Page 92 - A Canuck's Guide to Financial Literacy 2020

92

Creditor Protection of LIFs

When you open a LIF, you can be comfortable of the thought that they can’t be accessed by
creditors, however, keep in mind that under certain circumstances such as marriage
breakdown, locked-in plans may have to be split with your spouse or common law partner.

Naming a Beneficiary

The beneficiary can be your spouse/common law partner, estate or another individual. If
you wish to name a beneficiary someone other than your spouse or common law partner,
they must complete a waiver and give up their right to your locked-in funds. If you don’t
have a spouse, then you can designate a beneficiary of your choosing.

Age Limit of LIFs

Most provinces have a minimum age limit of 55 in order to open a LIF but rules vary from
province to province. For Alberta, Quebec and New Brunswick, there is no age limit.
However, at the end of the year you turn 71, it is mandatory for you to convert your Locked
In Retirement Account (LIRA) or Locked In RRSP to a Life Income Fund (LIF) for the
purpose of distributing income.

RRIFs vs LIF

Life Income Fund and Registered Retirement Income Fund are very similar in nature as
they aim to provide a stream of income in retirement. Both have yearly and annual minimum
withdrawals. However, RRIFs are established by converting an RRSP while LIFs can only
be established with funds transferred from a LIRA, a Locked-In RRSP, a eligible life annuity
or a eligible pension plan such as a Defined Contribution Plan. LIFs also have an annual
maximum withdrawal.

Withdrawing from a LIF

Minimum Withdrawals

LIFs have minimum and maximum withdrawal percentage. The percentages vary from
province to province. Funds withdrawn from a LIF will generate a T4-RIF tax slip and you
would have to declare them on your income. Tax would be paid at your marginal tax rate.

Depending on the province, you may use your spouse’s age to calculate the minimum
withdrawal. This applies under all provinces except for New Brunswick. Note that for
Quebec and Nova Scotia, the spouse has to be younger than you and this decision cannot
be reversed.