Will Your Death Leave Your Loved Ones With A Hefty Tax Bill?

It’s often said that death and taxes are inevitable. Yet even after death, taxes can dog investors


who want to leave money behind for loved ones and charities. In most cases, the tax collector gets one last cut of your wealth, and the final bill can be supersized – coming close to 50 per cent of the value of your investments. For this reason, adequate planning is worthwhile. “One of the most basic things people must consider when leaving securities such as stocks to others in their will is the tax considerations”. “In a nutshell, when you die, there is a deemed disposition of all your assets at their fair market value”. This means your investments are cashed out, as far as the Canada Revenue Agency is concerned – whether they’ve been sold or not – and applicable taxes are determined.


The one big exception is that, generally, most assets can be passed tax-free to a spouse. But if you have no spouse, or you leave assets to other beneficiaries in your will, your estate will likely face a tax bill. Complicating matters are investment accounts such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). For individuals who spent much of their adult lives paying taxes in low to middle brackets, it’s often a shock to realize their estate could end up being taxed at the highest marginal rate. In Ontario, for example, the combined federal and provincial taxes can be as much as 49.53 per cent on income exceeding $220,000.


In some cases in North-America, A surviving spouse gets a big tax break. If the deceased spouse didn’t use up his or her individual tax exemption, the survivor can use what’s left. That gives the couple a total exemption of twice the individual exemption amount, which can be split between them in any way that provides the greatest tax benefit. For example, say a man dies and leaves $4 million to his widow; no estate tax is owed because property left to a spouse is tax-free. The widow then dies, leaving $7 million (her own $3 million plus the $4 million she inherited from her husband) to their children. Her estate won’t owe any estate tax, even though the estate is over the exemption amount, because the estate can use some of the husband’s unused exemption. And If you think your estate will be large enough to trigger federal estate tax, get advice from an experienced estate planning lawyer, who can help you sort through your options. There are a few estate planning tools you can use to reduce estate tax liability.


Article credit: NOLO

Photo credit: The Huffington Post  




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