Most Canadians are very unfamiliar with how estate tax works. When someone passes away, there is a deemed disposition tax which applies. Therefore, it is important to minimize your estate’s exposure to this tax and develop a well-structured estate plan to ensure your beneficiaries get the wealth you left behind.
How to deal with taxation issues
The term deemed disposition tax refers to someone’s investments that are deemed to be disbursed at death. The capital gains as a result of their disbursement are required to be part of the final income tax return filed in the year of an individual’s death. The value of income received from real estate, stocks, life insurance and bonds are also included in the final tax return.
Having an effective and updated estate plan in place can save you and your family time and money. There are strategies that can help you minimize your tax liabilities and make it easy for your family to inherit your wealth. For example, if you transfer the assets to a surviving spouse, the tax is deferred. When the spouse passes away and wealth is passed on to beneficiaries, 50% of the capital gain of any resources: bonds, stocks, real estate and investments are taxable. Make sure you have the right strategies set in place to transfer on your wealth.
It is critical to have a valid Will
Death and taxes are two inevitable events which you can’t control. What you can control is the way your wealth is transferred to your loved ones. This requires a Will which ensures that, after your death, your wealth is managed the way you want. When someone dies without leaving a valid Will, according to Canadian law, the province decides how their assets are distributed.
If you don’t want the government authorities to distribute your assets after your demise, work with a financial planner to prepare a Will. Dying without leaving a valid will also leads to additional expenses and delays. The following are two types of wills:
- Last will and testament: Last Will and Testament enables you to give power to someone you choose as an executor on how you want your wealth distributed after your demise. This isn’t to be disclosed until after the burial or funeral when the heirs get together for the reading of the will.
- Power of attorney: A Power Of Attorney provides you with an opportunity to have your financial affairs managed by someone you nominate when you become unable to manage them yourself. The designated person can manage your financial activities ranging from paying bills and filing tax returns to banking and voting.
Simply put, to ensure your wealth is distributed according to your wishes, you need to create an estate plan which may include a Last Will and Testament, a Power of Attorney, and a trust. If you’re located in Edmonton and want to consult with an estate planning expert, we are ready to help. Contact Kewcorp Financial to streamline your estate plan and other financial affairs!