the best way for your registered accounts, feel free to give me a call anytime.
With so much going on and information coming at us from every angle, it's sometimes hard to keep your finger on the pulse of what's happening. In an effort to keep you in-the-know and provide you with some conversation nuggets for the weekend, I've compiled the following hit list to fill your conversation pipeline.
Now you are in-the-know with Word on the Street.
Enjoy the weekend,
D.
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