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4 Smart Tips For Estate Planning In Canada  


Estate planning is a fundamental process using which you can distribute “wealth” among your beneficiaries with the least tax burden. Hence, plan your estate and save hundreds of dollars in tax.

Four Smart Tips for Estate Planning In Canada

Source: Freepik

What Is Estate Planning and Why It Is Necessary?  

  • As per a recent survey, by 2030, at least one in every four Canadian citizens will be a senior. 
  • It enhances the importance of estate planning, using which you can effectively manage your wealth and reduce the burden of taxes upon your beneficiaries.  
  • In this process, you will begin with creating a “living will” or “power of attorney,” wherein you will mention how you will distribute your assets/ estate among your legal heirs.  
  • Follow specific processes to reduce the burden of probate fees, income tax, US Estate tax, and other government charges, which your beneficiaries will pay after your demise.  

Let us explore the 4 best tips to manage your estate effectively and reduce the taxation burden.  

4 Best Tips to Plan Your Estate  

We earn for our family. Years of financial planning and monetary sacrifices are not of use if our family remains unprotected after our demise.  

Thus, 4 smartest tips to manage your estate and maximize protection of your family are:  

4 Tips for Estate Planning
Source: Freepik

1. Defer the Income Tax as Calculated Under the Deemed Disposition Rule  

  • As per the current provisions of the Income Tax Act, 1985, we calculate the income tax upon the property of the deceased as per the rules of deemed disposition.  
  • Under these rules:  
    • All the properties held by the deceased are to be sold at the reasonable value (FMV) at the time of the death of the deceased.  
    • If the FMV exceeds the cost of the assets, the difference generated will be known as Capital Gain and will be taxed per the applicable rate.  
  • After your demise, your beneficiaries will pay this Income Tax to the Government of Canada.  
  • You cannot save this tax but can certainly defer it under estate planning.  
  • To do this, you must transfer your assets to a:  
    • Surviving spouse Or  
    • Place your assets in a “spousal trust,” which must be specified in your last will  
  • By doing this, your transferred assets will not be taxed under the deemed disposition rules.  
  • These assets will be taxed only when:  
    • Your spouse dies Or  
    • Your spouse sells these assets  

2. Reduce Your Probate Fees  

A probate fee is a legal tax required to be paid to the provincial government at the time of your death. The calculation of probate fees depends upon the value of your estate. Thus, the lower the estate value; the lower will be your probate fees.  

Here are some of the best tips to lower your estate value and consequently probate fees: 

S. No. Method Explanation 
1. Name the beneficiaries of the Life Insurance Policy • If you have taken a life insurance policy then you must name all your beneficiaries.
• By doing this all the proceeds will be sent directly to the designated beneficiaries and will not form a part of your estate value.
2. Own The Assets Jointly • You can own your assets in joint ownership with a right of survivorship
• Upon your demise, such assets will automatically get transferred to your joint owner and will not form a part of your estate value
3. Gift Some of Your Assets • When you gift some of your assets, these do not become a part of your estate value
4. Transfer Assets to A Trust Fund • You can set up a “trust fund” and can transfer some of your assets to it
• After your death, this trust will distribute the assets to your beneficiaries
• Such assets will not form a part of your estate value and will evade probate fees

3. Defer Taxes from RRSP and RRIF

  • Upon your demise, the entire value of your RRSP (Registered Retirement Savings Plan) and RRIF (Registered Retirement Income Fund) is included in your final income tax return.  
  • You can avoid this by:  
    • Transferring your RRSP and RRIF to the plan of your  
      • Surviving spouse or  
      • Dependent minors and 
    • By making it mandatory to purchase a term-certain annuity, which does not exceed the child’s 18th year of age  
  • If you have dependent minors who are physically or mentally disabled, then:  
    • You can transfer your RRSP and RRIF to
    • Their RDSP (Registered Disability Savings Plan)  
Tips for Estate Planning
Source: Freepik

4. Minimize the U. S Estate Tax  

  • If you have properties, securities, and other assets are US-sourced (also known as US Situs), then you will be required to pay US Estate Tax, which ranges between 18% and 40%.  
  • You are required to pay the US Estate tax only if you meet these two conditions:  
    • The value of your US situs assets is more than USD 60,000 and  
    • The total value of your estate (present in the entire world) is more than USD 5,000,000  
  • You can minimize your exposure to the US Estate Tax by following the below-mentioned tips:  
    • Sell some of your US Situs assets and reduce them below the limits mentioned above.  
    • If you are holding US securities (such as stocks, bonds, and debentures), you can surely sell them. Also, invest the proceeds into Canadian ETFs (Exchange-Traded Funds) and Mutual Funds that directly invest in the US security markets.  
  • You can hold the US situs assets via a Canadian Holding Corporation. By doing this, such assets will not be counted within the limits mentioned above.  

Wrapping It Up  

  • Estate planning is a continuous process and can sometimes take years to complete. Hence, never rush and start the process by writing a “will.”   
  • Post this, follow the tips mentioned above and plan your estate so that your probate fees, US estate tax, Income Tax, and other charges are the minimum. 

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