The $$$ Maker Report
Bi-Monthly Investments Newsletter by Karl
Jung, CLU NOV/DEC 1998
Gibsons
office: (604) 886-2691 Cellular: (604) 760-9899 Fax:
(604) 886-3014 kjung@dccnet.com
ESTATE PLANNING
DEATH & TAXES
Estate Planning is the process
of planning for two of life's guarantees — death and income taxes. Canada does
not levy estate taxes but instead considers certain assets to be disposed of at
the time of death. The disposition of property can trigger capital gains or
losses.
A proper estate plan
examines the following:
§ Who should inherit the asset?
§ Who will be responsible for any taxes?
§ Can current tax rules be used to the estate's advantage?
What is subject to taxes?
Deemed Dispositions of Capital Property
§
This
includes rental property, raw land, shares in public corporations and privately
held companies, mutual funds, certain bonds and GICs, limited partnerships and
tax shelters.
§
Depreciable
assets such as rental property also can have recaptured depreciation
liabilities.
§
Under
current tax laws, capital gains can be deferred to a surviving spouse. This,
however, does not eliminate the-tax — it only postpones it until the survivor's
death.
RRSPs and
RRIF
§ Both can be rolled over to a spouse's registered plan, but again taxes are due at the survivor's death.
§ A $100,000 RRSP can easily lose up to 52% in taxes.
Probate
Fees
§
Any
assets passing through the estate such as investments without a named
beneficiary, or not in joint tenancy are subject to this provincial fee.
What you can do now
1. Consider giving certain assets now to children, grandchildren, or a favourite charity. Although capital gains taxes may still be triggered, the asset can be disposed of at a time when you are in a lower tax bracket or have other capital losses.
2. Make sure the family home and contents are in joint tenancy with your spouse or children to avoid probate fees.
3. Have a named beneficiary on your life insurance, mutual and segregated funds, GICs, etc. to avoid probate and any potential creditors.
3. A Family Trust can ensure certain assets such
as a family cottage will continue to create enjoyment for all family members.
4. Spousal Trust can be used to guarantee a source of income for a
surviving spouse. The trust would be responsible for making prudent investment
choices for a spouse who may not be so inclined.
6. Consider an "Estate Freeze" if you are the owner of a family business. The tax liability to you would be "frozen" at present levels, with future gains of the company passing on to either the children, spouse or grandchildren
7. Charitable Donations by the deceased's estate can be planned in advance, thus reducing any potential tax liabilities for that year.
8. Make sure your executor is aware of any unusual medical expenses that could be used by him/her on your terminal tax return. Disability tax credits exist, and as an example, up to $20,000 for part-time attendant care can be used for the year of death.
9. Your executor can elect to have Optional Tax returns done for the year of death. This allows certain assets to be claimed on one return, and others for a second. Tax credits such as the personal exemption can be applied on both. The second elective return is called "rights or things" return, and must be filed within one year of death.
Estate planning does not have to be a complicated matter
for most individuals. It can, in most cases, be as simple as knowing exactly
what you own, what you owe and who you want the asset to pass to. Those with a
more complicated estate involving a family business can still use the basic
tools in outlining apian. Always get competent advice by working with your
lawyer, accountant and insurance agent.
