The Tax Issue:
My Mom passed away very recently. She had indicated designated beneficiaries of her RRIF with varying percentages – none to the estate. One of these is her church, a charitable organization. My understanding is that I can not claim the RRIF amount to the charity as a charitable donation (because it has not passed through the estate), although I’m not sure exactly why.
No one seems to be able to answer this and, in fact, the whole income tax issue on RRIF’s at death was quite befuddling – with each person I asked (ie. financial planner, lawyer) pointing me in another direction 🙂
If you have any thoughts on this, could you please pass them along? Thanks.
Well, yes, the subject of RRIF’s on death is indeed befuddling, as I pointed out in a previous post, and I always get excited when a question begins with the phrase “no one seems to be able to answer this…”
There are two parts to the answer. The first is, who gets taxed on the proceeds from the RRIF? Upon death, the general rule is that the full amount coming out of the RRIF is taxable unless it qualifies for a rollover. The church is not a qualified beneficiary, so the full amount of the RRIF will be a taxable amount to be added to your Mom’s final tax return.
Next question: can the amount that goes to the church be claimed as a tax credit for gifts? Under rules that have existed since the olden days, a gift made to a registered charity by virtue of an individual’s will is deemed to be a gift made by the individual immediately prior to her death, and may be claimed on her final return. Your advisors are confused because the gift is a direct designation in the RRIF, and not made by virtue of the will.
We have come a long way since the olden days. In 2004, the law was amended to give similar treatment to gifts made as direct designations through a RRIF. The only stipulation is that the transfer of funds must occur with 36 months of death. Accordingly, although the RRIF is taxable in your Mom’s final return, her estate will also benefit from a corresponding tax credit for the gift made to the church.
The RRIF administrator should issue a T4A in the name of your mother for the full amount of the RRIF. The church should issue a charitable donation receipt to the estate for the amount it receives.