Listen to The Potential of The Testamentary Trust
This week on Hull on Estate and Succession Planning, Ian and Suzana continue to focus on testamentary trusts, the most common estate-planning step after the simple will.
Listen to "Capital Gains Taxes"
Read the transcribed version of "Capital Gainst Taxes"
In this week’s episode of Hull on Estate and Succession Planning, Ian and Suzana talk about capital gains taxes and what you need to know about them relating to the family cottage.
Read the transcribed version of "Probate Fees"
During Hull on Estate and Succession Planning Podcast #69, Ian and Suzana discuss the topic of probate fees. They discuss probate fees, probate planning, and tax avoidance.
It’s tax season. That wonderful time of year for number crunching, hunting for receipts and depending on your situation, hair pulling.
If you are an executor of the estate of a deceased person, you also have the responsibility of filing the deceased’s "final return." To borrow from a popular expression, the two certainties, death and taxes, follow each other. Final tax returns for those who die during the period from January 1 to October 31 are due April 30 of the following year.*
While there are no inheritance taxes in Canada there are a number of taxes that arise as a result of your death and must be included in the final return. Some of those taxes include the following:
Capital Gains Tax. For the purpose of calculating tax, the CRA deems a deceased to have disposed of all her capital property immediately before her death. This is referred to as a “deemed disposition.“ Depending on the deemed proceeds of disposition, there may be a capital gain or loss. Certain types of capital property are exempt from this rule and an expert should be consulted for specific advice.
RRSPs and RRIFs. These tax sheltered investment vehicles lose their status as such at death. When you die, the tax holiday ends and your RRSPs and RRIFs are collapsed. There is a deemed sale of any securities held in the RRSP or RRIF and any income made in the year preceding your death must be included in the final return. There are a few notable exceptions to this rule, such as a spousal rollover and transfers of your plan to minor and/or mentally infirm children.
There are many creative ways of reducing the taxes that surface after your death. The benefits of doing so may be substantial and result in considerable savings for your estate. When you consider the fact that you spend a lifetime building your assets, speaking to a profession about your estate is advisable. Your beneficiaries will thank you.
*For more information on how to file a final return, visit the Canada Revenue Agency’s website
Read the transcribed version of "Tax Considerations for Separated Spouses"
During Hull on Estate and Succession Planning Podcast #57, Ian Hull and Suzana Popovic-Montag discuss tax considerations to keep in mind within the context of separated spouses.
They cover such issues as tax liability, spousal support and child support deductability and the deductability of legal fees.
Last week, the Globe and Mail published an article on RRSP Myths, which is a timely subject with the deadline for contributions fast approaching. It dealt briefly with the taxation of an RRSP on the death of its holder.
The general rule is that, upon death, the holder is deemed to have withdrawn all the funds in the RRSP as at the date of death and will be taxed on the entire amount. This means that, generally speaking, the estate of the holder will pay the taxes, not the beneficiary of the RRSP.
The value of the RRSP is required to be reported on the deceased’s terminal tax return as part of his or her income in the year preceding death. Depending on the RRSP’s value and the total income of the deceased in that year, the proceeds of the RRSP might end up being taxed at the highest marginal value.
There are some circumstances where the estate will not be required to pay taxes on the RRSP:
- If the beneficiary of the RRSP is the spouse or common law partner of the deceased, then the RRSP funds can be transferred to his or her RRSP or RRIF, or they can be used to purchase an annuity.
- If the beneficiary of the RRSP is a financially dependant child or grandchild under the age of eighteen, the funds can be transferred to him or her to purchase an annuity. If the beneficiary is a financially dependant, mentally or physically infirm, child or grandchild of any age then the funds can be used to purchase an annuity or transferred to his or her RRSP or RRIF.
Another option is to designate a charity as the beneficiary. While the estate will still be liable to pay taxes on the value of the RRSP, it will be eligible for a tax credit, the effect of which is normally to offset the tax on the distribution.
For more information on these issues, check out the CRA Information sheet on the Death of an RRSP Annuitant.
Have a great day!
READ THE TRANSCRIBED PODCAST
During Hull on Estate and Succession Planning Episode #40, Ian and Suzana discussed issues surrounding the conclusion of the Family Conference, including tax matters, unapproving family members, implementing drafts and bullet-proofing your estate plan.
Continuing with our consideration of non-tax issues in estate planning, we turn to the reality that, notwithstanding the importance of non-tax issues, taxes are important. We will typically initiate our advice on these tax-related issues by reminding our clients that they need to think "outside the box" and leave the tax issues to the professionals. In our experience, if you let the tax issue drive the advice, you overshadow the non-tax issue at great peril to the family succession plan.
Obviously, an important initial determination that needs to be made at the outset of creating a succession plan is to decide whether or not you plan to pass the business on (to family members or a trusted employee, for example), liquidate the business, or sell the business to a third party.
Once the preliminary determination has been made in respect of the future of the business, then one needs to look at the issues from two important but separate perspectives. One from the ownership vantage point and the other from the managerial view. In family-run businesses it is especially important to separate the two perspectives and to approach the business and succession planning issues from both of these viewpoints on a separate and analytical level.
An example of the importance of separating these two aspects of decision-making is when the ownership of the business is being passes on to younger family members, yet the management is being maintained by existing non-family senior managers.