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D. Smith: There are ways of minimizing the taxes we pay on death
There are tax implications when we leave this Earth.
The government’s tax department wants us to summarize our lifetime of accumulated assets and wealth upon our death, and make a final tax payment to them.
A certified financial planner can assist you with summarizing your assets at any time during your life to assist you in determining what assets are taxable and how much tax may be due.
If you don’t get around to summarizing your assets for estate planning purposes, someone other than yourself will take over that responsibility after you are gone.
It may be your accountant, lawyer or family member who will do the final summary—but it will be done.
In the year of death, a final (terminal) tax return must be filed by the estate’s executor/liquidator that includes all income earned by the deceased up to the date of death.
The named executor of your estate is required to file for probate with the provincial court as your assets go through the probate process.
The estate’s executor submits to the court the original will and an inventory of the deceased’s assets.
The provincial probate tax is based on the total value of the assets flowing through the will.
The province of British Columbia has a fee that is 1.4 per cent for assets in excess of $50,000 of value.
The average length of time for the probate process is 18 months.
Due to the length of time and cost of probate, it is a time-consuming and costly procedure and stressful for your family.
There are legal ways to avoid probate.
Joint tenancy can be used for home ownership and joint saving and investment accounts.
Property held in joint tenancy transfers by right of survivorship to the surviving joint owner(s).
It is therefore not considered part of the estate of the deceased joint owner and is not subject to probate fees.
Joint tenancy, when not between spouses may have disadvantages. Discuss this with a professional before you gift assets away under joint tenancy.
The use of an Insurance GIC with a named beneficiary allows the owner of the GIC to maintain 100 per cent ownership of their money and name a beneficiary to receive the asset after their passing.
Insurance segregated funds also have the ability to by-pass probate with a named beneficiary.
Designating a beneficiary under insurance policies, RRSPs, RRIFs and pensions will allow the proceeds to be paid directly to the named beneficiary.
The proceeds do not form part of your estate and are not subject to probate fees.
Probate fees are payable if the proceeds are payable to the estate.
An RRSP or RRIF can be transferred tax-free to a surviving spouse’s own plan.
Also, the RRSP or RRIF can be transferred tax-free to a financially-dependent child or grandchild who is under age 18, or who is mentally or physically infirm, even if there is a surviving spouse.
The registered funds must be used to purchase a term-certain annuity with a term not exceeding the child’s 18th year.
There are strategies to reduce or avoid probate fees. These strategies should focus on you and your estate plan.