DON'T let the words "estate planning" deter you from making sure you have indeed planned to leave your estate in the best possible shape.
Unless you manage to spend it all, you need to know the income tax rules to make sure your estate goes to your beneficiaries the way you intend.
And if you are likely to be a beneficiary, you need to find a tactful way to ensure your parents or other relatives have done their estate planning homework, or are working with a competent advisor.
Wilmot George, director of tax and estate planning at Mackenzie Financial Services Inc., cites a case in which a widower left his $410,000 RRSP to one adult son and his non-registered $105,000 mutual fund to the other. Those were the only assets.
When the father died, the $410,000 RRSP was added to his income, which meant the estate was liable for the $188,000 tax. So the $105,000 mutual fund had to be used to pay part of the tax, with the remaining $83,000 coming out of the RRSP.
"Not only did the father's desire to provide the $188,000 inheritance for one son not materialize, but the amount the other son received also fell short of expectations," said George.
Unless an RRSP/RRIF goes to a qualified beneficiary, that money will always be taxed as income in the year of death.
One of the simplest approaches is to bequeath assets by using percentages of the net value of the estate after all taxes and other costs have been paid, rather than dollar amounts. That solves the problem of dealing with changing total estate value.
Unless you are dividing the estate equally, more challenging is deciding the different percentages. Get legal advice to make sure the will isn't challenged, which could reduce the estate's value through legal costs.
All the above assumes you have a will and executor whom you trust to carry out your wishes competently. If you don't, the law says who gets how much; the public trustee will oversee everything and charge the estate for services rendered.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally - email mike@ grenby.com.
Organize estate to avoid confusion later:
- Tax rules foil dad's intentions
- One son gets nothing, the other less than expected
- Percentage division better than dollar amounts
