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Wednesday, August 7, 2013

Should I transfer my RRSPs to my children while I'm alive?

Parents often want to transfer assets to their children while they are alive, and in many cases that is a solid estate-planning move. Assuming the parent doesn't need the asset in question to live on, there may be no reason why the asset shouldn't be given to the kids while the parent is alive.

But what about tax? Before giving, selling or transferring any assets to your children, you should do a bit of research, as did the reader who sent me the question that appears below. When it comes to taxes, talk to your accountant. In this reader's case, the question should be directed to a financial advisor because it also involves banking procedures.

"My father currently has stocks that he has in a self directed RRSP. Before he passes away he wants transfer the stocks from his RRSP to me and my sister's stock accounts that are also self directed, all with the same financial institution. Can those stocks inside the RRSP be transferred to another self directed account that is not an RRSP, or do all the stocks inside my dad's RRSP account have to sold off then taxes paid then the remaining split? The reason for this is that it is too hard to pick up back these amount of shares."

You've correctly identified the problem here as being taxes. Once the money comes out of an RRSP, it is taxable (except in the case of a rollover, which is not available in this situation). Whether your father takes out the money and gives it to you, or takes it out and puts it in an account of his own, the tax situation is the same. Once it comes out of the RRSP, it's out. However, the funds don't necessarily have to be withheld from the RRSP itself if your father has other means by which to pay the taxes.

I would have to check the mechanics of this transaction with my colleagues at Scotiabank to know for sure, since I'm a lawyer and not a banker, but I would think that tax could be submitted from another account, assuming there is enough there. This is what would happen if he still owns the RRSP when he passes away. The RRSP would pass to you and your sister, assuming that you are the beneficiaries named on the RRSP, and the tax owing would be paid out of other assets in the estate.

Is your father sure he wants to do this? He could lose up to 40% of the value of the RRSP in tax. You said it's "too hard to pick up back these amount of shares", which I think means that the particular shares he has are not easy to find. Are they so rare and so valuable that  he'd be okay with losing a huge chunk of the value of his RRSP just to pass them to you in his lifetime?

He also needs to consider that if he transfers the RRSP to the two of you, he will no longer  have that asset to meet his own financial needs.

If your father has a financial advisor, this would be a good thing for him to ask about. I hope he'll give the matter a lot of thought before he goes ahead.


  1. What if your parents transfer his/her rrsp before they die directly into your rrsp is it still taxed or it's thus possible

    1. It's still taxed when they take it out of their account.



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