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RRSP question: contribution made before wife's death
April 26, 2021
8:17 am
AltaRed
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TJS96 said
I just want to be clear that the problem is not the transfer of funds in any way. The problem is utilizing the Tax relief portion of the transaction. So right now I have $20,000 in RRSP transferred to my RRSP account from my wife's.
We paid 40% tax on the original income. We did not apply it against my wife's income because there was not income in 2020. It is now sitting in my RRSP and when i take it out it will be taxed again. So double tax but no relief is what I am thinking.  

We know all that from the 3-4 times you have said so, but it matters in which "form" the RRSP was transferred to you and you have failed to tell us whether you were 'successor annuitant' of her RRSP, or whether the beneficiary of the RRSP was her estate and because you were sole beneficiary of the estate, the RRSP was rolled over to you via the estate. Nor do we know who was the Executor of the estate who should have been on point to make key decisions or to engage someone (accountant, financial advisor) to advise professionally of key decisions that could have been made.

In 40 posts made so far, you have not cleared up some critical components needed to focus responses to your dilemma. It is a waste of the forum's time to continue the discussion without further clarity. The ball is in your court....

April 26, 2021
8:29 am
TJS96
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"We know all that from the 3-4 times you have said so, but it matters in which "form" the RRSP was transferred to you"

I only answered again because some of the answer were not focusing on the problem.

"you have failed to tell us whether you were 'successor annuitant' of her RRSP, or whether the beneficiary of the RRSP was her estate and because you were sole beneficiary of the estate, the RRSP was rolled over to you via the estate. "

Her RRSP and TFSA were setup to go to directly to me as her husband. It did not rollover through the estate.

"Nor do we know who was the Executor of the estate who should have been on point to make key decisions or to engage someone (accountant, financial advisor) to advise professionally of key decisions that could have been made."

I am the Executor of the estate but I am not a financial expert in any way. I am a passive investor who has relied on my advisor to make decisions for me. To me it's sad that I am the only person that could figure out that there was even a problem.

April 26, 2021
9:18 am
Bill
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It's a tax problem, can't really expect anyone not aware of or involved in all aspects of your tax filings to know everything abut your situation. "Passive investor", not really an appropriate phrase in this case, or a good frame of mind to have in your own financial affairs or as an executor of an estate, same with relying on others "to make decisions for me".

Guess we all live and learn, at least $8K or less is not the end of the world.

April 26, 2021
11:10 am
AltaRed
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Okay, that information in your latest response would have been most helpful in the first post of this thread. My thoughts on this are as follows:

1. It is up to the Executor to ask the right questions to the right expert if the Executor does not want to gather such information from the net (every major financial institution as well as lawyer websites publish articles to help Executors), or to hire someone to do that on your behalf.

2. Depending on how deeply involved the FA is involved in your financial affairs, the FA may never have had any reason to ask whether your deceased wife had deduction room in her earned income for any RRSP contribution. Most FAs simply are responsible for being portfolio managers (of investment accounts) unless the contractual arrangement included tax planning and estate planning functions.

3. Whoever manages your tax returns (accountant?) should have been asked by the Executor early on what needs to be done to deal with tax issues and when. Clearly this particular circumstance had an underlying issue (a RRSP contribution before there was deduction room) that was not mainstream for most, and it is really difficult to blame any 'expert' for this oversight unless they had broader accountability for family financial affairs.

Ultimately, very few, if any, of the matters pertaining to the Estate can happen without the Executor's broad oversight and direction, either directly or via the person the Executor hires to do that on the Executor's behalf. I am speculating the Executor did not hire someone specifically to undertake Executor duties.

Regardless, with the surviving spouse a direct beneficiary of the RRSP, I am not sure anything could have been done to first de-register $20k in funds to get the earned income necessary to offset the contribution.... or to reverse out the contribution in the same year the contribution was made. These things most likely needed to be done back in 2020 before RRSP transfer but as I have mentioned, it is beyond my pay grade.

