Show of hands if you enjoy paying more tax than is necessary? …thought so.
Unfortunately, that’s what a lot of us end up doing when we reach the end of the line.
According to a poll by Angus Reid Institute, the majority of Canadians don’t have a will. And many of us who have wills haven’t kept them up to date.
Failing to name beneficiaries or execute a will can cause lengthy delays in settling your estate and will result in your hard-earned assets being distributed by the government (once they have taken their piece, of course).
How do you want to be remembered by your loved ones? Your estate can be distributed however you choose and can create a beautiful legacy for years to come. But that won’t be the case if you don’t clearly document your wishes.
When planning the transition of your assets to the people and caused you care about, there are a few strategies that we can utilize to minimize taxes and simplify the process for your Executor.
The first step is to meet with your Financial Advisor and/or Lawyer to start developing your estate plan. It is very helpful to have a summary of all your assets, liabilities, and insurance policy details on hand to get started. It’s also wise to consider how you want things divided up and who will be your executor.
When considering the distribution of non-registered assets and secondary properties, it’s important to adequately plan for the tax consequences upon death. There are several strategies your Financial Advisor can recommend which will minimize fees and taxes to your estate.
Let’s talk through one example. Say you sell your home and have $200,000 in Non-Registered assets in a mutual fund at the time of your passing. Assuming you pay a probate fee of 1.5%, and you involve an accountant, lawyer, and executor to settle the estate, this could cost you in excess of $14,000 – about seven per cent of your $200,000.
While some people may simply see this as the cost of doing business, I want you to consider an alternative.
If you want to reduce taxes and fees to your estate, you may want to consider Insurance based investments, also known as Segregated Funds. Under the Ontario’s Insurance Act, all investment plan types can include named beneficiaries. This ensures the assets flow more quickly to your loved ones, remain confidential, are protected from creditors, and help you bypass professional fees and probate.
If we compare someone who puts their $200,000 of Non-Registered assets into a segregated fund or insurance based guaranteed interest contract (GIC), they will avoid probate and the job of settling their estate will be much simpler. There will be no disputing your wishes and the funds will flow quickly to the named beneficiaries.
The only downside to segregated contracts are that the management fees are slightly higher than a mutual fund customer would pay over the life of the investment. But, for most, the fees are a small price to pay to have peace of mind knowing their assets will end up in the hands of the people and causes they care about.
The situation we have just walked you through is simplified, and not all estate settlements will be the same. However, the message is the same: while you can’t take it with you, you should take all possible steps to retain your hard-earned assets so they can be enjoyed by future generations and the causes that are important to you.
We would love to tell you more about estate settlement options. If you have questions or want to start the process, please contact [email protected] or 613.887.2726.
NOTE: As we are not a law firm, we cannot update your will–however, there are many great planning opportunities we can help you with before you start the legal documenting of your estate planning