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Estate planning tips

Estate planning is not the most popular subject to consider, and people in Ontario sometimes might put it off as long as possible. However, timely estate planning offers several advantages, such as reducing overall taxes in addition to taxes upon the person's death. Setting affairs in order as soon as possible can also ease the transition of business interests and is conducive to ensuring that estate planning goals are achieved.

An effective way to delay the deemed disposition tax is by taking advantage of spousal rollover. While the estate could choose to pay the tax over a decade, the government charges interest at the market rate plus 4 per cent. That could mean a hefty financial blow to the estate, and some beneficiaries must sell their business just to cover the taxes. A spousal trust, set up by an estate lawyer, can effectively address this matter. Another consideration is using a flexible estate freeze so that tax liability does not rise. If the estate holder does not plan properly, taxes could easily double. A lawyer can help someone set up a flexible structure that will meet the needs of the estate holder.

In a similar method, a redemption strategy could effectively lower taxes at death. This involves transferring ownership of the shares from the individual to the business. While the initial taxes are the same, the taxes at death are lowered by as much as $125,000. Someone could also apply the lifetime capital gains exemption, which could cut taxes by as much as $187,500. In some cases, more than one family member can use this option, multiplying the benefits.

Effective estate and will planning might save an estate hundreds of thousands, or even millions, of dollars upon death. An estate planning lawyer might offer clients suggestions on the best options for their situations. This could even include deciding which charities would receive donations from the estate.

Source: The Globe and Mail, "Top 10 things to consider for your will and estate plan", September 06, 2012

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