Thinking about drafting a will? Or updating an old will?
Don't forget your silent beneficiary, the Canada Revenue
Agency. Though not named in your will, the CRA is always on hand
ready to take as large a cut from your estate as it possibly can.
Luckily, there are a number of tactics you can use to shrink the
taxman's take. I covered the use of trusts in a
previous article. This time, I want to look at some less
esoteric ideas, including the designation of income-earning assets,
probate planning, RRSPs and RRIFs, and charitable donations.
In addition to trusts, there are many other tax planning
strategies that you can consider when drafting your will. For
example, if you own income and non-income-earning assets, it is
possible to leave income-earning assets to children in lower tax
brackets. This is because income from bequests to children in
higher brackets will, of course, be added to their other taxable
income, thus resulting in a significant tax exposure.
In Ontario, tax of 1.5% will be payable on the value of your
assets that go through probate. However, if you own shares of
private companies, you should ensure that you have a secondary will
that deals only with those shares. That's because unlike bank
accounts or real property, shares of private companies do not
require a probated will for a transfer to the beneficiaries. So by
segregating your private company shares in a separate secondary
will, you can avoid probate tax on the value of your shares.
These savings can be substantial if the bulk of your wealth is
tied up in private company shares. Therefore, if a secondary will
is drafted to deal with your shares, then the application for
probate will be made only in respect of the assets in your primary
I stated earlier that a probated will would be required in order
to transfer real estate to your beneficiaries. However, it is
possible to save on probate fees on your home or other
personally-owned real estate by having a bare trustee company on
title. The shares of that company can then be dealt with under the
Since you won't need to change title to the property on your
death (as it will continue on in the name of the bare trustee
company), a probated will is no longer required for that
RRSPs and RRIFs
I recommend that you designate a beneficiary of a Registered
Retirement Savings Plans (RRSP) or Registered Retirement Income
Fund (RRIF) directly in the contract itself rather than in a
This will do more than just avoid probate fees. If you designate
your spouse as a beneficiary (which I highly recommend), the value
of your RRSP or RRIF will not be included as income in your final
return as there is a deferral of tax for transfers to spouses.
If your spouse passes away before you, or you get divorced, you
can designate a child or grandchild who is "financially
dependent" on you. This means the RRSP will be taxed in the
hands of the child or grandchild with a lower tax rate.
The financially-dependent child or grandchild can also specify a
special annuity, which will enable them to defer this tax while
they are minors or indefinitely if they are mentally or physically
disabled. ("Financially dependent" usually means that the
child's or grandchild's income does not exceed the basic
Your will can provide for gifts to registered charities, which
if made in the year of death, qualify for tax credits of up to 100%
of your net income. Although this sounds like a great tax planning
opportunity, pitfalls abound and care must be taken when drafting
The Canada Revenue Agency used to be of the opinion that if the
executors had discretion to choose between the value of the bequest
and which charity would receive the gift, the donation would not
qualify for the tax credit.
Although the CRA does not currently hold this position, I would
highly recommend that you speak with your advisor to ensure that
the amount to be donated is determined (whether a specific amount
or a percentage), and that it is clear from the terms of the will
that the executor is required to make the donation to a qualified
Another strategy is to leave your residence to a beneficiary who
will be able to claim the principal residence exemption. In
addition, if someone owes you money and you wish to forgive the
debt, the best way to do this could be in your will, which will
avoid certain debt-forgiveness rules.
By properly planning your will using some of these strategies,
you can at least take comfort knowing that upon your death, you are
leaving a larger inheritance to your family – and a (much)
smaller one to the CRA.
Portions of this article first appeared inThe
TaxLetter, published by MPL Communications
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
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