Estate Planning for a Retired Couple: A Strategic Approach
Let’s imagine a married couple, James and Sandra, both age 65, recently retired, and living in Winnipeg.
They own a mortgage-free home worth about $500,000. Their financial assets are currently worth about $1.7 million with 25% in RRSPs, 15% in TFSAs, and 60% in a jointly owned non-registered account. Within their non-registered account, they have about US$150,000 (about CA$210,000) in U.S.-domiciled ETFs.
James and Sandra have three adult children, only one of whom, their youngest, lives in Winnipeg. The oldest moved to Minneapolis a decade ago, where she is married to an American and raising two children of her own. The second child lives in Vancouver and is also married but does not have any children yet. Their youngest is not married and is pursuing graduate studies. He’s managing his finances reasonably well and is living independently, but they sometimes wonder if he will ever get a “proper” career going.
James and Sandra have summarized the key financial goals for this next stage of their life as: 1. preserve capital, 2. minimize taxes, and 3. leave a meaningful legacy, all while enjoying retirement.
For this blog post, we will focus on their estate planning objectives. Although they anticipate a long retirement together, they want to get their estate details in good order so that they will not leave a burden on their children.
Clarify Estate Planning Objectives
Given their good health so far, James and Sandra feel that they need to provide financial security for themselves for as long as age 95–98.
During those intervening 30 or so years, their goals include:
- Leaving an equitable and tax-efficient inheritance for their children.
- Avoiding unnecessary probate and tax costs.
- Consider an intergenerational transfer of a portion of their wealth during their lifetimes.
- Plan for incapacity and healthcare decisions.
Core Legal Documents
James and Sandra are aware that only about half of Canadians have a will and 40% have powers of attorney drawn up. When their children were young, they knew they never wanted to leave their affairs like that, so they have had these documents in place for many years. They last updated their wills when their youngest became an adult and they have used their retirement as another milestone to review their estate documents to make sure that they have the right people named.
One thing that their children reminded James and Sandra when they talked with them about updating their wills was to put a “digital assets clause” in their wills to manage their online accounts. Upon reflection, they realized that they had quite a presence on Facebook so that made good sense.
Asset Ownership and Beneficiary Designations
Making sure they have their ownership and beneficiary designations on their registered assets is critical in estate planning. James and Sandra own their home jointly. They own no other real estate than their principal residence, which they bought nearly 40 years ago.
In addition to their joint chequing account and a High-Interest Savings Account that they use for savings that will be spent in a year or less, they also have a joint investment account, which they opened together in 1998 after their youngest started going to school and Sandra was able to return to work following 11 years of staying home with the children.
James and Sandra each have personal RRSPs. Sandra also has a spousal RRSP that James funded during her years of not working for an income. James has named Sandra as the beneficiary of his RRSP and Sandra has named James as the beneficiary of her personal and spousal RRSPs. This allows for a tax-deferred rollover of the RRSP to the surviving spouse.
They also have TFSAs which they opened in 2009. Each has named the other as the respective successor holders of their accounts. When a successor holder is designated, the TFSA transfers directly to the surviving spouse without affecting their own TFSA contribution room, and it retains its tax-free status with no interruption in tax-sheltered growth.
Because there is always a chance that they could die close together, their children are named as equal contingent beneficiaries of their RRSPs and TFSAs. Of course, they don’t want this to happen, but they are aware that the rules around these accounts work differently depending on whether there is a surviving spouse.
RRSP: When either James or Sandra dies without a surviving spouse and their adult children are named as contingent beneficiaries, the RRSP is considered to have been fully withdrawn at the time of death. The “fair market value” of the RRSP at death is included as income on the deceased’s final tax return and is taxed accordingly. The named adult children, as beneficiaries, will receive the full proceeds from the RRSP. They do not pay tax on the RRSP assets directly, but the estate is responsible for the tax liability.
As James and Sandra have just retired, they plan to convert their RRSPs to RRIFs very shortly. They will follow the same pattern of naming each other as “successor annuitant” (the proper term with a RRIF) and their children as contingent beneficiaries. Given the way that RRSPs and RRIFs are taxed at death, they plan to focus on drawing on their RRIFs first to support their income in retirement.
TFSA: When either James or Sandra dies without a surviving spouse and their adult children are named as beneficiaries, their accounts stop being TFSAs as of the date of death. However, the value of the TFSA can be paid out tax-free to their named beneficiary children. Any income or growth earned in the TFSA after the date of death is taxable to the beneficiaries. To avoid or at least limit the tax on post-death growth, James and Sandra have instructed their executor to distribute the TFSA assets as promptly as reasonable.
