This document provides a summary of key estate planning considerations and taxation rules that apply on death. It discusses the deemed disposition of assets and taxation of capital gains, exceptions for transfers to spouses and dependent children, principal residence and vacation property rules, issues related to US and business properties, charitable gifts, probate fees, and trusts. Readers are advised to seek professional advice when planning their estate to navigate complex tax implications and avoid unintended consequences.

2. The information contained herein is of a general nature and is not intended
to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date it is
received or that it will continue to be accurate in the future. No one
should act on such information without appropriate professional advice
after a thorough examination of the particular situation.
2

3. Estate Planning Update
What happens on death
Treatment of RRSP’s and RRIF’s
Principal residence and vacation properties
US property
Charitable gifts and effect on income taxes
Issues affecting business owners
Probate Fees and other issues (Additional
considerations will apply to US Citizens)

4. Taxation on death – general rules
Deemed disposition of all assets – capital
gains and losses realized
Capital gains on private corporation shares
realized
Balance of RRSP’s and RRIF’s are brought into
income

5. General rules - exceptions
Assets transferred to spouse/spousal trust
If transfer to spousal trust – assets must vest
indefeasibly
RRSP’s RRIF’s transferred to financially
dependent child

6. Assets transferred to spouse
RRSP’s and RRIF’s may be transferred to a
spousal RRSP/RRIF without tax
Capital property may be transferred to a
spouse at cost therefore avoiding the
realization of capital gains
May realize a portion of the capital gains if
this is beneficial

7. Dependent children
RRSP/ RRIF
For financially dependent children:
May be taxed in child's hands; or
Used to purchase annuity to age 18
For child dependent because of mental or
physical impairment:
May be transferred to RRSP/ RRIF
May be used to purchase annuity

8. Dependent children
Ensure all non tax implications have been
considered:
Who will control funds
What may funds be used for
Effect of funds on income of mentally/ physically
impaired child
Would it be better to hold funds in trust?

9. Principal Residence
Includes, among other things, a house,
condominium, share in a co-operative
housing corporation
Also includes land around house (but
normally only up to ½ hectare-approx. 1.2
acres)
Land in excess of above included in limited cases

10. Principal Residence
You, your spouse or child must have
“ordinarily inhabited” the residence
For this reason it will include a cottage or
vacation property
Since 1982 a family unit may only claim one
principal residence per year
Special rules if owned multiple properties pre
1982

11. Principal Residence
Generally, gain on principal residence not
subject to tax
If multiple properties, don’t need to decide
until year of sale/death
Can’t use exemption on property you rent

12. Vacation Property
Vacation property may qualify as principal
residence
Must decide which property to claim as
principal residence
Only 1 property per family unit may be
claimed
Exemption claimed on yearly basis

13. Vacation Property
Generally claim principal residence
exemption on property with higher gain
Be careful – you may have claimed principal
residence exemption in prior year
Property not eligible as principal residence
will be subject to tax on death

14. Vacation Property
What happens if the property will not be sold
on your death?
Underlying capital gain still subject to tax
Estate will be liable for tax
Keep receipts for any renovations/ improvements
Consider life insurance to fund tax liability

15. Vacation Property
Will your estate be properly equalized?
One child receives vacation property
One child receives cash
Estate responsible for tax liability so part of cash
will be used to pay tax liability
Is this what you want?

16. US Property
Same rules as Cdn. vacation property but
with additional complexities
If you rent your US property you will have to file
US tax returns
If returns are not filed, you or your estate may be
subject to taxes and penalties
US Estate tax may be an issue (this is an area in
flux-professional advice should be sought)

17. US Property
New US rules for 2010 – 2012
Generally no US Estate tax liability of total estate is <
$5 million US
US property includes, among other things, US real
estate and shares of US corporations (even if in RRSP)
The maximum US estate tax rate is currently 35% of
the value of property

18. US Property
Sale of US property could result in capital
gain
Gain may be on both increased value and
exchange gain
Withholding tax of 10% on gross proceeds
Must file US tax return

19. Vacation Property
Non-tax issues affecting vacation property
How will the property be maintained
Will the vacation property be to big a financial burden
Do your children have similar financial means to take
care of maintenance
Should the property be transferred during your life
Will the children be able to share the use and
management of the vacation property

20. Vacation Property
Non-tax issues (cont’d)
Consider the value of other assets
Consider setting aside a trust fund for
maintenance
Is a right of first refusal more appropriate?
Discuss alternatives and choices with children –
make sure you know what they wish

21. Charitable Gifts
General rules:
The first $200 of donations for the year earns a tax
credit at a rate of approx. 24%
Gifts in excess of $200 earn a credit at a rate of 46%
Maximum donations you can claim in a year – 75% of
your net income
Annual limit in year of death & prior year – 100% of
net income

