Did you know that after years of working hard to provide for your family, without proper planning you could end up leaving them with a tax bill?
Good news! There are ways to eliminate or defer these tax liabilities to protect your estate for future generations.
To understand the tax implications at death, we need to break down different types of assets.
Assets with Possible Tax Liability
- Real Estate: Properties, other than your primary residence, may be subject to capital gains tax.
- Investments: Shares in corporations, collectibles and even farms. There is a possible exemption for this for Qualifying Small Business Corporation shares and qualifying farm or fishing properties.
- Registered Investments: RRSPs, RRIFs, and pension plans are taxable upon your death.
Under the Income Tax Act, capital gains at death can be delayed by leaving the asset to a spouse, which would defer the tax owing until the spouse dies.
Assets with No Tax Liability
- Principal Residence
- TFSAs
- Life Insurance death benefits
When you appoint beneficiaries for these accounts, the proceeds upon your death pass directly to them, avoiding time consuming processes and delays.
There are various strategies with pros and cons for managing your estates final tax bill:
- Build a cash reserve.
- Sell assets.
- Freeze the estate.
- Borrow to pay the tax.
- Life insurance
One of the most effective tools for estate planning is life insurance. The benefit is paid tax-free to your beneficiaries. This can cover taxes and final expenses without an estate sale or borrowing to round up the collateral.
Navigating the waters of estate planning and tax liabilities can be overwhelming.
Consulting with an insurance professional who understands the minute details of the process and insurance options is essential for minimizing tax liability and safeguarding your estate for your family.
If you’re concerned you may leave a tax burden for your loved ones, reach out to Denis at DPB Insurance today to ensure your estate plan is in order.