Turning 71 this year? If you’re converting your Registered Retirement Savings Plan to a Registered Retirement Income Fund, you may be wondering whether or not you have to name a new beneficiary. Mindi Banach, Tax and Estate Planner, TD Wealth, joins Kim Parlee to weigh in on this common topic and some of the options you may have.
* Today on Ask MoneyTalk, we're talking about RRIFs. So if you have a RRIF, you might want to listen. Mindi Banach, Tax and Estate Planner at TD Wealth, joins me now to weigh in on the question. Mindi, here it is. Do I need to name a new beneficiary when I convert my RRSP to a RRIF?
* The answer is, yes, you do need to update and name a new beneficiary to your RRIF. Unfortunately, there is no automatic transfer from an RRSP beneficiary to a RRIF beneficiary. If you do not update the beneficiary, then what ends up happening is that the default situation is that your estate is going to inherit your RRIF account. And what that means is, if you have a will, it will be the beneficiaries under your will. If you don't have a will, it'll be the beneficiaries under intestacy laws. Whether you have a will or not under those circumstances and because it's flowing into your will, you will have to go through the probate process, likely have to pay probate fees, which varies based on the province. I do want to let you know that when you do update the beneficiary designation, you can, in fact, name the same people or person that you named as your RRSP beneficiary. But again, you do need to update that beneficiary.
* I don't like the word "intestacy." Every time you say that, I'm like, I know that's bad. OK, so you do need to take action and name someone for the RRIF. The question is, what do you name them? Because I think there's a couple of choices here, right? There is a successor, excuse me, or a beneficiary. What are the differences?
* Yes, so with respect to a successor, the only person that you can name as the successor is a spouse or common law partner, whereas your beneficiary could be anyone, whether that's family, friends or charity. Now, again, there are some key other differences as well related to the management as well as taxes. If you are naming your spouse as the successor -- and with respect to the RRIF, it's actually called a successor annuitant. If you name them as your successor annuitant, there is not going to be any tax implication for your estate. However, if you name a beneficiary anyone other than a spouse, there will be a tax implication to your estate. It's actually an income tax inclusion that whatever remained in your RRIF account on the date of your passing will be includable as income on your final tax return. I do want to highlight that whether it is a successor annuitant or beneficiary, whether it is your spouse or anyone other than your spouse, the beneficiaries inherit the RRIF account tax free. It's your estate that pays the taxes if it's not distributed to a spouse.
* Got it. So having said that, though, we always finish this with what you need to do when this is happening, or discuss this with whom to help you navigate and make sure you get the intentions that you want to actually have happen?
* So I think the first step is really to go to the financial institution that holds your registered accounts. Oftentimes, financial institution, TD included, have created their own beneficiary designation form. So you can fill out their forms. Now, whether you should fill out the specific financial institution form, some other form, how you should fill out that form, who you should name on that form, that's where it's best to go to your lawyer, your accountant, and your financial advisor. They can provide invaluable guidance.
* Mindi, always a pleasure. Thank you.
* My pleasure.
* That is Mindi Banach, Tax and Estate Planner at TD Wealth. And if you have a question for Ask MoneyTalk, send it in to firstname.lastname@example.org.