Recently, there has been much discussion about changes to executor responsibilities.
While Estate Administration Taxes (also known as probate fees) didn’t change in the recent legislation, reporting of estate assets did which could add to estate costs.
Here are 10 tips to streamline your estate and potentially reduce probate and final income taxes:
– Have a valid will naming executors who have the skills to manage your estate. Remember to update your will when significant events occur, particularly a second marriage.
– Talk to your executor about ways to simplify your estate. With new requirements for appraisals of assets for the estate, consider selling or gifting away assets prior to death.
– Consider naming final donations in your will to offset final income taxes. Charitable donations are among the highest tax credits available.
– Name beneficiaries – especially spouses – on registered accounts, life insurance and pensions. By naming your spouse beneficiary, these assets move probate and income tax free to your spouse.
– Consider insurance investments such as segregated funds and guaranteed interest certificates for your non-registered investments. Insurance investments allow naming of beneficiaries so proceeds flow to them quickly, confidentially without probate fees.
– Consider life insurance to create cash for your estate’s expenses, like your funeral, probate fees and estate taxes. Income taxes can be significant if there is a large registered retirement savings plan (RRSP)/registered retirement income fund (RRIF) or investments with large capital gains outstanding.
– With recent changes to the taxation of trusts – including estate trusts – consider alternatives to liquidate your estate quickly. For instance, if you want a sum of money paid out to a child over several years, consider changing your will to instruct the executor to buy a life or term annuity to do the same thing and avoid a lingering estate trust.
– If you have debt, keep it consolidated in a mortgage secured line of credit. At death, probate fees are charged on the value of your home, net of encumbrances.
– In retirement, consider reducing your RRIF balances faster by withdrawing a little more to put in your tax-free savings account (TFSA). A large RRSP/RRIF at death means a large tax bill. The same money in a TFSA will have no taxes owing. Pay a little more tax now to give more to your beneficiaries later.
– Seek out the advice of a qualified financial adviser who specializes in estate planning and can work with your lawyer and tax preparer. Estate planning is not a “do-it-yourself” project and professional help will cost less than potential tax consequences.
submitted by Dan Allen senior financial advisor, Heritage Group, Guelph
