You pay taxes all your life. Unfortunately you’ll even have to pay taxes when you die. But there are ways to minimize those taxes, so why not take advantage of them? After all, who would you rather your money go to – the government or your loved ones?
How to avoid making government an heir.

One of the goals of any good estate plan is to minimize taxes. Because unless you take steps to avoid it, a great deal of your estate could go to the government. That’s largely because of a rule known as “deemed disposition”.

Under the deemed disposition rule of the income tax act, when you die, all your assets are treated as if they had been sold.

The government will treat your registered assets – your RRSPs and RRIFs – as if you had cashed them in and taken all the money, requiring tax to be paid. One way to avoid this is to plan to spend all your registered assets before you die.

Of course, this strategy does require careful planning. Firstly, you don’t want to deplete this resource before you die. And second, you want to keep your withdrawals low enough so that you don’t move to higher tax brackets or incur a clawback on your OAS.

As for your non-registered assets, with the exception of your home, they are treated as if they had been sold at market value at the time of your death, and you would have to pay tax on any capital gains.
In addition, your estate may have to pay provincial probate fees. The fees vary but are usually set as a percentage of the value of your estate.

Fortunately, there are ways to minimize or at least defer these taxes.

Minimizing your taxes

The good news is that you can structure your assets in ways to minimize the taxes and use strategies to defer the taxes to be able to pay it with discounted dollars planned and arranged for in advance.

When you are doing the planning to minimize your cost of estate taxes, consult with a good financial security advisor who can help and guide you in the facilitation of this planning process.