What if you could start your estate planning while still "livin' it up”? As the famous Benjamin Franklin once said, “nothing is certain but death and taxes.”, so being unprepared is delaying the inevitable.
Imagine what it would be like to have your estate planning done. No stone left unturned. No investment account left in the dark. No loved ones left out of the mix.
Look: the first step to wrapping your head around your estate planning is understanding some of the terms you might run into. You're unique, and so is your situation.
Although working with a professional is recommended for accurate estate planning, gaining some basic knowledge will help you understand the usual terms and give you a head start on things to start thinking about.
How Does Estate Planning Work in Canada?
Contrary to popular belief, Canada has no inheritance taxes. There are, however, taxes owed upon death. Therefore, it’s essential to know which types of assets will be taxed and how you can ensure that you're making the most efficient decisions possible.
The Canada Revenue Agency has compiled a detailed guide to assist in understanding tax payable upon the death of an individual, which will help clarify any nuances.
Whether you have appointed an executor or not, you need to be aware of some of the basic terms applicable to your estate planning to minimize any confusion. It will also be helpful to be mindful of some of your upcoming estate planning questions and decisions. So, let’s get into it!
Final Income Tax Return
Upon the death of an individual, there is a requirement to file a final income tax return. This return will report all of the deceased’s income from January 1st of the year of death up to and including the date of death.
An optional return may also have to be filed, which can be advantageous in deferring taxes where applicable.
It's also important to keep in mind additional fees that may be payable upon settling an estate, such as probate fees (in all provinces except for Quebec).
What Are Probate Fees?
Probate fees are paid to the Government when an estate is probated. This is also known as Estate Administration Tax. In Ontario, Estate Administration Tax is calculated as $0 on estate assets up to $50,000 and $15 per $1,000 of estate assets over $50,000.
What Is Deemed Disposition?
The Canada Revenue agency assumes that all property a deceased owns has been disposed of right before death. This is what is known as deemed disposition. Deemed disposition can apply to a variety of types of property, including non-registered accounts and income properties.
The deemed disposition amount is used to calculate the capital gains amount.
What Is a Capital Gain?
Capital gain is the difference between the original purchase price and the price at the time of disposition. It’s the amount of profit made on the property. One-half of the capital gain is subject to taxes and will be indicated on the final tax return.
What is a Capital Loss?
Similarly, a capital loss is the difference between the original price and the price at the time of disposition. However, unlike capital gains, it’s the amount of loss incurred.
The net capital loss can be carried back to reduce capital gains from the previous three years and can also be used to reduce income for the year before the year of death and/or on the final return.
Make an Estate Plan Today
There are many different things to think about when you start estate planning.
Here are a few quick things to ponder and action:
1. Choose an Estate Executor
2. Draft a Will
3. Have your Tax-Free Savings Account (TFSA), and Registered Retirement Savings Plan (RRSP) transferred to another person upon your death (spouse, children, other family members, etc.)
4. Get Life Insurance as it is not usually taxable income for your beneficiaries
5. Consider selling off or giving some of your property to family in your lifetime
6. Consider donating to a registered charity through your Will to minimize taxes owing
You’re Unique. Get Unique Help
Estate planning can be an overwhelming and complex process. With so many moving parts, it's important to accurately plan and set things up to minimize taxes for your loved ones at the time of your death.
To ensure your unique needs are met, it's essential to speak to a professional to develop a plan for things to be actioned soon. A plan to confirm the beneficiaries on your accounts. A plan to draft your Will. Or a plan to set up your life insurance.
We simplify the process.
We will go over your assets with you. We will plan to ensure you set yourself up in the most beneficial way for your loved ones.
Every day is a gift, and no one knows when the time will run out. You must be proactive.
So, should you gift your assets before death? Are your beneficiaries set up properly on your investment accounts? Do you have an up-to-date Will? Get your peace of mind today!
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