Valley First

Estate Planning

Will half your inheritance be taxed?

“A woman came to me after she was forced to sell her condo and move into a rented apartment. Without talking to me, she had added her adult son jointly onto her GIC account. At that time he was married, but then his relationship ended. When he divorced, the court ruled assets be split. Legally, the son’s joint ownership of his mother’s GICs were considered part of the assets that needed to be split with his ex-wife. By the time the woman came to me there was nothing I could do to help her keep her home. If she had come to me first, I could have provided advice to help avoid risky tactics meant to protect her, her family and her livelihood.”

Start with some advice.

You worked hard to build up your retirement nest egg. You also did all the right things tax-wise. Don’t let your effort and careful planning slip when it comes time to pass your estate to your loved ones.

There is little that can be done to reduce taxes and probate fees after death so you really need to be proactive. When you pass away in British Columbia, you are assumed to have disposed of all your assets on that day. Your estate will pay applicable income taxes, capital gains taxes on property and probate fees before the remaining assets can be distributed according to your will. In BC, probate fees run from 0.6% to 1.4%. While minimizing them will save your estate some money, you also want to avoid doing anything to negatively affect your current lifestyle or trigger unintended results.

The old saying about death and taxes is true to a large extent, but there a few basics that you can take care of now.

Here are some starting points:

  1. Make sure you have designated a beneficiary on any registered plans or insurance policies, as this will allow them to avoid going through probate.
  2. Take time to understand the tax implications based on your beneficiary. For example, if your spouse is the beneficiary, the plan will roll over and s/he will be taxed on future withdrawals. If your beneficiary is a child or non-legal spouse, there are different tax implications.
  3. Consider life insurance in the planning process. If you can draw a little more money from your RIF to cover the cost of the insurance, you may find it makes good financial sense. Over 15 or 20 years, the insurance cost may be reasonable—plus the payout could provide a lump sum to help pay taxes due on your estate.
  4. Reducing probate fees by setting up joint ownership with your adult children is also an option but there are several caveats, like the advisor story above illustrates. Jointly-owned assets with adult children require clear documentation outlining your intentions or the court may determine that your child is simply holding the asset in trust and return it to your estate. If you set up an asset for joint ownership but your intention is that it should be shared with other parties, you should seek legal advice to ensure your will clearly reflects these wishes.

Also be aware that along with joint ownership comes joint liability. Your jointly-owned family cottage could end up being used to settle up with creditors for any debts incurred by your children or form part of their divorce settlement.

Make it personal.

While the tips and reminders above are valuable, a critical part of your financial planning process should be seeking advice tailored to your situation. Book a free consultation with one of our highly accredited financial planning experts.

Talk to us

Whether you’re looking for more information, or you’d like to let us know how we can serve you, you’ll find our contact information here.
We encourage you to visit a financial planning expert at any of our branches for more information on how Valley First can make things simple!