22. Charitable Gifts
A charitable gift made in your will is treated
as if it were made in your final year before
your death
Any donation not claimed in the year of
death can be carried back one year
Administratively, any donation not claimed
above can be transferred to a spouse

23. Charitable Gifts
Planning opportunities:
Name a charity as beneficiary of RRSP/RRIF
Value of RRSP/RRIF included in income but offset by
credit for donation
Avoid probate on value of RRSP/RRIF

24. Charitable Gifts
Gift of marketable securities
Normally – capital gain included in income in
year of death
Gift of publically traded securities will result in no
capital gain but you will still get benefit of
charitable credit
Will save money vs. donating cash
Can also do this during your lifetime

25. Charitable Gifts
Special rules also available if you gift cultural
property or ecologically sensitive land

26. Charitable Gifts
Have you thought about making gifts during
your lifetime?
Enjoy the tax benefits now.
Be in a position to see the benefit received
from your gifts
Endowments can provide for an ongoing
benefit that you can remain involved with

27. Issues affecting business owners
Deemed disposition of shares of private
corporations (resulting capital gain subject to
income tax)
Shares to spouse must vest indefeasibly
If shares not transferred to spouse, estate
could have significant tax liability but no cash

28. Issues affecting business owners
Use of available capital gains exemption
Use of available capital gains exemption by
spouse
What shares qualify for capital gains
exemption?

29. Issues affecting business owners
Capital gains exemption
Shares of qualified small business corp.; family
farm corp. or partnership; qualified farm property
90% of assets used in active business
50% of assets used in active business throughout
prior two years
Are you structured to claim exemption?

30. Issues affecting business owners
If you have time to plan and know who will
succeed you in the business:
Consider an estate freeze
The value of your business id frozen at today’s
value
Future growth is passed to the next generation/
existing management group

31. Estate Freeze (cont’d)
Gain on death cannot exceed today’s value
Draw down equity during your lifetime to
fund lifestyle/retirement and reduce ultimate
capital gain
Must always ensure there is sufficient capital
to last your lifetime

32. Issues affecting business owners
Life insurance alternative
Premiums paid by company at relatively low tax rate
(premiums are not deductible)
Insurance proceeds flow into the company tax free
Can be paid out of the company without tax to pay for
tax liability on capital gain
Life insurance can also fund buy/sell agreement

33. Consider the use of trusts
Are you going to leave education funds for
your grandchildren?
If you leave the funds to your children to invest for your
grandchildren – the income will be taxed at their
marginal rate of tax (up to 46%)
If you leave it in trust for the grandchildren, the tax rate
will be much lower
Parents can be given the ability to encroach on capital for
a variety of reasons

34. Consider the use of trusts
You could set up a trust for each grandchild
Tax returns would be required for each trust
on an annual basis
Is the extra administration worth the tax
savings?

35. Probate Fees
Probate fees are charged by the courts to
grant letters probate
Confirm deceased’s will is valid and executor
has authority to administer estate
Amount of fees vary by Province
Ontario - $5 per $1,000 up to $50,000
- $15 per $1,000 above $50,000

36. Probate fees - continued
If assets pass outside will or will not subject
to probate, probate fees can be avoided
Examples:
RRSP’s/ RRIF’s passing directly to beneficiary
under terms of plan
Named beneficiary under insurance policy

37. Probate fees - continued
Examples – continued
Assets held in joint ownership
Will not subject to probate – e.g. second will
dealing with private company shares
Professional advice needed when planning
to reduce probate fees – unintended
problems may arise

38. Probate fees - problems
Example 1
Estate of $400,000 consists of principal residence
worth $200,000 and RRSP worth $200,000
1 child wants to retain house
Will leaves house to 1 child and other child
named direct beneficiary of RRSP

39. Probate fees
Result of example 1
RRSP goes directly to second child – value
$200,000
Estate is taxed on value of RRSP – estimated tax -
$57,000
Only asset of estate is house – house must be
sold to pay tax and child ends up receiving
$143,000 and no house.

40. Probate Fees
Example 2
Individual has two children. One child is more
financially responsible than the other child
In order to avoid probate, assets are put into joint
ownership with the financially responsible child
(child 2)

41. Probate Fees
Example 2 – result
On death of parent – assets automatically transfer to child 2 as
a result of joint ownership
Child two decides not to share assets with child 1
Child 1 forced to go to court to try to enforce claim on assets
Won’t happen with your children? – Unfortunately, there are
many examples where this is not the case
Probate fees do not represent a large amount – plan with
caution- the cost may well exceed the savings

42. Consider impact of choices
Everyone needs to have a will
Who is responsible for tax liability on death
How are assets being allocated
Are beneficiaries receiving appropriate portion of
assets after all debts and taxes are paid
Does the Will minimize any contentious issues
among family members

43. Questions?
43