As noted by Bill, a $8k tax leakage (40% of $20k) hurts but it is not the end of the world. The Executor will benefit from a time value perspective from tax deferment for some years before double taxation will occur from annual RRIF withdrawals. Perhaps think of it as one year of depreciation on a new car or foregoing an ocean cruise.

April 26, 2021
11:19 am
Norman1
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The issue is a tax planning issue.

It isn't clear to me how your advisor and his firm was engaged. It sounds like he was your investment portfolio manager who selected the stocks, bonds, and what have you for your investment accounts.

You seem to have someone else, an accountant, who took care of the filing the tax returns.

It doesn't sound like the portfolio manager advisor and his firm was engaged for tax planning or financial planning. So, he may not even be aware of the strategy you and your wife had of making $20,000 RRSP contributions before she had any income to use the deduction against.

You accountant wouldn't be aware either until after the fact. It doesn't sound like he was engaged for tax planning.

There are many aspects of one's finances just like there is of a house. There are specialists that look after each. An investment portfolio manager is not required to be aware of one's full tax and insurance situation. Just like a plumber is not expected to be aware of some developing issue with the roof or electrical wiring of a house.

April 26, 2021
11:33 am
TJS96
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1. It is up to the Executor to ask the right questions to the right expert if the Executor does not want to gather such information from the net (every major financial institution as well as lawyer websites publish articles to help Executors), or to hire someone to do that on your behalf.

I was the executor of the will. I was told that because the RRSP and TFSA named me directly that is was not part of the will. I forget what is it called but it has been mentioned before in this thread. My financial advisor knows that i am not an active investor and is supposed to be looking out for my interests. I did know my wife made a RRSO contribution until such time as the RRSP tax form arrived near the middle for March. So you are basically saying i should have reversed something that I knew nothing about (though my investment advisor did). I get monthly statements saying the value of you investments is XXXXXX but I thought we just had a good month or it was offset by losses in that month so it looked fine. 20, 000 is not much when your total investments are north of a million.

2. Depending on how deeply involved the FA is involved in your financial affairs, the FA may never have had any reason to ask whether your deceased wife had deduction room in her earned income for any RRSP contribution. Most FAs simply are responsible for being portfolio managers (of investment accounts) unless the contractual arrangement included tax planning and estate planning functions.

3. Whoever manages your tax returns (accountant?) should have been asked by the Executor early on what needs to be done to deal with tax issues and when. Clearly this particular circumstance had an underlying issue (a RRSP contribution before there was deduction room) that was not mainstream for most, and it is really difficult to blame any 'expert' for this oversight unless they had broader accountability for family financial affairs.

Good to know that the only thing they are responsible for is collecting there fee.

Ultimately, very few, if any, of the matters pertaining to the Estate can happen without the Executor's broad oversight and direction, either directly or via the person the Executor hires to do that on the Executor's behalf. I am speculating the Executor did not hire someone specifically to undertake Executor duties.

Regardless, with the surviving spouse a direct beneficiary of the RRSP, I am not sure anything could have been done to first de-register $20k in funds to get the earned income necessary to offset the contribution.... or to reverse out the contribution in the same year the contribution was made. These things most likely needed to be done back in 2020 before RRSP transfer but as I have mentioned, it is beyond my pay grade.

As noted by Bill, a $8k tax leakage (40% of $20k) hurts but it is not the end of the world. The Executor will benefit from a time value perspective from tax deferment for some years before double taxation will occur from annual RRIF withdrawals. Perhaps think of it as one year of depreciation on a new car or foregoing an ocean cruise.

Its not the end of the world. My children will just get $8,000 less when die. I guess in your world they don't need it and the government does. They do so well with the rest of the money i send them, lol. I am a software consultant who takes pride in servicing my clients beyond their expectations and going that extra mile. I guess it just a different industry.

Also by the way I am not saying he is responsible but I think he shares some of the blame. You seem to be holding him blameless. When I asked him is there anything I need to do he could have spent 5 minutes going into our accounts and sending an email to inquire if my wife had income. Problem solved!

