Many folks have been carefully investing their savings into RRSP plans for many years. The new challenge becomes to find a way to hold on to those assets when both spouses die. Upon your death the money in your RRSP or RRIF can be safely rolled to your spouse without triggering any tax. But generally when the second spouse dies the balance in the RRSP or RRIF is taxed as income in the year of death. That means just about half of the whole account goes to the taxman.
Lets make a few assumptions and look at an example.
They plan to make maximum contributions until age 69 and then convert to a RRIF withdrawing the minimum possible to keep income and taxes as low as possible. John dies first and Mary lives to age 85. John and Mary decided to give more to their children and less to the taxman. This concept can also be used to benefit your favourite charity if you have no children. It may be wise to do a little planning now to save a lot of tax later, and to put more money into the hands of those you really want to receive your money.