Wealth Strategies: A will doesn’t guarantee that CRA won’t receive more than their fair share
Milestone Wealth Management Ltd. - Aug 25, 2015
It’s somewhat of a common misconception within estate planning to make the assumption that your t’s are crossed and i’s dotted if your will(s) are current and in good order.
It’s somewhat of a common misconception within estate planning to make the assumption that your t’s are crossed and i’s dotted if your will(s) are current and in good order. Wills will negate certain potential delays in probate and avoid certain assets from potentially being part of the estate thus lowering probate tax for applicable provinces. However, this doesn‘t mean that you’ve done your homework with respect to the tax implications upon death.
“For individuals who spent much of their adult lives paying taxes in low to middle brackets, it’s often a shock to realize their estate could end up being taxed at the highest marginal rate, she says. In Ontario, for example, the combined federal and provincial taxes can be as much as 49.53 per cent on income exceeding $220,000.
Non-registered assets, however, may be taxed more favorably. Cash in savings accounts and guaranteed investment certificates (GICs) is non-taxable – except for interest earnings accrued for the year – and can flow through the estate to beneficiaries.
Overall, stocks and other investments with capital gains in taxable accounts receive more favorable tax treatment than those earning interest, Ms. Kassar says. The main advantage is that only half of the capital gain is taxable, compared with interest earnings, which are fully taxable.”
That being said, depending on which type of asset or investment you’re referring to, different strategies can be implemented in advance to soften the tax hit upon death and therefore preserving your estate. If one has a spouse, then registered assets can transfer on a tax-free rollover basis to the successor annuitant/holder, although one may want certain assets passed to additional beneficiaries whereby there will be tax consequences. In this case, RRSPs can have named beneficiaries but it doesn’t negate the tax payable on your final return given that you’re deemed to have disposed of them upon death. For non-registered accounts, this is where a closer look at investment details, gain/loss positions, etc. and ways to reduce these in advance are worthwhile exercises. Items such as slowly starting to harvest any capital gains when one is in a lower tax bracket, reducing interest-bearing investments to be held in the estate as opposed to capital gains & dividends that have a more preferential tax treatment, donating investments in-kind in to charities and purchasing life insurance to cover taxes owed upon death are all examples of proactive estate planning to reduce final taxes owed.
* Offered through Canaccord Genuity Wealth & Estate Planning Services