Estate planning is part of overall financial planning, to make sure your assets are distributed as you want and to minimize the tax burden on your beneficiaries. In Canada, estate planning is more than just writing a will; it’s understanding how taxes, probate and other financial factors affect the value of your estate. Consult with a tax accountant Edmonton on what you need to know to create an estate plan that fits your goals.
Taxes in Estate Planning
Canada does not have an inheritance tax, but that doesn’t mean estates are tax free. When someone dies, their estate may be subject to the following taxes:
- Deemed Disposition Taxes: Upon death, the Canada Revenue Agency (CRA) treats your assets, such as real estate, investments and shares as if they were sold at fair market value. Any resulting capital gains are reported on your final tax return.
- Registered Accounts: Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are fully taxable as income in the year of death unless transferred to a surviving spouse or dependent child.
- Probate Fees: Provinces and territories charge probate fees or estate administration taxes based on the value of your estate. These fees vary across Canada.
Effective estate planning reduces these taxes so you can leave more to your loved ones.
Write a Will
A valid will is the foundation of any estate plan. It ensures your assets are distributed as you want and avoids disputes among beneficiaries. Without a will, your estate will be distributed according to provincial intestacy laws which may not be what you want.
Tips for Writing a Will:
- Choose an executor you trust and who can handle your estate.
- Clearly state how your assets will be distributed to beneficiaries.
- Update your will as life changes, such as marriage, divorce or the birth of children.
Tax Planning
To reduce the tax on your estate, get advice from an experienced tax accountant Mississauga based only on your situation. Here are some things to consider:
- Gifting Assets During Your Lifetime: By gifting assets to family members while you’re alive, you can reduce the size of your estate and potentially avoid taxes on future capital gains.
- Use Life Insurance: Life insurance policies can pay out tax free to beneficiaries to offset the taxes owing on your estate.
- Create a Spousal Trust: A spousal trust allows assets to pass tax free to a surviving spouse and defer taxes until their death.
- Name Beneficiaries on Registered Accounts: Naming beneficiaries on RRSPs, TFSAs or insurance policies can bypass probate and provide tax advantages.
Business Succession Planning
If you have a business, you need to plan for its succession.
- Passing the business to family members.
- Selling the business and using the funds to fund your estate.
- Using the Lifetime Capital Gains Exemption (LCGE) to reduce taxes on the sale of qualified small business shares.
Get Professional Advice
Estate planning is complex and involves financial and legal considerations. Consult with a tax accountant to help you through the process and optimize your plan. They can advise on how to minimize taxes, avoid probate and structure your estate to achieve your goals.
Summary
Estate planning is about more than just passing on your assets, it’s about protecting your legacy and leaving less financial stress on your loved ones. Now you know the tax implications, write a will and consider tax planning. Start early and get professional advice to build an estate plan that lasts.
