Estate Tax Minimizer

Technically, we don't have "estate tax" in Canada. But we have taxes and other expenses payable at death. Your accountant and financial planner can help you minimize the costs but not eliminate them. The next step is finding the optimal way to pay the bill for less. That's where permanent life insurance can help.

What's non-taxable?

• Insurance proceeds paid to beneficiaries

• Principal residence ownership

• Properties owned as joint tenancies (which roll over to the survivor automatically)

• Registered investments (inside a TFSA or RESP)

How much tax is payable?

Standard tax rules apply. The deemed distributions on capital assets (i.e. non-registered investments and non-principal properties) will give rise to a capital gain or loss that has a 50% inclusion rate (50% is taxable at your marginal tax rate). The full value of RRSP (if applicable) and income earned in the year of death are taxed at your full marginal tax rate (which is often the maximum rate if the RRSP is of a large size). While not a tax, it's important to remember probate fees also apply, which vary by province (in Ontario, 0.5% of the estate's value up to $50,000, 1.5% of the estate's value over $50,000).

How can the tax bill be paid?

There are four general ways to pay the estate tax bill.

1. Wait

   1. Sell assets (CRA wins, your heirs lose)

   2. Borrow (CRA wins, bank wins, your estate loses)

2. Prefund

   1. Save (CRA wins, you lose the use of assets today, your heirs lose access to that money tomorrow)

   2. Insure (CRA wins, you win, your heirs win, insurer wins)

Resources

These resources provide additional information.

What happens to your assets when you die (Financial Post)

What is probate? (Sun Life)

Probate fees by province (TaxTips.ca)

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