Surviving Spouse Scenario - Survivor Analysis & Asset Rollover

In Snap, you can illustrate the surviving spouse's financial situation after the death of their spouse (a Surviving Spouse Scenario) by ending the projections for each spouse in different years. This is a useful projection to model for your clients.

Many factors will impact the surviving spouse's financial situation. First, the surviving spouse will lose any income-splitting options and may pay more in taxes. All registered accounts are consolidated and the RRIF/LIF income will be taxed under the survivor only. The survivor will no longer have income from their spouse's OAS and if they are already receiving the maximum CPP/QPP benefit themselves, they will lose their spouse's CPP/QPP because they won't be entitled to the CPP/QPP Survivor Benefit.  Being forced to take minimum RRIF withdrawals that can't be split with another person, the surviving spouse's OAS may be clawed back. 


How to model the Surviving Spouse Scenario

To model the earlier death of one spouse, It's helpful to make a copy of the scenario first. Then, on the copied version, go to Scenario Setup -> General and change the Show projection until age value for the appropriate spouse.

Note: Make sure the age of the second spouse is correct. When you change the age for the first spouse, Snap automatically updates the value for the second spouse as well, to end the projections in the same year. You can override this by updating the age for the second spouse manually.

Next, go to the Combined Planning page to ensure the Base Expense value is correctly populated for all years. You may need to manually update the amount in the years following the first projected death. A dash will be populated under the Age column once the individual's projections have ended.


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Impact on the projections for the surviving spouse

This is what happens in the projections when one spouse's projections have ended before the other's:

a. Financial Assets

  • When an RRSP, RRIF, LIRA, LIF or DCPP account holder dies, the amounts are rolled over to a beneficiary (spouse) on a tax-deferred basis.
  • When a TFSA account holder dies, the rollover is treated as an exempt contribution to the spouse's TFSA, without affecting his/her unused contribution room.
  • When a Non-Registered account holder dies, the spouse receives the amounts without tax consequences. The disposition and transfer are deemed to have happened at ACB (not FMV).
Technical details of the asset rollover:
  • The transferred amount is added directly to the balance (the Value column, not the Contribution column) of the surviving spouse's account.
  • The asset mix of the surviving spouse's account is recalculated based on the amounts in Cash, Fixed Income, and Equity across all assets transferred.
  • If there are multiple accounts of the same type in the surviving spouse's scenario, the transferred amount from the deceased spouse is added to the first corresponding account of that type.
  • If there is no corresponding account of the same type in the surviving spouse's scenario, Snap creates a new account called Rolled-over (<type of account>).
  • LIRA/LIF and DCPP accounts are rolled over to an RRSP/RRIF in the projections for the surviving spouse. Without an RRSP/RRIF in the surviving spouse's scenario, a rolled-over RRSP/RRIF account is created because death benefits are not locked in and can be paid out as cash, or the balance can be transferred to another owner's retirement funds.
  • Spousal RRSPs are rolled over to an RRSP/RRIF in the projections for the surviving spouse.  Without an RRSP/RRIF in the surviving spouse's scenario, a rolled-over RRSP/RRIF account is created. 
  • If there are multiple accounts of the same type in the deceased spouse's scenario, the amounts are added and transferred as one account.

In this example, the surviving spouse has increased non-registered and RRSP assets, with a rolled-over TFSA activated upon the spouse's death.

b. Real Assets

  • A Real Asset solely owned by the deceased client is sold in the year of death and taxes are paid, if applicable. The remaining proceeds from the sale are transferred to the surviving spouse in the year following death and contributed to assets according to default logic
  • A jointly-owned Real Asset with or without capital gain tax applicable has the full value of this asset displayed in the surviving spouse's scenario in the year of death of the deceased client.  The asset is rolled over to the surviving spouse.

c. Income

  • If you have included a survivor benefit in the details entered for the Defined Benefit Pension plan (DBPP), this survivor benefit will start in the year following the first spouse's death. 
  • The CPP/QPP survivor benefit will be calculated automatically for the survivor if you have clicked the checkbox on the Gov't Benefits page to Illustrate Survivor's Pension.
  • After the death of one of the spouses, any pension income splitting will be disabled automatically for your projections.

d. Debts

  • A Debt solely attributed to the deceased individual is paid out of the surviving spouse's assets in the year after the individual's death. The funds to pay this debt are withdrawn from the assets according to default logic.
  • A Joint Debt has the full amount owing displayed in the surviving spouse's scenario in the year of their spouse's death since the debt is rolled over to the surviving spouse.

e. Insurance

  • Insurance proceeds will flow into the surviving spouse's projections in the year following the first spouse's death if the spouse or the estate has been selected as the beneficiary. The proceeds will be automatically saved to the surviving spouse's assets if automatic cash flow management is enabled.
  • The insurance proceeds are displayed under the Transfers section on the Planning page and as Other (Non-taxable Income) on the Cash Inflow Chart.

f. Estate Summary

The Combined Estate Summary shows the value of their combined estate in the final year when both spouses are alive, the estate of the deceased spouse at the end of his/her projections, and the estate of the surviving spouse at the end of her/his projections (please see the example below). In this case, John's final year of the projections is 2032, and Jane's is 2064. Ensure that you view the correct column for the final Estate After-tax value.

A note about Tax on Estate

The Tax on Estate for the first spouse to die in the projections is provided for illustration purposes only.  It shows the tax on that person's estate without a surviving spouse. In the example above, the Tax on Estate of $654,311displayed for John is not paid at that time in the projections.  Instead, John's assets are rolled over to Jane.

The goal of the Tax on Estate column is to give a general sense of the taxes payable on the assets accumulated in the plan. If they're not paid at the time of the first death due to the spousal rollover then those taxes will be payable in the future either as the assets are withdrawn or when the second spouse passes away. Another way to consider the benefit of the Tax on Estate figure is that it allows you to compare different plans with alternate savings strategies. If in one plan a client is projected to pass away with $500,000 in an RRSP and in the other they have $500,000 in a TFSA, both plans will have $0 taxes on death because of the spousal rollover, but the plan with the RRSP is worse off because there are taxes payable on that balance that will eventually be paid.

NOTE: If you wish to avoid modeling the surviving spouse scenario, please make sure to end projections in the same year for both spouses.  

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