five financial

CONSEQUENCES OF A SPOUSE DYING …

The loss of a spouse or a partner who qualifies as a spouse bears substantial financial consequences in retirement:

1

OAS ends If both partners have been receiving Old Age Security, the benefit will end for the decedent That’s a $6,600 reduction in what was total family income

2

No more pension splitting Pension splitting ends, meaning that the survivor may wind up in a higher bracket and pay more tax than when the partner was alive As well, if other income from a family business or other investment goes to the survivor, that too will be taxed in the survivor’s hands Higher tax bills are likely to follow

3

Expect capital gains to be taxed Accrued but unrealized capital gains are deemed disposed of and subject to tax as though the taxpayer had sold the property before death However, funds that come from an RRSP can be transferred to the survivor’s own RRSP without tax

4

Recalculate CPP pay

ments Canada Pension Plan and the similar Quebec Pension Plan pay a death benefit equal to six months of regular CPP/ QPP benefits to a maximum of $2,500 The amount is taxable to the estate of the survivor in the calendar year received The surviving spouse may also apply for a survivor’s benefit This will be based on a percentage of the deceased’s benefits and the age of the survivor If the survivor is 65 and not receiving other CPP benefits, the survivor will generally get about 60% of the deceased’s CPP/QPP benefits The rules are complex and explained in tables based on ages The maximum payable is capped at the top rate for the CPP retirement benefit, currently $12,150 a year In cases of low incomes, the Allowance for the Survivor can be paid for persons from ages 60 to 64 At 65, these benefits are replaced by regular OAS and potential Guaranteed Income Supplement benefits The qualification process and the calculation of benefits is complex Generally speaking, if the survivor’s income puts him or her in the range in which the GIS can be paid, then the Survivor’s Allowance can also be paid

5

Annuities vary If the deceased partner had a straight life annuity, payments end with his or her death But if the decedent had an annuity with a minimum number of payments with some remaining to be paid after his or her death, the survivor will continue to be paid until the minimum is hit If the annuity is joint and survivor, then benefits will continue to be paid until the death of the second spouse