Once I got the RRSP slip it took me 15 minutes to figure out i had a problem. Surely a trained expert could figure it out too. Maybe I'm just smarter than the average bear.

April 26, 2021
11:48 am
TJS96
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This is getting us nowhere. While he may have not been legally responsible I like to think someone would take 5 minutes out of his day to look and see if there was anything unusual about my dead wife's finances. when asked twice by his client.

I checked and in 2020 he made a total of 4 transactions in a million dollar account in a Covid ravished economy. Must be nice to earning 13 K in commissions to trade four times a year, lol.

My last thought was I expected him to have my best interests in mind and he clearly did not. He is either too lazy to look or too stupid to figure it out. Both are reasons to find another advisor so I guess it does not matter which it is. Lastly I asked him to call me Thursday and again on Sunday. I also left him two voice messages on his phone. Still have not heard from him.

Thank you every one for you opinions and help. If nothing else it has allowed me to collect my thoughts and plan for the future. I say you get what you pay for but I would 1.25% I thought I was getting premium advice for a premium commission.

April 26, 2021
12:12 pm
Bill
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TJS96, sounds like your advisor has not met your expectations, it might be a good idea to conduct a search & some "interviews" to find someone new who will meet them, going forward. Of course, if he's otherwise making you a pile of dough, guess you can consider overlooking his shortcomings. Either way, good luck.

April 26, 2021
12:18 pm
AltaRed
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Unless you and your spouse had contracted with your FA to provide tax planning and/or estate planning advice in addition to portfolio management, I'd be careful on putting any blame on the FA.

I'd expect your tax accountant to be the more appropriate person to review the file (upon request) than the FA given his/her more intimate knowledge of your financial affairs, and the person presumably taking on the responsibility of the Final T1 tax return and any T3 Trust Return. You did contract with someone last year to do those things on your behalf as Executor, did you not?

Incidentally, four trades a year could be a lot for a reasonably static portfolio. Many of us make no more than 1-2 transactions a year on major portfolios. I co-manage a mid-7 digit portfolio (non-reg, RRIF and TFSA) for an individual and we make 2, perhaps as many as 4, transactions a year, one for TFSA (investing annual contribution) and one for RRIF (minimum annual withdrawal) and rarely anything else. Trading frequency is not a sign of greatness.

Further, while 1.25% is a little steep for a $1M account, 1% would not be and none of that is necessarily for premium advice beyond a bit of tax efficiency planning, i.e. which holdings to put in which of the non-reg, RRSP/RRIF and TFSA accounts. None the less, it does seem like it is time to move on to a new FA...but be clear on expectations.

April 26, 2021
2:09 pm
TJS96
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You guys stick together more than doctors don't you? Sorry don't have a tax attorney. Up till now did not think I needed one. I thought between my financial advisor and my CA I was covered. Also my tax situation is very cut and dry (up to this point). How many more people need to be part of my ever shrinking pie. As executor of the will when I asked him if there was anything I needed to do could he not have said maybe you should have a tax attorney or your CA look into it as i do not feel qualified or knowledgeable enough to comment. but he did not say that did he? He said there was nothing that needed to be done.; he presented himself as an expert and he was not.

I am a software consultant. When someone asks me a computer network question I do not give him an answer even if I think I know what it is. I tell him he must speak to his network company. Don't give me an answer if your not willing to stand behind it.

Both myself and my CA did not know that my wife has made a contribution until the RRSP slip arrived last month but my Financial advisor did. What is beyond me and I will say it again is that you are trying to say he shares none of the blame at all. He was not motivated to check for his 12 grand and that if he did with his years for training and experience he was not smart enough to figure out something that took me 15 minutes.

So you can argue that he is 10% to blame 20% etc. but if you say he is 0% responsible for the loss of the 8 grand that I have to ask what your industry is good for. Why don't I just transfer to a self administered RRSP with the same mix and save the 12 grand for 4 transactions. I am pretty sure missing four transactions a year would not cost me 12 grand if the original product mix was sound considering the total value of those 4 transactions was less than 20 grand.

