Adding Investment Accounts
Investment account asset types behave a bit differently than other asset types. There is a two-step process to creating an investment account. The second step is optional but highly recommended to provide an accurate picture for accounting purposes.
1. Adding the holding account
Begin by adding an asset of the type Investment Account (or Deceased Investment Account, in the case of an estate) to the Inventory. Enter the following details:
- (Estates only) Date of death value
- Current value
- Ownership (and, if jointly owned, ownership percentage)
- Purchase price (optional)
- Account type (chequing, savings, etc.)
- Holding institution
- Branch details of the holding institution (optional)
- (Estates only) Indicate whether the item passes through or outside of the estate
- (Estates only) Indicate whether the account has been bequeathed to a specific beneficiary/beneficiaries
- Save the account.
2. Adding the holding
Once the Investment Account is created, you can click on the three-dot menu next to the entry, and choose "View holdings" in the drop-down list.
Then, on the top-right corner of the page, click the Add Holdings button.
You can select from the following asset classes:
- Accrued interest
- Guaranteed Investment Certificates
- Mutual funds
Based on the asset class you choose, you can enter related details about the holding.
Additionally, for relevant asset classes, you can leverage Estateably's live ticker search by searching for the ticker symbol and selecting it in the drop-down list. It will automatically populate the date of death price (in the case of an estate), the current price, and will calculate the relevant conversions if necessary.
Note: If you have already associated a value to the account, the moment you add a single holding to the account, that initial “container” level value will be overwritten by the value of that newly added holding.
The purpose for this logic is to provide trustees/executors/beneficiaries/3rd parties with an accurate picture of the account holdings.
General information for estates
Several rules apply to the deceased's investment accounts. Some may be transferred directly to a beneficiary (excluding them from the final Inventory), while others must be liquidated or included in the estate, with possible tax implications.
These account types include:
RRSP - Registered Retirement Savings Plan
LIF - Life Income Fund
TFSA - Tax-Free Savings Account
LIRA - Locked-In Retirement Account
RRIF - Registered Retirement Income Fund
RDSP - Registered Disability Savings Plan
RESP - Registered Education Savings Plan
DPSP - Deferred Profit Sharing Plan
Registered Retirement Savings Plan (RRSP)
How an RRSP is handled will depend mainly on whether the RRSP account had matured or not (ie, whether it was paying retirement income) and on whether the deceased named their surviving spouse as the beneficiary of the account. Note that for these federal saving plans, common-law partners have the same rights as a spouse from a marriage or civil union.
1. Matured RRSP (paying retirement income)
- If the surviving spouse is named the beneficiary of the RRSP in the RRSP contract, the annuity payments become payable directly to the spouse. If the spouse is the beneficiary of the estate, the spouse and the executor/liquidator can also decide to have the RRSP annuities paid directly to the spouse rather than to the estate.
- If the annuities are paid directly to the surviving spouse, they can be included in this section or in the Income Receivable section of the Inventory. In either case, the amounts do not pass through the estate
- For all other beneficiaries, the annuity payments must be commuted to the beneficiary in a single lump-sum payment equivalent to the current value of all future annuity payments. This payment is not taxable for the beneficiary, but the fair market value of the RRSP account should be included in the deceased's income for the year of death. Some additional conditions may reduce this tax burden.
2. Unmatured RRSP (not paying retirement income)
- If the surviving spouse is named the beneficiary of the RRSP in the RRSP contract, and all of the property in the account is transferred directly to the spouse's RRSP by the end of the year following the death, the surviving spouse can deduct that amount from their income tax return.
- Otherwise, the fair market value of the RRSP is reported in the deceased's income for the year of death. This amount may be reduced based on certain conditions.
3. Participation in Home Buyers' Plan
- As a general rule, if the deceased participated in the Home Buyers' Plan, the balance of the plan should be included in the deceased's income for the year of death.
- The surviving spouse, however, could agree with the executor to take on the repayments, in which case the balance of the plan would not be included in the deceased's income. The balance and responsibility for repayment is effectively transferred to the surviving spouse. See here for more details.
- This would also effectively remove this item from the deceased's inventory, but can be included as Non-Probate or (Passing Outside the Estate) to record it
4. Participation in the Lifelong Learning Plan
- Similarly, if the deceased participated in the Lifelong Learning Plan, the balance of the plan should be included in the deceased's income for the year of death.
- Likewise the surviving spouse can agree with the executor to take on the repayments of the plan, in which case the balance of the plan would no longer be included in the deceased's income. For more details, see here.
