Estate Planning



A rather popular belief is that only wealthy families need estate planning, but the reality is quite different. Any person over legal age should have estate planning in order to maximize the value of property left as an inheritance, no matter the monetary value of the property at the present time. Whether you are single, married, living together, an immigrant, retired, rich or middle class, everyone can benefit from estate planning.

How You Can Minimize Taxes at Death
Tax Planning
Paying taxes is an inevitable obligation, even at death. However, it’s possible to set up taxation strategies that will minimize the final tax bill.

Have you foreseen/provided for how your heirs are going to pay your tax bill upon your death?

➤ Assets can be transferred without tax consequences, thanks to the rollover of assets to the spouse (deemed disposition by the deceased, at the adjusted cost base). This transfer postpones the payment of taxes to the time when the spouse sells these assets or dies.
➤ RRSPs and RRIFs can also be transferred to the spouse without taxation.
➤ A TFSA transferred to a spouse is added to the spouse’s TFSA.

➤ During the first 36 months after death, the estate benefits from a progressive tax rate, like that for individuals, which allows the income to be split, thereby reducing the taxes payable. After the first 36 months, the applicable tax rate becomes the maximum marginal rate.
➤ Income-generating assets are best (rental property, shares, etc.) for the estate during this period in order to benefit from a progressive rate rather than taxing the income received by the heirs.
➤ If the value of the estate is high enough, the estate administration fees are generally offset by the taxation savings. This strategy lets you plan the management of capital and issue instructions for its use (practical for minor children).

➤ If you want to designate someone in addition to their spouse as beneficiary, they should be aware of the fact that taxation could diminish the inheritance.
➤ They can, however, minimize the tax payable by assigning to their spouse the assets whose values have appreciated the most.
➤ They are, thus, free to transfer to the beneficiaries of their choice other assets with low or no capital gains, such as GICs and money market funds.

Taxation at Death

Heirs Spouse Children and others
Primary residence None None
Secondary residence (cottage) None* Capital gain or loss
Life insurance benefits None None
Non-registered investments None* Capital gain or loss
(depends on the type of investment)    
Registered investments None* Added to income of the deceased taxpayer
Office or rental property None* Recovery of amortization and capital gain or loss

*Rollover to spouse


What can planned donations do to you in terms of tax planning strategies?

Governments increasingly encourage donations to charitable organizations by granting significant tax advantages in the form of tax credits for individuals.

Would you like to make a charitable donation to a foundation, but don’t think you have the means to do so?

Planned giving through life insurance is beneficial because the organization that you want to help normally receives much more than the amount that you spent (on the premiums). This strategy enhances the donation amount. According to the type of donation, the tax advantages materialize either at the time of the donation or upon the death of the donor.

Here are two ways to make a donation using life insurance contracts:

1. By Designating Beneficiaries

➤ The donor (subscriber) purchases a life insurance policy.
➤ The donor names the charitable organization(s) of his choice as beneficiaries.
➤ The donor maintains ownership of the policy during his lifetime and may change its beneficiaries.
➤ The donor has access to the surrender values.
➤ The donation of the death benefit is specified in the policy.
➤ The insurance amount is not part of the estate.
➤ The donor’s estate is entitled to a receipt for a charitable donation whose limit is 100% of the net income of the current year or that preceding the death.
➤ The donor, therefore, cannot benefit from tax credits during his lifetime.

2. By Assigning a New Contract or an Existing Contract

➤ The donor purchases a life insurance policy.
➤ After issue, the donor assigns the contract to the registered charitable organization of his choice.
➤ For every premium paid, the donor receives a tax credit.
➤ Upon death, the organization receives the life insurance benefit, but there’s no tax relief for the estate.
➤ It’s also possible to assign an existing contract. In this case, the donor is entitled to income tax credits for each premium paid from the time the donation is made.
➤ Quick payment with paid-up insurance is possible.

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