My old man uses to say that there are two things that are 100% certain in life: Death and Taxes. The funny part is that once you are dead, the very first thing you do is to pay taxes on your assets! So the combination is good for your whole life! Taxes your estate will have to cover are a little bit different than the taxes you pay while you are alive. This is why it is very important to make sure you have enough liquid assets to pay them off!
If you don’t, the estate will have to sell a property or other assets in a hurry to make sure they pay your very first heir; the government!
AS I mentioned in my previous post on estate planning, you are deemed to have sold all your assets at market value at the time of your death. Therefore, it will trigger important capital gains on your non-registered investments and properties (except your main residence).
Pension plan are transferable to your spouse but taxable in the hand of your other heirs (i.e. children). They will be deemed to receive the full amount in cash and therefore will have to pay taxes on this extra income.
In regards, to properties, your principal residence is free of taxes. However, if you have a secondary residence or rental properties, this might create a great capital gain. You might want to plan permanent life insurance to cover this “potential debt”. This is a good example where a universal life could be included in your estate plan (Hope you are reading this V 😉 ). Depending on provinces and who inherit the properties, the heir (if it’s your spouse) might be able to acquire the property without paying taxes but he/she will be deemed to have it at your adjusted based cost. This will report taxes to be paid on the property but will still have to be paid someday!
Non registered funds will go through the same process, triggering capital gains everywhere. So when you are getting older, it may be a good idea to sell a few investments every year in order to trigger the capital gain at a lower marginal tax rate. Depending of your assets and your investment strategy, this could result into a good strategy (you definitely need to see a financial planner and revise your global situation before doing so).
A tax expert will be required to analyze your situation if you have several items mentioned above. If it’s the case, you probably have a financial planner that would be able to help you out with your estate planning or will find the tax expert for you.
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