Written by Glenn Stewardson, Financial Planning Advisor, Assante Capital Management Ltd.

This week I met with a widow who reminded me of the default planning advice to roll over the Registered Retirement Income Fund (RRIF) account to the surviving spouse with the tax-free rollover.  But, this may not always be the best option.

In one way rollover could make sense, but what if both spouses have RRIFs and pension income? The surviving spouse may now have a higher income, pushing up her tax bracket and causing her to pay even more taxes.

With a RRIF the government has allowed a spousal rollover to push the tax bill out to the surviving spouse’s death. We generally think this is a good idea as the investment assets in the RRIF account will continue to grow, tax-deferred.  The tax deferral needs to be dealt with on the second death.

One consideration is the taxable income splitting offered to couples.  It may make sense to add RRIF income to the deceased spouse’s final tax return to trigger taxes. This is money that can be reinvested in a non-RRIF investment account. This may also be a great year to be making charitable gifts which could reduce the taxes owing on the RRIF income on the final return.

This doesn’t have to be an all-or-nothing strategy. Maybe 50% of the RRIF is withdrawn and taxable and 50% is spousal rollover. It is important to discuss with a professional who has experience with estate planning. 

This is just one thing to consider for the surviving spouse. To avoid decision-making at a time of grief, these are plans that may be discussed prior to death in an Estate Plan. Several methods are available to manage RRSP and RRIF balances on the death of one spouse and there are other ways to minimize taxation on estate assets. We always work with you to determine which strategy best suits your situation.