The need for estate planning is especially evident for those accumulating significant retirement wealth, either in the form of business ownership, real property or investment assets. Though it is true that “You can’t take it with you”; it is possible to reduce your estate taxes enabling you to transfer more money to your heirs. The estate tax is payable on income accrued to the date of death including salary, investment income or dividends.
The Income Tax Act deems that you dispose of all your capital assets, including stocks, bonds and mutual funds, at their fair market value just prior to your death. In the year of your death, gains that have accrued on your investments and other capital property will become taxable, reduced by accrued losses on investments and other capital properties. You will need professional tax advice when developing your estate plan.
Leaving Non-Registered Assets to Your Spouse
A surviving spouse can continue to benefit from your assets. You can defer tax payable on your accrued gains at death if you leave your assets to your surviving spouse or to a spousal trust established for the sole benefit of your spouse during his or her lifetime. The taxes are deferred until the death of your spouse or until he or she sells the assets. The deferral allows your spouse to utilize your investment assets in a tax-efficient manner and to dispose of assets in a way to minimize the taxation.
Leaving RRSPs and RRIFs to Your Spouse
Did you realize that your RRSPs and RRIFs would be subject to immediate tax upon your death unless you have established your spouse or a financially dependent child as your beneficiary, and certain other conditions are met? Tax will be payable when monies are withdrawn as income by your spouse or as annuity payments to financially dependent children. Even if you have not established your spouse as your beneficiary, he or she may be able to legally request a transfer of your RRSP/RRIF funds to his or her RRSP/RRIF and defer the tax that would otherwise be payable upon your death. Further, upon your spouse’s death, any remaining RRSP/RRIF money will be taxed (assuming there are no financially dependent children). Any RRSP/RRIF tax liability could optionally be paid using a special pre-designed life insurance strategy to help maintain your asset base and is transferable to heirs surviving your spouse.