In Canada, an estate planning tax is just one of the costs that your loved ones will incur upon your death. Others include funeral expenses and the payment of debts. The number of potential costs and their financial impact is why planning to minimize estate planning taxes is an important part of comprehensive estate planning.
Depending on the size of your estate, estate planning taxes (or “estate administration tax”) can be significant. In Ontario, for example, this tax (formerly known as probate fees) can equal 1.5 to 2% of the value of your estate. This tax is in addition to the taxes levied on your savings accounts and capital gains upon your death.
If it sounds complicated and like there are a lot of fees to worry about, it is because it is and there are. But there are methods to minimize the estate planning tax and the process less onerous for your loved ones.
Here are two of the most popular methods:
Jointly held assets do not, typically, form a part of an estate. Upon the death of the first joint owner, the asset passes to the survivor. Spouses often jointly own homes, bank accounts and other assets. Transferring an asset to joint ownership, with a spouse, family member or other close associate, will reduce the total value of your estate and thus, the amount of estate planning tax you owe.
There are several critical implications of transferring assets to joint ownership, and these should be considered thoroughly before transferring assets.
If an individual has life insurance, RRSPs or other registered plans, they may want to designate a beneficiary to receive the proceeds upon death of the individual.
Life insurance proceeds do not form part of an estate if there is a designated beneficiary of the policy.
In Ontario, if there is a designated beneficiary, proceeds of RRSPs and other registered plans are not included in the total value of the estate when calculating estate taxes. Accordingly, estate taxes are not paid on insurance and registered plan proceeds if there is a designated beneficiary.
Again, minimizing your estate planning taxes dues upon your death is just one part of comprehensive estate planning. If you want to talk to someone about your estate planning, contact the Niagara Estate lawyers at Chown Cairns today. We have decades of experiences in estate planning and are experts at minimize your costs owing upon death.