POOF goes your RRIF !

Some time ago I attended a seminar where participants were told to burn some money, a fairly large amount of money . You must gnawing and gnashing of teeth in that room have heard ! Step right up , folks, and ignite it . Come on now . It's only money .

Some people , probably less adept at saving than others , actually in an attempt to show how the money had no hold on them rushed forward . There was a principle in there somewhere . I'm not sure what it was.

Others dived into the corner , refused to take out their wallets , looking for the exits . It seems reasonable to avoid torching money . After all , you've worked hard for it . Bet years worth of work and put off to accumulate some nest egg you have. Much luxury Burning it would somehow seem to give . A tear in the psyche

But what if I told you that many people are focused on the right to burn tens of thousands of dollars? Oh, they're not going to march to the front of some hotel ballroom and pull piles of cash from a briefcase and throw them all in a controlled , indoor bonfire . Nope . That is dramatic . Their method is much more difficult to image , but let's try and create a vivid picture anyway.

Imagine a retired widow or widower . Or , perhaps, a senior person . A person who is ready to work and enjoy the fruits of their savings . They have a few hundred thousand dollars accumulated in their RRSP , which has now been transferred to a RRIF . They receive income from the RRIF . Let's say it's $ 400,000 in it.

Like most of us, this person does not want to think about their own downfall . Their focus is on their grandchildren , maybe. Hobbies . The garden . Other things. Of course they are surprised when they die , and even more surprised when she got a box of popcorn and a front row seat for the posthumous show called ' distribution of your assets .

Let's go straight to the grand final , shall we? In this last part of the show, the content of the RRIF person into an over-sized briefcase , sawn in half , and one half is thrown on the giant bonfire now known as the Canada Revenue Agency . Let me explain ...

The proceeds of an RRSP or RRIF can roll , tax - free , a surviving spouse without tax consequences . In our example , however , there is no spouse to roll to the yield. As a result , the full amount of the RRSP or RRIF comes in income in the year of death. What happens if you get a sudden influx of cash ? Say , worth of cash ? $ 400,000 Well, first it will put you in the highest tax bracket . Secondly , you are responsible . ( Hence the idea of just saw that over-sized briefcase in half and throw one half on the bonfire . )

Not convinced. Okay , forget the bonfire idea. Instead , half of the content briefcase , $ 200,000 in our example , in a box , tied with a pretty red ribbon and delivered by hand to put ... the Prime Minister . Like that better? Hmm .

Well , at least now you know what happens when you die . There is a big fire . There is gnawing and gnashing of teeth . People rushing for the exits. And a few , good people , there are quiet because they plan ahead , or have already gone through it all at some weekend seminar .

Strategies exist to prevent the erosion ( arson ) of your assets when you die. Talk to your financial adviser .