Estate Planning 101 – Death, Taxes and Your Investments

by Tax Guy - Burlington Accountant on May 13, 2009 Print This Post Print This Post

We have all heard the adage “there are two certainties in life: death & taxes.” In Canada, the two can occur at the same time. With a little planning, you can reduce your final tax bill.

No Death Tax

Let’s start off by stating that Canada does not have death taxes, estate taxes, or inheritance taxes. However, if you do not have a proper plan in place, your estate may be faced with a large and unexpected tax bill when you die.

Personal Assets And Death

When you die, the government considers you to have sold all of your personal possessions and withdrawn all of your RRSPs and RRIFs right before death. The phrased used by tax professionals for this event is the deemed disposition at death.

Your investments in stocks, bonds, or mutual funds that are not held in an RRSP or RRIF may result in a taxable capital gain if the value of the investments in your date of death are greater than what you originally paid for them. One-half of the gain will be included on your final tax return.

Other Property

It is important to note that this deemed sale on death applies to all of your personal property, including real estate and works of art. While you will not be taxed on the deemed sale of your principal residence on death, any other properties such as a cottage or artwork may be subject to the tax on capital gains.

Name Your Spouse As Your Beneficiary

The Income Tax Act allows you to transfer your property to your spouse or common law partner on a tax-deferred basis. This simply means that your property will be transferred to your spouse at its original cost. When your spouse subsequently dies, the deemed sale will then be applied.

When Not To Name Your Spouse As Beneficiary

If you have carried forward large unused capital losses, it may be to your estate’s benefit to allow some of your investments on stocks, mutual funds, or even your cottage to be taxed on death. This will allow the full use of the carried forward losses.

Your executor may be able to make an election to trigger capital gains on death.

Talk your estate lawyer to ensure your will provides for a tax deferred transfer of your property to your spouse and if your executor has the power to trigger capital gains when it makes sense.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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