Get Ready to Die: Beneficiary and Successor Account Holder Forms for your Online Brokerage Accounts

The best time to get ready to die is when your demise is still a long, long time in the future. So if you are young and healthy and life is good, now is the time to get some of your financial paper work in order. One of the best and simplest things to do is to designate who the beneficiary and successor holder should be for your RRSP, RRIF, LIRA, TFSA and other online brokerage accounts.

I’ve been twiddling my thumbs waiting to shuffle off this mortal coil and waiting for my RRSP money to transfer into my new RBC Direct Investing RRSP account, and wondering if I should take bets on which will happen first. (The money left ING Direct on November 7. It’s now November 13 and it’s still “in transit.” What did they send it by? Speedy Snail Delivery Service?)

While waiting, I printed, signed and mailed in the Standard Beneficiary Designation. I’ve already filed similar forms for our BMO InvestorLine and CIBC Investor’s Edge accounts.
In this article, I’ll show you where to find the forms online, after I’ve convinced you that this matters.

Why Should You Designate a Beneficiary for your Accounts? Do You Like Giving the Government Money?

If you designate a beneficiary for your RRSP or RRIF, when you die the assets will be paid out directly to your beneficiary. The money will not be included in the amount on which your estate has to pay probate fees. You (well, you’re dead, so it’s your estate or your heirs) will pay the government less of your hard-earned money.

In some cases, the money will also be allowed to remain tax-sheltered. For example, if I die, my husband will get to add my RRSP money to his own, without ever taking it out of the tax shelter because he is my designated beneficiary. That saves him paying a lot of tax. Instead, he will pay taxes gradually as he makes planned withdrawals from my RRSP in the future.

(Unfortunately, in other cases the money will have to come out of the RRSP and be taxed before going to the beneficiary. For example, if I designated my children as the beneficiaries for my RRSP, the RRSP would be collapsed and the funds taxed before the after-tax proceeds would be distributed. It still wouldn’t incur probate taxes though.)

Designate Your Spouse or Partner as Your Successor Holder for Your TFSA

TFSAs are quirky.

If you have a spouse or a common-law partner whom you have lived with for at least 3 years or with whom you have children, you should designate this spouse/partner as the Successor Holder to your TFSA. According to Gordon Pape’s book “How TFSAs Can Make You Rich” you can only designate this person as a Successor Holder. You can’t designate a friend or other relative.

The Successor Holder will receive the TFSA in kind. They will not have to collapse the plan. They will not have to take the investments out of the plan. They will not have to pay probate fees or taxes on the value of the plan. Any profits earned after the death of the original TFSA holder are still tax-free.

If you don’t have a spouse or partner, you should designate a Beneficiary.

Designating a TFSA Beneficiary ensures that probate fees and taxes are not payable on the value of the TFSA.

However, the Beneficiary of a TFSA can’t keep the plan. They have to take the investments out of the TFSA. Once out, they become regular non-registered investments and any gains or income the investments earn from then on are taxable.

The Beneficiary will also have to pay tax on any income, gains or dividends earned by the investments in the TFSA from the day the person died until the day they get them. So say it takes 6 months for the Beneficiary to actually get a TFSA full of stocks. They will owe capital gains tax and dividend tax on any gains and distributions the stocks make between the day of death and the day 6 months later when they get the stocks.

You can see that it’s good to be a Beneficiary of a TFSA, but it’s even better to be the Successor Holder. That’s why you should designate your spouse or partner the successor if possible.

There may be cases when you don’t want the money going to your spouse or partner. That’s different. In that case, designate a Beneficiary or describe what should be done in your will.

What about Non-Registered Investment Accounts?

There is no form to designate a beneficiary for a non-registered investment account. You can state what should be done with your account in your will. Your estate will have to pay taxes and probate fees on the value of the account.

Don’t Put This Stuff Off! Designate Your Beneficiary Now

According to the RBC DI website, a Power of Attorney does *NOT* have the right to designate a beneficiary. That should ring some warning bells. Don’t put off designating your beneficiaries. You don’t want to be disabled and unable to make your wishes known realizing that you’ve just ensured your heirs will have to hand a large chunk of money over to the government for no good reason. Do it now. Get it done.

