Estate Planning Essentials

  • A will governs the disposition of assets to those to whom you want to leave something
  • Anything named in the will (including furnishings, jewelry, money, investments, and property that is not your principal residence) is considered part of your estate. It does not include segregated funds with a named beneficiary, unless mentioned in the will, or the estate is named as beneficiary.
  • You should have a recently prepared will (plus powers of attorney for health care and financial affairs) with a named executor who preferably resides nearby. (There are issues for executors who live in the USA.)
  • Probate clears up any potential issues with the will, but it is in the public domain and it extends the time it takes for an estate to be settled.
  • All assets come under the domain of Probate, except for your personal home, segregated funds, and accounts with named beneficiaries
  • Estates that have a value of less than $50,000 may go to Probate, but those with a value exceeding $50,000 must do so.
  • Your lawyer handles Probate
  • Your estate has to pay probate fees on the gross value of your property--the fees are equal to $5 per $1,000 for the first $50,000 plus $15 per additional $1,000.
  • Where possible, reduce the size of the estate by using named beneficiaries. Otherwise, if the beneficiary is just your estate, the asset is handled by your will and goes through Probate.
Final Income Tax Return
  • If the death occurred between January 1 and October 31, the due date for the final income tax return is April 30 of the following year. If the death occurred between November 1 and December 31, the due date for the final return is six months after the date of death.
  • The taxes due depend upon the taxable assets that are left at the time of death, where it is the value of the assets between time of purchase (the Adjusted Cost Base or ACB) and the present value that is included when determining the amount subject to taxation.
  • Assets with named beneficiaries flow to those beneficiaries and bypass Probate but are still subject to overall estate taxation by CRA, unless the named beneficiary is a spouse, in which case the asset is not taxed until the death of the second spouse. Life insurance proceeds are also not subject to taxation when there is a named beneficiary, unless the will specifically indicates otherwise.
  • A TFSA can go directly to a named beneficiary.
Segregated Funds
  • Segregated funds can be used to reduce the volume of the estate by thousands of dollars. With named beneficiaries the funds flow through to the named beneficiaries quickly, but care in spending needs to be taken because they are subject to taxation on the second death (i.e. no spouse named).
  • Segregated funds are subject to ongoing taxation when in an investment account because of the buying and selling that goes on within the fund. This is what enables it to be tax free upon death.
  • When segregated funds are used for RRSP’s and RRIF’s, the assets flow through to the named beneficiaries within 2 or 3 weeks, so the process is shortened immensely. Also, probate costs and income tax are reduced.
  • Segregated funds can also be used to provide a monthly income for those owning them, while they wish it. As well, they can be used to provide a monthly income for those unable to handle finances (youth, infirm, or incapable). They have flexibility and many advantages. The investments chosen can be conservative, with a GIC nature (term deposits) or can be more income or growth oriented, depending upon the nature of what is desired.
  • Segregated funds may have guarantees built into the contract and sometimes there are choices to be made about the types of guarantees. These can impact the rates of return because the greater the guarantee, the greater the cost. This is similar to the guarantees around GIC’s in terms of paying for safety.

In summary, professional advice on estate matters may prove to be invaluable. Laws change periodically. It is advisable to review these affairs periodically throughout your life.

Insurance services are offered through IPC Estate Services Inc.