Promissory note in estate planning

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Grachmanl
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Promissory note in estate planning

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Promissory notes in estate planning
My mother left her house to my brother but he signed a promissory note where he had to divide the proceeds amongst his siblings. There will be a capital gain for the deemed sale at death and a capital gain for actual sale that took place 18 months after death of mother. Who reports the capital gains on their return? The first capital gain I assume is reported on final return. The second capital gain I assume is split amongst the siblings?

My sister was named beneficiary of mothers rrif. Sister signed a promissory note where she splits proceeds of rrif with siblings. At this point, the rrif was reported as income on my mother's final return. However, one of the siblings is disabled. Could they roll their share of rrif into their rrsp?
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AltaRed
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Re: Promissory note in estate planning

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Firstly, there is no cap gains on a principal residence, so if the mother had lived in that property, there is no cap gains on her Final T1 tax return. However, cap gains will accrue post-death to whoever owns the property (whoever is then on title) and it is that person that reports the cap gain and pays the taxes due. It would be the net proceeds after taxes that would be distributed amongst siblings.

A RRIF is collapsed on the death of the account holder (with the exception of surviving spouse named as beneficiary). Given this RRIF has a daughter as beneficiary, the proceeds are thus strictly cash paid out to her. Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room. It has nothing to do with the origin of the funds, i.e. from mother's RRIF or not.
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izzy
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Re: Promissory note in estate planning

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AltaRed wrote: 03 Oct 2017 11:30

A RRIF is collapsed on the death of the account holder (with the exception of surviving spouse named as beneficiary). Given this RRIF has a daughter as beneficiary, the proceeds are thus strictly cash paid out to her. Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room. It has nothing to do with the origin of the funds, i.e. from mother's RRIF or not.
BUT see https://www.canada.ca/en/revenue-agency ... overs.html
if the recipient is an "eligible"beneficiary and there is room in the RDSP.
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BRIAN5000
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Re: Promissory note in estate planning

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Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room.
Hmmm not sure about this, it can be rolled in only if its a spouse or disabled I thought. No such thing as rolling into for a beneficiary, you could contribute it if there is room maybe.
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Re: Promissory note in estate planning

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Yeah, but there is no indication the daughter, who is the named beneficiary, is the disabled one. And the OP said RRSP, not RDSP. So I didn't respond that way on purpose.
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Re: Promissory note in estate planning

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BRIAN5000 wrote: 03 Oct 2017 12:37
Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room.
Hmmm not sure about this, it can be rolled in only if its a spouse or disabled I thought. No such thing as rolling into for a beneficiary, you could contribute it if there is room maybe.
As I said in my response,
with the exception of surviving spouse named as beneficiary
Izzy correctly added the point about a RDSP for a disabled person, but the OP has not provided sufficient context. :twisted:
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Grachmanl
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Re: Promissory note in estate planning

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AltaRed wrote: 03 Oct 2017 12:38 Yeah, but there is no indication the daughter, who is the named beneficiary, is the disabled one. And the OP said RRSP, not RDSP. So I didn't respond that way on purpose.


The beneficiary is not the disabled sibling.
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Re: Promissory note in estate planning

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I just found out that my brother was joint tenant of my mother's real property. He lived on the property a bit so I think he could claim principal residence exemption.
The property was bought in 2004. Mother died Jan 2016 and property sold Sept 2017. Does my brother report the entire gain on his 2017 return or is some of the gain reported on my mother's final return? Good discussion. Thanks.
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Re: Promissory note in estate planning

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Did you not read my first post? If your mother lived there as her principal residence and had no other property that was claimed as a principal residence, there is no taxable cap gains from your mother's tax point of view. IOW, no cap gains to declare on her Final T1 return.