Update Your Beneficiary When Your Life Changes

If you marry, divorce, change common law partners or are widowed, please remember to update your beneficiary designations. Lawyers see many nasty cases where the beneficiary was not updated with unexpected, sometimes even tragic, results. It usually takes less than an hour to get this paper work done. Find the time.

Imagine paying even $100 more tax than you have to. Isn’t it worth filling in this form for $100?

What If My Beneficiary Dies First? Using Contingent Beneficiaries

In general, if your beneficiary dies before you die, you should just update your beneficiary form with your new choice. However, because sometimes people forget or life happens, in some cases you can file a form with both your Beneficiary and the name of your Contingent Beneficiary. The account would go to the Beneficiary normally, but if the Beneficiary has died before you die, then it will go straight to the Contingent Beneficiary.

As a Distinct Society, Quebec is Always a Little Different

The rules for Beneficiaries and Successor Holders are a little different in Quebec. I’d suggest that you seek advice from your financial institution if you live in Quebec. I believe that you can only designate your beneficiary and successor in your will not by a form. However, I’m not a tax or financial expert so I recommend you speak to someone who is to find out the correct, current information.

To Find the Beneficiary and Successor Forms for RBC Direct Investing Brokerage Accounts

  1. Sign in to your RBC Direct Investing account/s.
  2. Click on the My Home tab.
  3. Click on the Forms link in the long list across the top of the screen under My Home.
    Way down in the grey Forms box, click on the link called: Beneficiary Designation
    A long list of links to forms will be displayed.
  4. The next step depends on the types of accounts you have
    • For RRSP, RRIF, LIF, PRIF, LIRA, LRIF, RLIF and RLSP accounts,
      If you want to designate one person as your Beneficiary, click on the link called: Designation of Beneficiary.
      If you want to designate more than one person, click on the link called: Designation of Multiple Beneficiaries
    • For TFSA accounts,
      if you want to designate a regular beneficiary, click on the link: Tax-Free Savings Account Beneficiary Designation
      If you want to designate a charitable corporation as the beneficiary, click on the link: TFSA Beneficiary Designation (for Charitable Corporations)

    (In all cases you will have to save the blank form to your computer or print it immediately.

  5. To end your online session, click on the Sign Out button.
    For added security, clear your browser’s cache and close your browser session.
  6. Open the form/s.
    Print the form/s.
    Complete the form/s.
    Generally you will need to report the name and address of the person who will be the Beneficiary or the Successor, and if you have it you can include their Social Insurance Number. Adding the SIN reduces the risk of a mistake being made if many people share the same name. (E.g. if your Beneficiary is John Smith or Mohammed Masoud.)
  7. If necessary, have your signature witnessed by an agent at the appropriate bank or financial institution. The RBC DI RRSP form does not require you to get an agent’s signature. They sign it when they receive it.
  8. Mail the completed form to RBC Direct Investing. They need an original with your signature for legal reasons.

To Find the Beneficiary and Successor Forms for BMO InvestorLine Brokerage Accounts

  1. Sign in to your InvestorLine account/s.
  2. Click on the Account Services tab.
  3. Click on the Forms link.
  4. Click on the tab for the first type of account you have. For example, click on
    • RSPs/RIFs
    • TFSAs
  5. For a RSP or RIF, click on the link called: Beneficiary Designation and Successor Annuitant Form (RSP/RIF)
  6. For TFSAs, click on the link called: Tax-Free Savings Account (TFSA) Successor Account Holder Appointment and/or Beneficiary Designation Form
  7. When you’ve printed your forms, click on the Sign Out button.
    For increased security clear your browser cache and close your browser session.
    Open the form/s.
  8. Print the form/s.
    Complete the form/s.
    You’ll need the name and address of the person who will be the Beneficiary or the Successor. If you include their Social Insurance Number you will reduce the risk of a mistake if many people share the same name. (E.g. if your Beneficiary is Cathy Smith or Fatima Khan.)
  9. Mail the completed form/s to BMO InvestorLine. They need an original with your signature for legal reasons.

