Today I am pleased to welcome another post by freelance writer, Jenny Holt.
Estate planning represents the importance of financial readiness and the health care wishes that your family will honor during a death or permanent absence. Even though it is a part of financial planning that many people do not want to think about and tend to push to the side, a comprehensive estate plan can help elucidate some of the litigation that your family members will be forced to answer to in your absence.
The definition of an estate consists of all property owned by you at the time of your death, including bank accounts, real estate properties, insurance policies, and personal items.
The Realities of Tax Implications
For most Canadian citizens, the greatest tax effect is when it comes to their Registered Retirement Savings Account or Registered Retirement Income Fund. The full value of these registered accounts at the time of death will typically be reported as a source of income, with the payable income tax depending on the marginal income tax rate during your final tax return.
There are exceptions to this rule – like when these surviving accounts are registered to the living spouse. When it comes to tax implications, proper estate planning will minimize the amount of taxes that will need to be paid on transferred assets.
Dedicating time to comprehensive financial planning will also help avoid operational costs associated with the probate process, as well as help dictate what type of life-prolonging medical procedures should be enacted if you are unable to make your own decisions due to a disability. Proper estate planning is not only your fiscal responsibility, but it is an important mode of dictating your investment portfolios when you aren’t able to do so in person.
You May Be Underestimating the Value of Your Property
Some areas in Canada and beyond have the uncanny inclination to underestimate the value of their homes, potentially up to 1.6 percent lower than its actual worth. This may only translate to a couple of thousand dollars, but depending on the girth of your investments, and overlooked perception gap can turn into thousands. Underestimating the value of your home has several adverse effects, including:
- · Underselling the home in the future. If you or your surviving spouse are unaware of the actual value of your property, then you may not receive proper compensation for sold investments.
- · It impacts your estate and succession planning. For those who own property, it is necessary to know the value of your property holdings to recognize your net worth. This can also help you understand the best time and method of property transfers.
- · Not knowing the actual value of your property can complicate insurance. This results in your family taking out an inadequate insurance cover. Whenever a claim increases, you may be penalized under your current policy.
Disposition Taxes: Estate Planning for Canadians
Even though Canadians have relaxed estate taxes, disposition taxes are still a certainty. Similar to an estate tax, a disposition tax applies when you die and leave behind the property. Some of the taxation issues that tend to arise from this type of situation include final income taxes on capital gains triggered by a sale, with the final tax return also including the value of retirement accounts and stock proceeds in the year of death.
This income tax can be north of 29 percent, dealing a blow to surviving family members. Not only that, but there are additional provincial and probate expenses applied on top of this income tax.
Most of these complications and complex tax implications can be avoided with a will. Taxation is deferred if your assets are assigned to a surviving spouse, even if the assets are held in a spousal trust. Take note that if your living spouse decides to sell the property, then taxes will apply.
When You Need the Help of an Estate Planning Litigator
Estate planning is much more complicated than distributing assets – in reality, it is ensuring that finances are handled properly and that heirs receive their rightful share of allotted assets. An estate planning litigator will also help you understand the more complicated aspects of planning, especially if your spouse becomes deceased or may potentially sell your investments.
Thanks for reading,