- Again, this would effectively remove this item from the deceased's inventory, but can be included as Non-Probate or (Passing Outside the Estate) to record it
Life Income Fund (LIF)
A LIF is a Registered Retirement Income Fund (RRIF) bought with a Locked-in Retirement Account with a minimum and maximum withdrawable amount per year.
Tax-Free Savings Account (TFSA)
A TFSA can be passed on directly to a named successor holder, which enables the person to acquire all of the holder's rights to the account.
Quebec, however, does not allow TFSAs to be passed on directly to a named successor holder. Instead, individuals can name their spouse as the beneficiary of their TFSA, in which case the amount in the deceased's TFSA can be deposited to the surviving spouse's TFSA without affecting the spouse's contribution room. To do so, the payment would have to be made before December 31 of the year following the death, and the surviving spouse would have to submit an exemption form to the Canada Revenue Agency within 30 days following the transfer. If the spouse is not named as the beneficiary of the TFSA, the account will have to be liquidated and the amounts transferred to the estate account, for it to be distributed to the deceased's heirs. The amount they receive is not exempt from their TFSA contribution (ie, they can only contribute up to their available contribution room).
Locked-in Retirement Accounts (LIRA)
A LIRA is a locked-in Registered Retirement Savings Plan (RRSP), meaning the funds cannot be withdrawn. The money must stay in the account until it is used to buy a life annuity or a locked-in RRIF (ie, a Life Income Fund) at retirement age.
Registered Retirement Income Fund (RRIF)
A RRIF is an account used to receive retirement income. The funds can be transferred from a RRSP, Registered Pension Plan, Pooled Registered Pension Plan, Specified Pension Plan, or Deferred Profit Sharing Plan.
The amount in the deceased's RRIF can be transferred directly to the beneficiary's RRSP, RRIF, PRPP, SPP, or DPSP, or be used to buy an annuity if the beneficiary is qualified.
There may be tax implications or deductions for the estate depending on certain factors such as the beneficiary's age or an increase or decrease in the value of the RRIF between the death and the date of the final distribution. The amounts transferred to beneficiaries would pass outside the estate and would not be included in the deceased's final tax return.
Although the amounts in these accounts can be transferred directly to the beneficiaries (bypassing the estate), given these tax implications, it's important to include these accounts and their fair market value at the death and at final distribution in the inventory.
Registered Disability Savings Plan (RDSP)
A RDSP is a savings plan for persons eligible for the disability tax credit. Contributions and investment income earned in the plan are not tax deductible, but withdrawals are not included in beneficiaries' income.
If the deceased was the beneficiary of a RDSP, the account must be closed by the end of the year following the death. All amounts, minus possible repayments of government grants and bonds, must be paid out to the estate by then. If a payment from the RDSP was made to the beneficiary in the year of their death, the taxable portion of the payment must be included in the deceased's tax return for the year.
Given these tax implications, it is important to include the RDSP in the Inventory if the deceased had one.
Registered Education Savings Plan (RESP)
If the deceased was the subscriber of a RESP (ie, was paying into an account for someone else's education, for example a child or grandchild), another individual or the estate can become the subscriber and continue to pay into the account. If the estate decides to liquidate the account, the usual RESP rules around reimbursing government grants and paying taxes on accumulated income payments apply. This should be included in the Inventory and reported in the deceased's final tax return.
If the deceased was the beneficiary of a RESP, the subscriber will still need to abide by the usual RESP rules regarding transferring the account to another beneficiary and the lifetime limits per individual. Because these funds continue to be controlled by the subscriber, they do not belong to the beneficiary and do not need to be declared by the estate or included in the Inventory.
Deferred Profit Sharing Plans (DPSP)
A DPSP is a plan that enables employers to share profits with their employees. Employees do not pay taxes on the contributions made for their benefit, and the contributions and earnings accumulate tax-free as long as they are in a DPSP. When funds are withdrawn, they are taxable for the beneficiary as income.
If the deceased was a beneficiary of a DPSP, the amount in the plan has to be paid to a beneficiary named by the employee or to the estate within 90 days. If the amount is paid directly to a beneficiary, it passes outside the succession and as such can be excluded from the Inventory or marked as Non-Probate or Passing Outside the Estate. If the estate is the beneficiary, the amount in the plan should be included as an Asset in the Inventory.
Non-registered investments are any investments that are not registered under any of the government's savings plans. Money in these accounts have no special income tax or transfer rules and must be included in the deceased's Inventory. Any investment earnings must be included in the deceased's final tax return and profits between the date of death and final distribution should be included in the estate's T3 Trust Income Tax Return.
Alternative investments can be included in a registered plan if they are eligible. Otherwise they will fall under the Non-Registered category.