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When creating estate plan consider tax ramifications

On Behalf of | Jul 18, 2015 | Estate Planning

Going in with a ready plan of action is generally much better than having no plan at all. Estate planning is no different. Most of the time, a simple estate plan is much better than no plan at all. While most estate plans focus who will receive the assets upon the testator’s death, the benefits of proper estate planning extend beyond simple distribution of the property. The creation of an estate plan could significantly minimize the amount of money that the tax collector receives from an estate. If an estate is left to people other than one’s spouse, a potentially significant tax bill could be forthcoming.

The level of taxation will depend upon the nature of the asset. While other than interest accrued throughout the year, savings accounts and guaranteed investment certificates cannot be taxed, the same cannot be said for certain investment accounts. For example, the assets found in registered retirement savings plans are considered fully taxable upon death unless they are rolled-over to an RRSP owned by the deceased’s surviving spouse.

There are steps that can be taken to reduce the amount of taxes assessed on an estate upon death. Some, who are not in the highest tax bracket, opt for gradually selling the taxable assets before they die so that they can be taxed at a lower rate. Others make donations of securities in kind to registered charities. Purchasing a life insurance policy that upon death will pay a lump sum that is non-taxable to be used for paying the taxes assessed on the estate may be a solution for some.

The most important motivator for engaging in estate planning is to ensure that the loved-ones are provided with appropriate financial assistance. When a high tax rate is applied, this goal may not be fully realized and it is the tax revenue agency that often becomes the beneficiary of a large portion of the estate. For help creating an estate plan that does what is intended, a lawyer may be of assistance.


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