Death and taxes
Unfortunately, the tax man doesn’t forget us when we die. Before an inheritance can be doled out, the Canada Revenue Agency(CRA) has to get a cut. Depending partly on how rich the deceased person was, up to half of the estate can go to taxes.

On top of that, rifling through reams of paper and refereeing family squabbles can be a massive job for the executor. In the end, many beneficiaries wind up having a long time to contemplate how to spend the windfall. There are estates that settle everything in three months from the date of death, And some can go on for many years.

How to handle taxes
When someone dies and leaves everything to a spouse, there’s usually no tax hassle: RRSPs, registered retirement income funds (RRIF), real estate and other investments can simply roll over to the husband or wife.

The tax situation gets more complicated when the surviving spouse dies – or if the deceased had did not state in his will to rollover the estate to his spouse, or was single or divorced. Under the federal Income Tax Act, the person is deemed to have disposed of company shares, real estate or any other capital property at fair market value. “Basically this just means that the government pretends you sold all of your property the second before death. Which means that the estate has to pay tax now on things it owns.

A final tax
The executor of the will files a final tax return for the deceased. In it, RRSPs and RRIFs must be reported as if they have been cashed in. Assets that have capital gains – or an increase in value from the time they were purchased – must also be reported. (One bonus: The deceased person’s principal residence is exempt from capital gains tax. Additional residences, such as a cottage, are not.)

In the end, an estate can be stuck with a hefty tax bill, one that can eat into what the beneficiaries will receive.

Once the executor settles the estate, CRA issues a clearance certificate to confirm all income taxes have been paid. By that time you get your inheritance check.