There is an old adage that says the only certainties in life are death and taxes. In estate planning, the two seem to go hand-in-hand but that doesn’t mean the Canada Revenue Agency (CRA) should turn out to be an estate’s primary beneficiary. For those who don’t wish to leave almost half of their assets to the government, savvy estate planning is crucial. When someone dies, the CRA deems their assets as having been disposed of even if they haven’t, in fact, been sold. Those assets are then taxed using a fair market value.
If the deceased had a legal spouse, that is where the exception lies. More than likely, he or she would inherit the assets tax-free; otherwise, other heirs will usually have to pay taxes on their inheritances. Tax implications may vary from asset to asset such as the rules for tax-free savings accounts (TFSAs), registered retirement income funds (RRIFs) and registered retirement savings plans (RRSPs). Registered accounts are fully taxed upon the death of their owners.
Assets that aren’t registered are likely to fair better at the hands of the tax man. Assets like guaranteed investment certificates (GICs) and cash in a bank account can usually go straight to beneficiaries. Stocks and taxable accounts have different rules attached to them yet again. Any assets with capital gains are taxable, even if they’re sold off.
There are several strategies that could save beneficiaries from having to pay a great chunk to the CRA. A lawyer in Canada who is experienced in estate planning would be able to advise his or her client on the best options available to help any heirs avoid paying taxes. Such a lawyer could also represent the rights and best interests of a client’s beneficiaries during any estate-related disputes or litigation that may arise.
Source: theglobeandmail.com, “Don???t let the CRA be your beneficiary when you die“, Accessed on Dec. 1, 2017