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Raekwon
03-19-2018, 10:53 AM
Looking for a definitive answer regarding Mutual Funds/ RRSP after death. I understand that when a person dies their funds are liquidated 1 min before death so Mutual Funds would be pulled out in full and transferred to the estate. In this example I will say this fund has no beneficiary and will go through probate and the estate will have to pay the taxes on the amount.

Everything correct so far?

My question is regarding the banks taking taxes prior to the transfer to the estate, I was under the impression that they sent the full amount and taxes would be paid from the estate when they were filled? Can they even take taxes off and why would they?

I'm sure I will have follow up questions ;)

Slava
03-19-2018, 12:10 PM
Well you have things basically correct in the first sentence, where there is a deemed disposition at death. So someone dies and has $100k in their RRSP and this is added to their income. If they passed away today for example, they would have whatever income they have for the year so far, plus that $100k for their 2018 income (and other things that could apply in their situation).

I think what you are talking about is withholding tax? If you were to withdraw money from the RRSP they hold back tax money upfront (10% under $5k, 20% between $5k-$15k and 30% over $15k essentially).

Raekwon
03-19-2018, 12:19 PM
Well you have things basically correct in the first sentence, where there is a deemed disposition at death. So someone dies and has $100k in their RRSP and this is added to their income. If they passed away today for example, they would have whatever income they have for the year so far, plus that $100k for their 2018 income (and other things that could apply in their situation).

I think what you are talking about is withholding tax? If you were to withdraw money from the RRSP they hold back tax money upfront (10% under $5k, 20% between $5k-$15k and 30% over $15k essentially).

The banks hold it back? I understand the heavy taxation on it but was under the impression that it was up to the estate to do the taxes and not the bank to withhold the money. If the banks do it they must provide a slip of some sort for taxes?

Edit: Also possible that I'm thinking of beneficiary payments on RRSP and the bank not holding back taxes.

Slava
03-19-2018, 12:30 PM
The banks hold it back? I understand the heavy taxation on it but was under the impression that it was up to the estate to do the taxes and not the bank to withhold the money. If the banks do it they must provide a slip of some sort for taxes?

Edit: Also possible that I'm thinking of beneficiary payments on RRSP and the bank not holding back taxes.

Well that tax is on withdrawals in general and the institution (bank or otherwise) has to hold it back. It's just not an option.

They do provide a tax slip because those are taxes paid and go to offset the bill when that date arrives.

There are things you can do to defer those taxes. Spousal rollover is the most common, because it goes to a spouse with no taxes incurred, but also things like dependant children (which could be adults if they are disabled or things like that). But the reality is that you would have to make those elections before death.