U.S. Situs Assets: Planning for Cross-Border Tax Implications
As noted, James and Sandra have US$150,000 in U.S.-domiciled ETFs. This could trigger potential U.S. estate tax exposure, even for Canadians.
There is an exemption below US$60,000, so no U.S. tax filing is required, but above that threshold, Form 706-NA, the U.S. Estate Tax Return, may be needed. The Canada-U.S. Tax Treaty protects against paying tax in these circumstances (currently up to over US$13 million), so it would be unlikely for their estate to have to pay tax to the IRS, but that protection does not eliminate the reporting requirement.
James and Sandra do not want to leave their executor with this additional burden, so they are considering a strategy to deal with this situation.
They are planning to sell most of their U.S.-listed ETFs and instead buy Canadian ETFs in the U.S. Equity category. However, one of the things they like about having U.S. Dollar assets is that they generate dividends or can always be sold to enable them to travel to Minneapolis to see their daughter and her family. Therefore, they will search for ETFs that trade on a Canadian exchange in U.S. Dollars.
Because these USD-denominated assets are in a non-registered account, to minimize the capital gains taxes they will owe, they intend to do this over several years.
Insurance: Does Permanent Life Insurance Make Sense?
When James and Sandra were younger, their children were dependent on them, and they were simply less financially secure, so they held term life insurance policies. However, once the mortgage was paid off and the children were off on their own, they didn’t see any need to renew their policies, so these have been allowed to lapse.
Joint Last-to-Die (JLTD) Permanent Life Insurance
Now, however, they are rethinking insurance and wonder if they should purchase a JLTD permanent insurance policy. They are thinking about a $500,000 death benefit that would be paid out equally to their children.
From their point of view, it will provide a tax-free payout once the second of the two of them dies. It also locks in a financial legacy for their children that does not rely on investment returns.
On the other hand, the cost is pretty high if they live a long time. If one of them were to live to age 94, which has a 50% probability of happening according to FP Canada’s Projection Assumption Guidelines, they would have paid out nearly $280,000 in premiums or 56% of the death benefit. Another factor if one of them is long-lived is that the payout might come when the children themselves are retired (or nearly retired) and already financially independent.
Maximize TFSA Contributions
Given the high insurance premium for this kind of policy, James and Sandra believed they would have a hard time maximizing contributions to their TFSAs in retirement. Between the two of them, at current contribution limits, they could contribute $14,000 ($7,000 each) annually. The insurance premium, however, using the unofficial online quote they received, would use up to $9,636 each year. They think they could probably continue to contribute the balance of $4,364 ($14,000 – $9,636) annually, but their TFSAs would not be able to grow as rapidly as a result.
Like a life insurance policy, the money from their TFSAs would pass on to their children tax-free so that part made no difference in their decision-making. More positively in favour of the TFSA, they can choose not to contribute to the account if their circumstances change. In fact, they can withdraw funds from their TFSAs, if they want or need to. However, to maintain the life insurance policy, they would have to keep on paying the premium regardless of their circumstances, or else risk losing all that they had paid into the policy to date.
Of course, reasonable investment returns from the investments in a TFSA are not guaranteed, unlike an insurance policy.
Gift the Equivalent Premium to the Children Now
A final idea is to essentially gift the equivalent of the premium to their three children each year. An annual premium of $9,636 works out to $3,212 per child per year. This could be extremely useful to their kids given their stage of life, establishing careers, getting married and raising children, and taking on significant mortgage debt. Even their youngest, not married, without a mortgage, and with a career that could take him almost anywhere, could make use of this money to save for his future. From the estate planning side, it also means that more money distributed now will result in a smaller estate in the future. Positively, that simplifies their estate, but negatively, that may mean less flexibility to adjust the distribution of their assets in the terms of their will.
As James and Sandra are “of three minds” about what to do they are going to set aside the JLTD policy for now since that option means that any changes made later could be costly (in the form of lost premiums already paid).
6. Retirement Income and Asset Drawdown Strategy
James and Sandra feel more confident about their retirement income strategy than they do about their insurance decisions. To hedge against longevity risk, they have decided to defer their Canada Pension Plan (CPP) benefits until age 70, which will increase their payments by 42% compared to starting now, before accounting for any future wage inflation. In the meantime, they have already converted their RRSPs to RRIFs and plan to withdraw amounts at least equal to the CPP income they are postponing. This amount is slightly more than their current RRIF minimum withdrawal requirement.
