In Part-One of this series we discussed the steps of creating an estate plan, the importance of having a will, and the practice of gifting assets while living.
In this second part of the series on estate planning we will discuss the merits of life Insurance and what you can expect in terms of taxes when a loved one dies.
Most people understand the importance of having life insurance, but haven’t fully considered the important role it plays when it comes to estate planning. When a person dies, their life insurance can be used to:
How do death taxes apply?
Contrary to what many people think, there is no actual estate or inheritance tax in Canada. When a person dies, unless their estate is inherited by their surviving spouse or common-law partner, CRA treats the estate as a sale, and the estate pays the taxes owed to the government, rather than the beneficiaries paying the taxes.
What is the tax process at the time of a death?
If you have been appointed a legal representative for someone who has passed away, you are required to file a ‘deceased tax return’ to the Canadian Revenue Agency (CRA), so that any taxes owing can be taken from this return prior to the settling of the estate. After you have settled the deceased person’s estate, the CRA will issue a ‘clearance certificate’, indicating that all income taxes have been paid. It is important to note that you must obtain this clearance certificate before you disperse of any property, otherwise you can be liable for any taxes owed.
What are the tax rates?
Again, there are no inheritance taxes per say, but rather income owned by the deceased person is taxed on a final tax return.
Probate is an approval process that validates your will and confirms the appointment of your executor. To learn specifics about probate, go to: https://www.sunlife.ca/ca/Learn+and+Plan/Money/Financial+planning+tips/What+is+probate?vgnLocale=en_CAAlberta
Probate fees are calculated according to the value of the estate. To review probate fees in Alberta go to:
This is just skimming the surface of things to know when it comes to estate planning. To learn more about this important process visit: http://www.rbcds.com/estate-planning-guide.html