Before I give you my thoughts, I have to ask: What is your real goal? Should you pay less tax on your real estate, or to maximize the amount of wealth you leave to your beneficiaries? If you want to minimize taxes in your estate, you can leave it to a charity or give it up before you die.
However, I learned from your question that you want to try to maintain the value in RRIF and pass it on to the beneficiary, thus losing as little tax as possible. One potential result, though, is that you live a long and healthy life in retirement and will naturally draw on RRIF. In this case, taxes will not be a problem you think may be.
50% tax loss myth
Like you, I often hear that when you die, you lose 50% of your RRIF. It may lose 50%, but as a molecule, your RRIF may cost about $1,260,000, and assuming it is your only death income, you will be subject to a 50% tax. Remember, we have a gradual tax system. If you have $300,000 in your RRIF, you will only lose 38.7% even if your marginal interest rate is 53.53%. If you have $500,000, you will pay 44.6%, while the marginal tax rate is the same 53.53%. (Read about the tax scope in Canada.)
One way to save taxes is to draw extra money from your RRIF and maximize your tax-free savings account (TFSA). But you’ve maximized your TFSA, which is why you’re considering adding to an unregistered account. Also, I suspect you have an unregistered portfolio that you are using to supplement the TFSA.
The main reason that the strategy you propose may not work is due to the tax-free compounding in a registered retirement savings plan/RRIF, which is a huge but often unrecognized benefit. In addition, the tax advantage of being able to name beneficiaries on RRSP/RRIF is small, thus avoiding estate management tax.
Withdrawals will cost you other ways
Consider what happens when you make money from RRIF to invest in an unregistered investment. You will sell the investment, withdraw money and pay taxes so that you invest less than yours.
Additionally, the extra RRIF money you draw may affect your Older Safety (OAS), which will increase your average tax rate. When you reinvest funds into an unregistered account, will you purchase a guaranteed investment certificate GIC, dividend payment stocks, or deferred capital gains investment? Each type of investment has a different annual tax impact, putting your long-term gains in trouble. Annual dividend/distribution may even affect certain government programs. Additionally, you cannot split annual interest/dividend/distribution with your spouse pension.
Finally, capital gains tax may be required after death, and you will pay estate management tax (probate) in most provinces. It is for these reasons that I find it usually doesn’t make sense to draw extra extras from RRIFs to unregistered or non-tax leaked investments.