Making this choice lowers the risk of an excessive tax bill due to a large RRIF. Although not expected while both of them are alive, drawing from their RRIFs earlier in retirement also helps to avoid any potential for OAS clawbacks.
Speaking of OAS, they have decided to receive those payments now rather than wait until later since the 0.6% increase per month delayed is less significant than the 0.7% benefit for the CPP.
After their RRIF accounts, the next account that James and Sandra want to draw from is their joint non-registered investment account. Part of the income they receive will continue to come from dividends and interest, on which they are taxed annually anyway. However, in retirement, they anticipate beginning to pay capital gains tax as they expect to slowly deplete these assets for their income needs. Although not tax-free, capital gains will be a more tax-efficient source of income than their mandatory payments from their RRIF accounts. They may even use a portion of these assets to make in-kind contributions to their TFSAs.
Although they hope that they can keep their TFSAs in reserve for an inheritance, they also see it as a tax-free supplement that they can use for themselves later in life if it becomes necessary.
7. Gifting and Intergenerational Transfers
As noted, James and Sandra are already considering ways to make gifts to their children while they are still alive to see the benefit of their giving.
Although they’ve never felt that they were able to give a large enough sum to provide a full down payment on a home for their children, the decision to purchase a home by their eldest was a prompt to give a larger one-time gift for all three children as was the birth of each of their two grandchildren.
James and Sandra plan to keep on giving to their children annually even without milestones like a home purchase or birth of a child. They feel comfortable with this more incremental way of giving as they know they can adjust the amounts each year as their financial circumstances change without giving to the point that the future security of their retirement is put into doubt.
Beyond their children, James and Sandra are also considering charitable giving options that reflect their values and could also help reduce the tax burden on their estate. In keeping with their thoughtful planning, they expect to donate portions of the investment assets in their non-registered account during their lifetime, starting with those assets that have the highest capital gains since doing so eliminates tax on the gain.
8. Planning for the Survivor
Although they are the same age, James and Sandra are realistic about the possibility that one of them will likely outlive the other by potentially many years. Statistically, that person is likely to be Sandra.
Regardless of which one of them becomes the “surviving spouse,” they know that the survivor will face reduced household income and higher marginal tax rates. Income will drop because there is no survivor’s benefit for Old Age Security, unlike the Canada Pension Plan, but even that benefit is capped. On top of that, because there is no spouse, the opportunity for income splitting also goes away, which leads to higher tax rates.
One strategy that they are considering to mitigate this concern is the purchase of a prescribed annuity, especially since they have substantial non-registered assets. Yes, there will be some capital gains to address but a prescribed annuity is very tax-efficient and will give the survivor a source of guaranteed income for the remainder of the survivor’s life.
9. Probate and Administration
Fortunately, Manitoba does not have high probate fees (0.7% of estate value, if over $10,000), but by using beneficiary designations on their RRSPs/RRIFs and joint ownership where appropriate, James and Sandra can reduce or defer probate exposure.
10. Periodic Review and Family Communication
While neither James nor Sandra expect this need to arise, they plan to revisit their estate planning details every 3–5 years or at key transition points, such as the first death, a move, or a major change in their assets.
They also are considering a family meeting in the next while to review their estate plan at a high level so that there aren’t any surprises.
Some Questions for Reflection
- Do you want to leave each child an equal financial legacy, or is equity more nuanced based on the child’s relative financial need or support provided to you in your later years?
- Would you like to begin giving while you are alive and able to see the impact?
- How will you balance enjoyment in retirement with the desire to leave a legacy?
Estate planning is not just about death—it’s about living well, providing for loved ones, and leaving clarity instead of confusion. With some thoughtful strategies, you can enjoy your retirement while also stewarding your wealth in a way that reflects your values.
This is the 290th blog post for Russ Writes, first published on 2025-05-26.
If you would like to discuss this or other posts, connect on Facebook, Twitter aka X, LinkedIn, Instagram, Mastodon, or Bluesky.
Click here to contact me for an appointment.
Click here and select FinPlan30: Financial Planning in 30 min under Specific Questions for a 30-minute free no-obligation financial planning conversation.
Click here for a 2-week free trial of the Money Architect Financial Planning platform.
Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.