It has been said many times before; “The only certainties in life are death and taxes.” And although it may not be top on our list of financial planning issues, there are tax strategies you can implement for your time of passing. Failure to do so could result in substantially less for your heirs and inviting the government to become one of your beneficiaries. Here are a few ideas to help preserve the value of your estate.
The first step is to ensure that your will is current and beneficiaries are clearly identified. Making a charitable organization one of your beneficiaries is a popular way to reduce taxes, increase the value of your estate and leave a legacy to your favourite charity. Make sure your legal representative has the ability to transfer assets “in kind” as there may be significant tax benefits by donating assets rather than cash. There are also special ways of specifying your gift to ensure that the donation receipt is issued properly and the donation amount receives the maximum tax benefits. This can be a tricky area of estate planning and it is advisable to have your will drafted by a lawyer who specializes in charitable giving.
If you are married or in a common-law relationship, you can rollover most assets left to your spouse or common-law partner. In Ontario, the definition of a common-law couple is two people who have either lived together in a conjugal relationship for at least 3 years or; lived together in a relationship of some permanence and they are the adoptive or natural parents of a child. Unrealized capital gains can be deferred until your spouse sells the asset, or at the time of his or her death. This is a tax deferral idea, not an tax avoidance strategy.
If the deceased had unused RRSP contribution room, and they have a surviving spouse or common-law partner who is under the age of 71, their personal representative may consider making a spousal RRSP contribution. Although an RRSP contribution cannot be made to the deceased’s RRSP after the time of death, a contribution can be made to the RRSP of a spouse or common-law partner within 60 days of the end of the calendar year in which the deceased died.
It is possible that the deceased has unused capital losses from previous years or capital losses that occurred at the time of death. These losses can be used to reduce capital gains. However, capital losses can also be used to reduce any type of income in the year of death and the year prior to death. Utilizing unused capital losses can be quite complicated and it may be best if the personal representative consults with a tax professional to ensure the maximum use of their value.
We have literally scratched the surface of estate planning here. These are just a few examples of many strategies that can be implemented and you should seek the services of a qualified estate-planning professional or lawyer to assist you with preparing your will and making appropriate selections for your individual situation and personal goals.
This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.