To Find the Beneficiary and Successor Forms for CIBC Investor’s Edge Brokerage Accounts

  1. Sign on to your Investor’s Edge account/s.
  2. From the long list on the left side of the screen, click on the link called: Forms.
  3. Click on the tab: Registered Accounts.
    • For an RSP, click on the Registered Retirement Savings Plan (RRSP) PDF link. Section 8 of the form is the Designation of the Beneficiary.
    • For a TFSA, click on the Tax-Free Savings Account (TFSA) PDF link.  Section 6 of the form is the Designation of Successor Holder or other Beneficiary.
    • For a RIF, click on the Registered Retirement Income Fund (RRIF) PDF link. Section 8 of the form is the Designation of the Beneficiary.
    • For a LIRA, click on the Locked-In Retirement Account (LIRA) PDF link. Section 8 of the form is the Designation of the Beneficiary.
    • For a LIF, click on the LIF PDF link. [Don’t ask me why they didn’t type out Life Income Fund!] Section 8 of the form is the Designation of the Beneficiary.
    • There are quite a few themes are variations on the LIF. If applicable, click on the form for the kind you have. Chances are good it will be Section 8, but you can scroll through the form to find the correct section if it’s not.
  4. Click on the Sign Off button.
    For added security clear your browser cache and close your browser session.
  5. Print the required form.
    Complete and sign the form.
    Usually you will list the name and address of the Beneficiary or Successor. Including their Social Insurance Number will reduce the risk of a mistake if many people share the same name. (E.g. if your Beneficiary is Choudhary Singh.)
  6. Mail it to CIBC Investor’s Edge. Legally, they will need your original signature.

Give It Time Then Check Your Beneficiary and Successor Designations Are Correct

It’s a good idea to keep an eye on your statements to check whether the correct Beneficiary or Successor gets named. Papers get lost. Until you see it’s registered properly, keep an eye on this.

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Do you have your Beneficiaries and Successors up to date? Did you ever meet someone who suffered because they weren’t set up correctly? Please share your experiences with a comment.

Optimize Your RRSP: Contribute Now, Claim the Tax-Reducing Deduction Later

During RRSP season, from January to March, huge ads shout that we should contribute to our RRSPs and enjoy getting a big tax refund when we file our taxes in April. That message tightly connects those two events and many people think that’s how you must use a RRSP. It’s isn’t. Depending on what income you are earning and when, you may find the best way to optimize your RRSP is to contribute now but claim the deduction later to reduce your taxes and get a refund.

In this article, I briefly describe how to report your RRSP contribution and deduction information on your tax forms. Please double check your tax return with a tax professional or the CRA if you have any doubts. I am not a tax professional. I’m just a tax payer.

Why Do Banks Make It Sound Like You Have To Claim Your RRSP Deduction Immediately?

Banks understand what motivates people. Saving money for retirement 40 years in the future doesn’t sound very interesting. “Why bother?” many people might ask.

So the bank trumpets “Get your Tax Refund by contributing to your RRSP today!” They use delicious examples:

“Contribute $5000 to your retirement! Get $2500 of your own money back from the taxes you paid the government!”

(That example assumes you earn $200,000 a year in Nova Scotia but they only put that in the tiny print.)

People love tax refunds. Many use it to splurge on something like a new TV or a trip. The bank ads get them in the door to make their RRSP contribution.

How Do RRSP Contributions Work?

On your tax forms, there are actually 2 parts to your RRSP contribution.

First, you must report any money you contributed to your RRSP each tax year. It’s the law. You will get fined if you don’t.

Second, you must decide how much of that contribution to claim as a deduction.

The amount you claim is used to reduce your income for that tax year. Because your income is lowered, the amount of tax you owe is also lowered. If you have pre-paid your taxes by deductions from your pay cheques (which most of us have had to do) then you probably will get a tax refund because now your income is lower than what was used to calculate how much tax to pre-pay the government.

Most people think you must claim a deduction for the entire amount you contributed to your RRSP. That’s wrong. You can claim all, some or none of it. Any amount you don’t claim as a deduction one year is carried forward to the next year.

You won’t get any tax refund until you claim the tax deduction for the RRSP contribution.

How Long Can I Wait to Claim the Tax Deduction for my RRSP Contribution?

