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How taxation can affect an estate plan

On Behalf of | Apr 20, 2022 | Estate Planning

There is an old adage that says the only certainties in life are death and taxes. While one is unavoidable, the other can be minimized when it comes to paying taxes in Ontario related to one’s estate plan. The estate of a deceased person must pay administration tax based on the entire estate value. After this, there is a filing of a final income tax in the name of the deceased.

What is included in a post-death tax return?

When the executor of an estate files final taxes on behalf of the deceased person’s estate, documents should include the following:

  • Income from employment or any business
  • Income from investments such as dividends and interest
  • The value of all sold assets such as RRSPs
  • The value of sold property like income properties and vacation homes

These tax rules can mean an estate can be shelling out as much as 50% of all taxable income, which is likely not what a testator would want. It is crucial to know there are steps that can defer or reduce some of these estate taxes, and extensive planning is part of the process.

Here are some tips on keeping estate taxes at a minimum:

  • Set up a trust fund for the spouse: A surviving spouse can have a lifetime income by setting up a trust in his or her name. Other beneficiaries will receive capital or assets.
  • Transfer RRSPs and RRIFs: These can be transferred to a spouse tax free, and they can also be transferred to minor kids at a low tax rate. Children must be dependents.
  • Transfer assets to a spouse: This is a means to defer capital gains tax.

There are other issues to consider pertaining to taxation and estate planning, such as owning assets outside Ontario or Canada. If those assets are owned in a country whose native tongue isn’t English, it would be a good idea to have an additional will written in the language of that country. An experienced lawyer can carefully analyze one’s unique situation when establishing a comprehensive estate plan in order to minimize the potential future tax implications.


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