Transform the value of a Registered Investment into a TAX FREE payout to beneficiaries, guaranteed
Our RRSP Transformation strategy enables a client to exchange fully taxable income from his or her RRIF and instead, convert the capital amount of the account into a tax-free, probate-free bequest for any named beneficiary. Normally, owners of registered accounts pass any remaining assets to family members when they die. If a legal spouse receives these assets they are not taxable upon transfer to him or her, any income subsequently withdrawn is fully taxable, just as with any registered account. Most people have arranged their affairs so that registered assets eventually pass to their children. At that point, those assets are fully taxable to the estate and a large portion of the money, often half, disappears in tax. We can resolve this estate planning problem with the RRSP Transformation strategy.
Whether before or after age 72, and whether RRIF income has started or not, the owner of a registered account can guarantee that his or her beneficiaries receive the full value of his or her RRIF as a bequest, tax-free, upon his or her death. This bequest also bypasses probate, avoiding probate fees and facilitating privacy for the testator and beneficiary.
Who is it for?
This strategy is designed for individuals who:
- wish to ensure a guaranteed estate value for a named beneficiary without any tax deductions
- are ages 60yrs and older, in reasonable health, and are insurable
- who do not need the anticipated income from their RRSP/RRIF/LIRA/LIF because they have adequate income from other sources via pensions and/or other assets
- wish to bypass probate, and thereby obtain a cost, time and privacy advantage
How does it work?
Registered capital is used to fund a guaranteed life annuity. Then, the after-tax guaranteed payments from the guaranteed annuity is used to fund a fixed premium permanent life insurance policy. Upon death, the life insurance policy pays out its guaranteed face value to the named beneficiary (usually spouse or children, but any person or any organization can be named). In many cases, when running the numbers for an individual client, the bequest ends up to be even larger than the entire starting RRIF value. Once put in place, the outcome is known and guaranteed by the respective issuers.
If, for any reason, the client wants to unwind the arrangement in the future, such as in the case where he/she decides he/she requires his/her RRIF income, he/she can do so. Simply drop the life insurance policy and direct the guaranteed lifetime annuity income to the client to spend.
What’s an example?
A 71 year old client has a $1.4mm RRSP. The client also has more than adequate income from other sources, and placed her very close to the top income tax bracket. She was in standard health, which meant we could obtain a life insurance policy for her at standard rates. After converting her RRSP balance to a guaranteed life annuity, remitting the taxable portion of her annuity at her tax rate, we had sufficient remaining cash flow to secure a permanent life insurance policy for $1,825,910. All products used have fixed lifetime cash flows, so there are zero additional funding requirements to ensure this outcome.
The end result is that this client transformed a $1,400,000 RRIF, which would have been taxable to her estate, to a $1,825,910 tax-free immediate estate benefit for her children. The estate value is 30% higher than her RRSP capital and as much as 165% higher than if she had not implemented this solution, since the after-tax value of her RRSP would be $687,000 in year 1. We can easily demonstrate that this client is financially far better off with this strategy every year - from her present age to beyond age 100.
Let me see!
Ask for a complementary evaluation of the RRSP Transformation using your numbers by calling us at 416.849.6552 or via email at craig@csiccorp.com