April 26, 2021
7:06 pm
AltaRed
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WADR, your FA isn't responsible for asking your wife if she has the earned income to make use of a tax deduction for her RRSP contribution. That is more the CA's domain that does tax returns. The FA is only responsible for investing that contribution. Nor should he be responsible for an 'aha' moment after she had passed away to ask you as Executor if she had earned income to take the deduction. As you have just said in post #50, neither you nor your CA knew about her RRSP contribution. So nobody knew the whole picture. 3 people standing in a circle, the hand offs fail, and the ball drops in the middle. I don't think there is any blame to pass around. It simply just didn't make a hand off.

Call it ganging up on you if you wish, but I think you are simply being unrealistic in expectations of the individuals involved.

P.S. Going DIY self-directed is an excellent idea if you wish to manage the portfolios. There are very simple ways to invest passively that generate results as good as any active manager can do on a long term basis. I've done it for a very long time. Start with https://www.finiki.org/wiki/Portfolio_design_and_construction In it you will find about 'one fund' portfolios using Asset Allocation ETFs. All that anyone needs for a complete portfolio.

April 26, 2021
9:53 pm
Loonie
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I suggest you read this page very carefully and perhaps show it to your accountant:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/making-withdrawals/withdrawing-unused-contributions.html

Although it doesn't say anything about the situation where someone dies unexpectedly, cannot deduct the contribution, and the RSP has already been transferred to the spouse, it does establish the principle that CRA will consider allowing withdrawals where the deduction could not be taken, without extra tax penalties.
This appears to be at CRA's discretion.

I think it's at least worth an inquiry.
This page does give the number of the form I was thinking of earlier. It may not apply to this specific situation, but I have not looked at it.

It's not rocket science to figure out that your wife made a contribution in good faith that, through no fault of her own, she would never be able to deduct. It's also not rocket science to figure out that you would likely have been in a state of shock and grief in the subsequent months and would not intentionally have left yourself in this situation. The only thing in question is whether they would let you make this withdrawal in consideration of these facts. I don't see why not as it's a reasonable request and they do have discretion. I just don't know how much discretion they have or are willing to exercise. I also don't know what the process would be to request it, but somebody must know.

April 27, 2021
3:23 am
RetirEd
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Loonie: If people can borrow to make RRSP deposits, I can't see how they have to contribute "their own money." Depositors must have their own CONTRIBUTION room, from their own EARNINGS, but where the cash comes from is irrelevant.

The exceptions are spousal RRSPs, which I know nothing about, never having wed.
RetirEd

RetirEd

April 27, 2021
6:52 am
AltaRed
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Except contribution room is from the year before (2019), so it is not a question of contribution room. It is an issue of having enough earned income in the current year (2020) to take the deduction.

Loonie's point is a good one as has already been suggested. Talk to CRA and see what can be reversed (if anything). The OP needs to stop trying to lay blame on the FA and instead focus on reversal. How that can be done when the RRSP is already transferred over to the OP may be the stumbling block.

April 27, 2021
7:40 am
Norman1
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The unused RRSP contribution deduction could be used against any income in 2020. Taxable capital gains. Taxable dividends. Taxable interest. The income doesn't have to be earned income.

I look into the T3012A method earlier in this discussion that the page Withdrawing the unused contributions Loonie mentioned describes. If approved, the withdrawal needs to be made against an RRSP account of the same kind that the contributor had contributed to.

Unfortunately, after the ill advised transfer, there are not any RRSP accounts of the deceased left to make a T3012A withdrawal from.

I agree. Focus should be on undoing the direct transfer to the qualified beneficiary. Trying to blame who seems to be the investment portfolio manager for a tax planning issue is not going to be productive.

Stop referring to the portfolio manager as "the financial advisor" as if he was the go-to person for everything financial. He was wasn't. He was "a financial advisor". He was the advisor responsible for selecting the investments. The accountant was another financial advisor who was responsible for taxation.

The portfolio manager made no error in answering that there was nothing special that needed to be done to transfer the contents of the deceased's RRSP to the qualified beneficiary's RRSP. Just provide the death certificate and consent to receive the holdings into the RRSP.

