"And to my Beloved Government, for Years of Devoted Service, I Hereby Bequeath..."
For your entire adult life you are subject to taxation in some form or other. You may begrudge paying these taxes, but you nevertheless do, justifying the expense as the "required cost" of living in Canada. It therefore seems a bitter irony that the payment of taxes doesn't necessarily end when you die. You are likely aware of the various income taxes that are payable by your estate in the year of your death. However, you may not be aware that additional costs, sometimes referred to as a "death tax", can be incurred in the form of probate fees charged for duly approving your will through letters probate.
Individuals who neglect to properly plan their estate, may inadvertently and maybe unnecessarily leave a significant portion of their assets subject to probate fees (payable to the government), which might otherwise have been avoided. The result is a reduction of the overall value of the assets that are distributed to your heirs. Through proper estate planning, you can lessen the asset-depleting impact of probate fees, effectively leaving more wealth to your heirs.
Depending on the complexity of your portfolio of personal and other assets, there are measures that you can take in order to minimize the effect that probate fees can have on the value of your estate. Of primary importance, you should ensure that you have a properly drafted will. It may be possible for an estate to be administered without probate if there is a will in place and the estate consists primarily of cash and personal effects. Also, where possible, you should assign named beneficiary designation to assets (RRSPs, RRIFs, Annuities, GICs issued by Life Insurance Companies, Life Insurance Policies) so that it may be possible for them to be paid out or transferred without the need for letters probate.
Some additional strategies for reducing probate fees that could be considered (depending on your age and the complexity of your portfolio of assets) include the following:
gifting assets
joint ownership of assets with right of survivorship
conversion of personal debt into corporate debt
transferring assets to a private holding company in a low probate province
transfers to a trust
investing in specific life company products.
It should be noted that these strategies can be complex and that careful consideration should be given to the specific tax and legal consequences that may arise. Before taking any action regarding any of the strategies outlined above, professional tax and legal advice is recommended.
Consideration to the issue of probate fees, and considering measures to minimize their effect on the value of your estate is an important component of a prudent financial plan. With "cash-strapped" governments searching for new revenue sources, the issue of probate fees is of even more concern to individuals. Now more than ever, individuals must be aware of current legislation on this issue and the financial planning measures that they can consider to minimize the effect of probate fees on the value of their estate. While you still "can't take it with you" - you can take measures to leave more to your rightful heirs.
Daniel Saikaley, CA CFP EPC - Investment Advisor, CIBC Wood Gundy
50 O'Connor St., Suite 800, Ottawa ON K1P 6L2 - Ph. 613.783.4674
email:daniel.saikaley@cibc.ca. Also, visit my website: www.danielsaikaley.com and click on This Month's Featured Solution.
The information contained herein is considered accurate at the time of printing. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisor. In addition, legislation in this area is continually changing. Before taking any action, you should seek legal advice to ensure that your planning is appropriate to your personal circumstances and that it is effective in the jurisdiction in which you reside.
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