There is no inheritance tax in Canada, but you must pay income tax. An income tax return has to be filed for the deceased. At the time of death, all of your capital assets are deemed to have been sold for fair market value as of the date of your death. The estate will have to pay income and capital gains taxes, so if your assets have had a significant appreciation over the years, your estate could be hit with a big income tax bill. Be aware that and US assets will be subject to US estate tax.
Minimize the amount of your estate has to pay. Consult a professional estate planner who may suggest the following strategies to minimize the tax hit:
a) Make sure you have designated beneficiaries on RRSP’s, annuities, life insurance, RRIF’s and GIC’s
b) Make sure you keep your beneficiaries up to date
c) Get advice on joint ownership with right of survivorship on property to ensure property passes to the survivor by law rather than through a will
d) Consider extra insurance to cover the administrative and tax liabilities. Some people arrange for their children to pay the premiums which would be less than what they would lose through taxation.
e) Establish a living family trust, where assets are transferred while you are still living and taxed at a lower rate
f) Income splitting
g) Making charitable contributions
Speak to your financial advisor about which of these, if any, would be appropriate for you.
What does probating a will mean?
Probate is a way of having a will formally approved by the court. It formally approves the will and recognizes the authority of the executor to act. It may or may not be necessary depending on the assets involved. There is a fee involved in probating a will and can be quite costly. Many people seek to avoid probate because of the fees, however, the cost involved may be worth it.
Benefits of Probate:
- Protects the executor against personal liability
- Some real estate cannot be disposed of without it
- Establishes a time frame for claims to be brought against the estate
Consult with your lawyer about probate.