April 27, 2021
8:47 am
TJS96
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Thank you all for your response and especially for those financial advisors who closed ranks to defend one of their own to the end. Doctors would be very proud of your abilities. Because I own a corporation and because my wife was 50% owner of that corporation, we will amend her 2020 dividend to include an additional 20,000 in in dividend income that will show as a payable to the corporation. The extra $20,000 dividend will be applied against her RRSP income. The $20,000 payable will then be paid to her estate (to which I am the beneficiary). Now the $20,000 is outside the RRSP and therefore will not be taxed again. Very simple solution that only works because I have special circumstances. Now for the last time the question of if the financial advisor in any why share some of the responsibilities or has done his job to the fullest.
I am a software specialist. Many times (actually all), when I sit in a room with clients, I am the most knowledgeable person with regards to the software. I know that and they know that. They turn to me and ask me specific questions that I may or may not answer. As the most qualified person in the room or on a call I owe it to my customers to not give them the wrong answers but to also not answer any questions I do not feel qualified to answer. They are going to accept my answer as correct because we have in some cases a 10 plus year relationship. I also consider how it may affect others before answering. As an example, there is a admin users on any SQL box called sa. The sa password needs to be a very well guarded secret as the sa user could literally erase the entire accounting system. So when they say to me would it help if we were to give you the sa password I don’t just say yes. I say yes it would help but you may want to check with your SQL administer or IT department to see how they feel about it.
So, when I was talking my guy after my wife’s sudden death and I ask him if there was anything I needed to do as executor and he answered no I believe him because he was the expert in his field with 35 years of experience. I was obliviously not in the best frame of mind. That was the wrong answer and that is what I am upset about. He should have said I am not aware of anything you need to do but I am not qualified to comment as I do not know your whole situation. You should talk to your accountant or a tax attorney. But because he is the most knowledgably person in the room and the because he gave me a definite answer, I accepted it as truth. Your argument seems to be that it is 100% my fault because I listened to a person that presented themselves as an expert who gave me incorrect advice that should not have been given. So if I walk down a alley at night in a bad part of town and get robbed it is not the robber fault if he puts up a sign that says beware of robber.
Also, the reason I am so concerned is not because of what’s happen but I want to know if this person should be my advisor going forward. From what I seem to be hearing you are saying I should keep him because everybody in the industry would work the same way. I just know that if I worked that way in my industry I would have no clients.

PS I asked him to call me via email on Thursday and Monday. I call him Friday and again on Monday and asked him to call. as of yet i have not heard from him

April 27, 2021
9:03 am
AltaRed
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The remedy you have with your corporation is something your CA should have recommended to you.

Regardless, it appears the relationship with the FA is now destroyed and it is indeed time to move on. Maybe it is time to take charge of your own investments, perhaps even with a robo-advisor like WealthSimple or RBC InvestEase where they don't do a lot for you, but they also only charge in the order of 0.4-0.5% of AUM and likely get better results longer term with index products.

Start that process today. Google articles on robo-advisors. Sources like Rob Carrick of G&M, MoneySense, and others have good articles on comparing them.

April 27, 2021
9:26 am
TJS96
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Thank you very much everyone who responded and helped me better frame my questions. I know you all have busy lives. I will make a small donation to the animal rescue charity I support in honour of the time you all spent on this. I would close it out if i knew how lol.

April 27, 2021
9:46 am
AltaRed
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TJS96 said
I would close it out if i knew how lol.  

Close what out? Your investment accounts with your FA? It is relatively easy. You find a new place to be, open accounts with them that mirror what you already have, e.g. non-registered, TFSA, RRSP, LIRA, etc. and have them fill out the paperwork to transfer 'in kind' from your existing FA. You don't even have to talk to your existing FA one more minute to accomplish that. Just ask your new place to cover transfer out fees from your existing FA. They will....for accounts of your size.

April 27, 2021
10:25 am
TJS96
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I was talking about closing this tread. sf-yell

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