Estate Taxes

No one is ever prepared for the loss of a spouse or family member.  Death changes everything for those left behind. Whether death comes suddenly or after a long illness, the family’s grief can be overwhelming.

Proper Estate Planning can simplify complex issues for your beneficiaries

Planning ahead can reduce family strain and worry, not only in the first hours and days of bereavement, but also later as you struggle to carry on with the multitude of tasks still to be completed.

Here are just a few of the matters related to finances and taxes that ultimately must be dealt with.

  • Tax Returns in year of death
  • Other tax issues
  • U.S. tax considerations
  • Ongoing tax returns
  • Clearance Certificate
  • Estate tax planning

We strongly recommend that you consult with an estate tax professional to make sure that your estate is properly structured to ensure the most benefit to your beneficiaries and the smallest possible taxation on your estate following your death.

What is estate tax?

Canada Estate Tax

In Canada, unlike other countries, there is no tax applied to beneficiaries inheriting an estate following the death of a loved one.   This means there is no death tax or ‘inheritance tax’ in the same manner that other countries deal with taxation following a death or inheritance.  However, this does not mean that there are not important tax issues that need to be considered.

Canada assumes that a deceased person liquidates all assets one minute prior to death.   All these assets are transferred to the dying individuals estate.   Depending on how the estate is set up there may be taxes that require payment by the estate itself.

It is always a good idea to review some basic estate planning concepts to minimize the potential tax burden.

Taxes on Estate

Some areas in which an estate may be taxed include:

• The disposition of RRSPs or RRIFs:

Remember, RRSPs are set up as tax deferment  vehicles, they are not forever tax-free.  If RRSPs or RRIFs are considered to be disposed of immediately before death then this tax must now be paid by the estate unless you have taken steps to ensure proper estate structure beforehand.

• Capital gains on estate:

Capital gains taxes on your estate come into play for such assets as shares in companies or real estate holdings.   While an exemption can be made for a primary residence, 50% of the increase in value of the company shares or other real estate from the time of purchase to the value upon death are taxed and must be paid out of the estate.   There are some great deferral ideas and tax planning opportunities when it comes to ownership of shares.

Strategies to reduce taxes on your Estate

There are a number of strategies that can help minimize the amount of tax that must be paid by the estate following death.

These include, but are not limited to:

• Designating specific, in-family beneficiaries via a will

• Establishment of various trust mechanisms, such as a family trust, spousal trust, alter-ego trust

More information on the establishment of estate trusts can be read here.

More information regarding Estate Taxes and What to Do in the Event of a Loved One’s Death:

Checklist for Executors

Tax Returns in Year of Death

Clearance Certificates

US Estate Taxes for Canadians

Click here to see a listing of all estate tax information in our blog.