(February 2009)
Dealing with the loss of a spouse is considered one of the most difficult events in a person’s life. It is expected for the survivor to be distraught and only able to deal with urgent matters for some time. Although people need time to grieve, it is also important to evaluate financial matters as soon as possible.
Provided the deceased spouse or common-law partner made sufficient contributions to the Canada Pension Plan (CPP) the survivor may be entitled to receive a monthly survivor benefit from the CPP. Survivor benefits will be based on the amount contributed to the plan, the age of the survivor at the time of the spouse’s death, and whether the survivor also receives a CPP disability or retirement pension. It is important to apply for these benefits at the earliest time possible following a spouse’s death, as retroactive payments are only permitted up to 11 months. In addition, surviving spouses or common law partners may also be entitled to receive a lump sum death benefit from the CPP equal to six months of the retirement pension, up to a maximum of $2,500.
Tax planning can play an important role for the survivor. Without proper tax considerations there may be a significant and unnecessary tax bill to the deceased. If the surviving spouse is the sole beneficiary of taxable investments, there may be an option to defer tax implication until the survivor’s death. Further, it is important to consider any unused RRSP contribution room of the deceased spouse. A spousal RRSP contribution is an option to reduce the tax implications on the deceased’s final tax return. Otherwise, any unused contribution room will be lost. The spousal contribution must be made within 60 days of the end of the calendar year following a spouse’s death. If the deceased died in November or December, there may not be much time to make this decision.
It is recommended to review all insurance policies and pension plans. Many survivors lose their entitlement to medical insurance coverage upon their spouse’s death. In addition, the survivor may need to update personal life and disability insurance, especially if there are dependent children. A survivor who is not employed may alternatively have to look at critical illness insurance or long term care insurance.
Dealing with the death of a loved one is indeed a challenging experience. These few points only scratch the surface of the many financial issues that a survivor may face. Speak to your financial planner to assist with these and other planning topics as soon as you feel you are ready.
The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles, at 613-798-2421 or e-mail rick@invested-interest.ca.