Estate preservation and enhancement

Upon death, for tax purposes, all of your capital property is deemed to be disposed of at its fair market value. A capital gain or loss will be realized at that time on the difference between the fair market value of the property at the time of your death, and its cost. In addition, the fair market value of your RRSP (registered retirement savings plan) and RRIF (registered retirement income fund) is included in your income on death. You may, however, be able to defer this tax and preserve your estate value, if property is left to a spouse, common-law partner or dependent.

In most provinces, probate fees, or estate administration taxes, are amounts paid in order to probate a will, which essentially certifies its authenticity. There are certain strategies that can be undertaken to reduce probate fees in certain circumstances.  All strategies being considered should be discussed with an external tax and legal advisor.

A trust is a relationship that separates the legal ownership of property from the beneficial use and enjoyment of that property¹. There are a few common uses of trusts in the context of estate planning. For instance, a trust could be used for asset protection, to provide for an inheritance for your children, and could be used where a foreign family member plans on leaving property to a Canadian.

If you have an incorporated business whose value has increased, an estate freeze may be a way to minimize taxes payable at the time of your death by freezing the value of your holdings at today’s value, and pass future growth to others.

Life insurance can be used not only to preserve the value of your estate, by providing funds to pay any taxes arising on your death, but may also enhance the value of your estate beyond its current projected value. A permanent life insurance policy could be considered to meet both objectives.

Finally, if you are not a U.S. citizen or other U.S. person, there still could be U.S. estate tax upon your death if you own U.S. situs.

¹ A trust has a different characterization under Quebec laws.