I’ve actually done this. There were some years when I knew I would get more tax refunded if I waited and claimed the deduction a few years after I made my RRSP contribution.

I knew I could carry forward the right to make a deduction for several years. Today, I phoned the Canada Revenue Agency to check how many years I could carry it forward.

The answer was it can be carried forward indefinitely. You could make a contribution this year, and report that contribution properly on your tax return for this year, but wait 5, 10, even 20 years to claim the tax deduction for that contribution.

Why Would I Want to Contribute to my RRSP If I’m Not Getting a Tax Refund Immediately?!

The money you contribute to your RRSP can be invested to start earning more money. Those investment earnings grow tax-free inside the RRSP.

I contributed to my RRSP before I wanted to get the tax refund so my investment earnings could grow a few more years tax-free than they would have if I’d waited and contributed to my RRSP the same year I wanted to claim the tax-reducing deduction.

Why Might It Be Best to Delay Claiming the Tax-Reducing RRSP Deduction Until Later?

If your income is significantly lower this year than it will be in a future year, you may get a larger tax refund if you wait to claim your RRSP deduction.

Here’s a few quick examples. Perhaps this year:

  • You are taking parental leave. Your income will be about 50% lower this year than next year.
  • You are currently unemployed and have been most of this year. But you’ve just landed a great high-paying job to start in January, so next year you’ll be in a high tax bracket.
  • You have lots of RRSP contribution room from working part-time as a student. You started your high-paying full-time job this September after graduating so you have money to invest in your RRSP, but your total income for this first part-year of work will be much lower than next year.
  • Or, you’re the same student, but you have enough tuition and other credits to apply that you won’t get as big a tax refund if you claim your RRSP deduction this year as you would if you delay it another 2 years.
  • Your base income this year and next will be very similar, but next year you know you are getting a huge cash bonus from RSUs that were granted years ago but don’t vest until next year. The bonus will move you way up into another tax bracket.

How Do I Know How Much I’ll Get Back? When Should I Claim the Deduction?

You can calculate an approximation of your RRSP tax refund for 2013 using a free online calculator from Ernst & Young LLP at http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-RRSP-Savings.

Try it for your current income level. Then play with it. What if you made $20,000 more a year? $40,000?

You probably have some idea what income you can expect in 5 years if everything goes well with your job.

Maybe it will only be 2% a year higher than what you are earning now. In that case, it’s unlikely to be worth delaying claiming the tax deduction. (Unless you are planning to withdraw the money under the Home Buyer’s Plan or Lifelong Learning Plan. I’ll explain this in another article.)

Maybe you expect to be earning 20% more than you are earning now. You may be a new hire in a field where the pay scale grows quickly as you get more experience, such as a doctor, lawyer or engineer. If so, it might be worth delaying claiming your tax refund.

Maybe you can expect to earn 50% more than you are earning now, because you are currently working part-time at a burger counter but you expect to land a professional job soon as you are upgrading your skills at night and continuing your post-grad job search.

Play with the numbers. If there isn’t going to be much difference between claiming the deduction now and later, go ahead and claim it now.

How Do I Report This On My Tax Forms?

To understand how to report delaying using your RRSP deduction on your tax forms, please see the article: “How to Report Your RRSP Contribution If You Don’t Want to Take the Tax Deduction Yet.”

Remember You MUST Claim Your RRSP Contribution the Year You Make It!

Please, please, please remember you MUST claim your RRSP contribution the year you make it when you file your tax return in April. You have to report it on Schedule 7 and attach your RRSP receipts to your return (if you are paper-filing; or keep them for 7 years if you are e-filing).

It is against the law not to report your RRSP contributions. You will face huge cash penalties if you put in money and don’t report it!

The government will know because your bank or financial institution will eventually file a report stating you have made your contribution. The government will decide you deliberately lied and cheated if you haven’t also reported the contribution and they will penalize you.

Disclaimer

Please remember I am not a tax specialist. I’m just a regular tax payer. Please talk to the CRA or a tax professional if you need any advice or help with this. I am not responsible for you reporting your taxes properly. This information is just intended to show you an option you may want to check out.

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Have you ever deferred taking the deduction for your RRSP contribution? Did you wait one year or more? Was it the right decision? Please share your experiences with a comment.