Did your brother own any other property that he lived in and used as a principal residence? If not, then he as a joint tenant can use that property as his principal residence. You need to provide more clarity and specifics before you can get more certain answers.
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Re: Promissory note in estate planning

Post by twa2w »

izzy wrote: 03 Oct 2017 12:04
AltaRed wrote: 03 Oct 2017 11:30

A RRIF is collapsed on the death of the account holder (with the exception of surviving spouse named as beneficiary). Given this RRIF has a daughter as beneficiary, the proceeds are thus strictly cash paid out to her. Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room. It has nothing to do with the origin of the funds, i.e. from mother's RRIF or not.
BUT see https://www.canada.ca/en/revenue-agency ... overs.html
if the recipient is an "eligible"beneficiary and there is room in the RDSP.
To roll over to an RDSP, the beneficiary must be financially dependant on the annuitant, as well as disabled. No mention of this either and presumably all children are over 18.

Overall, a very odd way to set up a will and rife with dangers.
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Re: Promissory note in estate planning

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twa2w wrote: 03 Oct 2017 13:51
izzy wrote: 03 Oct 2017 12:04
AltaRed wrote: 03 Oct 2017 11:30

A RRIF is collapsed on the death of the account holder (with the exception of surviving spouse named as beneficiary). Given this RRIF has a daughter as beneficiary, the proceeds are thus strictly cash paid out to her. Those proceeds can only be rolled into a beneficiary's RRSP if that person has RRSP contribution room. It has nothing to do with the origin of the funds, i.e. from mother's RRIF or not.
BUT see https://www.canada.ca/en/revenue-agency ... overs.html
if the recipient is an "eligible"beneficiary and there is room in the RDSP.
To roll over to an RDSP, the beneficiary must be financially dependant on the annuitant, as well as disabled. No mention of this either and presumably all children are over 18.

Overall, a very odd way to set up a will and rife with dangers.
All are over 18. The beneficiary is not the disabled sibling
So I'm wondering if it could be argued that all the children
Are beneficiaries because of the promissory note. Ccra seems ruthless about this though.
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Re: Promissory note in estate planning

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Grachmanl wrote: 03 Oct 2017 14:20 All are over 18. The beneficiary is not the disabled sibling
So I'm wondering if it could be argued that all the children
Are beneficiaries because of the promissory note. Ccra seems ruthless about this though.
I believe you are hooped beause of the paper trail likely needed to go directly from RRIF to RDSP, but that is beyond my pay grade and a tax accountant would need to see whether the promissory means anything in CRA's eyes. Why your mother didn't specify multiple beneficiaries to begin with boggles my mind (as it has Twa2w).
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Re: Promissory note in estate planning

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AltaRed wrote: 03 Oct 2017 15:38
Grachmanl wrote: 03 Oct 2017 14:20 All are over 18. The beneficiary is not the disabled sibling
So I'm wondering if it could be argued that all the children
Are beneficiaries because of the promissory note. Ccra seems ruthless about this though.
I believe you are hooped beause of the paper trail likely needed to go directly from RRIF to RDSP, but that is beyond my pay grade and a tax accountant would need to see whether the promissory means anything in CRA's eyes. Why your mother didn't specify multiple beneficiaries to begin with boggles my mind (as it has Twa2w).t
The person who thought up the promissory note may have been her lawyer who didn't know much tax. I told my mother that the rrif could be rolled over into rrsp of disabled child but she didn't like the idea . Didn't think child was genuinely disabled. At the time, I thought an rrsp/rrif could only have one beneficiary. There are six kids so it might be easier administratively and gives power to a more responsible child.
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Re: Promissory note in estate planning

Post by izzy »

IF all of you are in agreement (admittedly with six that is a big IF) it MAY be possible to vary the inheritance to benefit the one with the disability disproportionately.For example,when my brother in Australia died he left his estate equally to my sister (not disabled but also in Australia) and myself and I relinquished my share so that it all went to my sister.I would suspect you can do the same in Canada but only an estate lawyer would be able to tell you for sure.If the disabled child IS eligible to roll over the RRIF there may be tax advantages too.
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