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). Such a situation would occur in circumstances where you have ended the projections for each spouse in different years.
Creating a Surviving Spouse Scenario can be a very useful projection to discuss with your clients. Upon the spouse's death, many factors will impact the surviving spouse's financial situation. First, the surviving spouse will lose any income-splitting options. All registered accounts are consolidated and now 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. By being forced to take minimum RRIF withdrawals that can't be split with another person, the surviving spouse's OAS may be clawed back. As a result, the survivor may end up bringing in less cash flow and also paying more in tax.
Snap Projections can easily show the impact of such a situation. To model the earlier death of one spouse, go to the General Settings page and change the final year of the projections for one spouse. You may wish to make a copy of the scenario first.
This is what happens in the projections when one spouse's projections have ended before the other's:
- 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 own unused contribution room.
- When a Non-Registered account holder dies, the spouse receives the amounts with no tax consequences. The disposition and transfer are deemed to have happened at ACB (not at 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 account of the surviving spouse.
- 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. If there is no RRSP/RRIF in the surviving spouse's scenario, a rolled-over RRSP/RRIF account is created. This is 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. If there is no 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.
- 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.
- 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 as long as 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.
- A Debt that is 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 balance of the debt displayed in the surviving spouse's scenario in the year of the death of the deceased individual. The debt is rolled over to the surviving spouse.
- 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 Combined Estate Summary page will show the value of their combined estate in the last 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 own projections (please see the example below).
The Tax on Estate for the first spouse to die in the projections is provided for illustration purposes only. It shows what the tax on that person's estate would have been if there was no surviving spouse. In the example above, the Tax on Estate of $215,315 which is displayed for John is not actually paid. Instead, John's assets are rolled over to Mary.
NOTE: If you wish to avoid modeling the surviving spouse scenario, please make sure to end projections in the same year for both spouses.