Bill’s Blog August 20, 2020
In this blog we will not go philosophical or spiritual, but just talk about your stuff after you pass away. Sadly, many Canadians do not plan for this inevitable event. Those who do plan often miss important aspects of protecting and controlling their lifetime of efforts and all they have accumulated. Others have valid concerns about passing on assets to strained family relationships, or to those who have minimal or no financial literacy. These are very valid concerns.
You can mitigate the risks attached to death with a trusted and knowledgeable financial advisor and a professional tax accountant…both have their place. Also, we do not want to miss out on the issue of a will. For the will, you will want a notary public or a lawyer to help you so you don’t miss out on important issues. Each province has different rules. If you have moved to a new province, you may want to get your will reviewed and possibly updated. Importantly, if you do not have a will upon death, you are deemed “intestate”. In that case, the government has rules to determine how the estate is resolved. This will be a costly mistake, and your assets may not go where you intended. Your final tax bill is often the most expensive one of your life-time, especially if you did little or no planning.
The bigger your estate is, the more complicated it will become. If you own a business or businesses, multiple properties, collectibles, RRSP’s, investment accounts, foreign properties and more, you can imagine the potential complexity. The moment you pass away, the government treats all of your assets as if they have been sold and will want ALL the appropriate TAXES within a year.
Just so you know, there are 3 layers of tax:
A). Terminal Taxes on your final return.
B). Probate Fee’s and they vary in each province. In B.C., the maximum probate fee is 1.4% after 50K of assets. Probate is a period your province allows to ensure: that all of the deceased assets are reported by the executor or trustee (if no will), that creditors can get paid what is owed them and that the government gets its pound of flesh! The probate period can be 3 to 6 months on a very simple estate, and years on a complex estate. If an estate gets contested, it can take many years to complete with potentially large legal fees.
C). Trust Taxes. Rules vary in each province. Only applies to those who have a trust set up.
Some people chose to go the root of joint-ownership thinking this will resolve estate issues. Not entirely. Yes, probate tax can be avoided, but not all the tax issues. Also, one loses control of their assets and there can be potential legal implications. As an example, if you are the joint owner of a house with a family member and that family member gets into serious legal problems. You are now liable if that member loses a lawsuit. The house may need to be sold to settle. What if the person you become joint owner with ends up having drug or alcohol addiction problems or gambling? These are real risks of joint-ownership.
Spousal-rollover delays taxes, until the final spouse passes away. If the estate has no will (intestate), this will affect the spouse having 100% control of the assets. In fact, if there are children involved, they will be entitled to a significant portion of the estate.
So, as you can see there are many factors to consider when one puts an effective estate plan in place. Failing to plan does have real consequences and it will be very costly for your estate. One of the most effective ways to reduce taxation and create time efficient wealth transfer or pay taxes is life insurance. I encourage you to seek out professional help in planning, for tax expertise and getting help to create or update your will.
If you need help, please reach out to me and I can refer other professionals to you from my network.
All the best,
Bill