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Your Will and Taxes

Jarrett McKay - Dec 05, 2016
Many Canadians overlook the importance of effective estate planning. This includes updating beneficiary designations for all plans and

Many Canadians overlook the importance of effective estate planning. This includes updating beneficiary designations for all plans and policies and reviewing your will periodically to ensure it is current based on changing circumstances. But effective estate planning also means ensuring that your will distributes your estate according to your wishes in the most tax-efficient manner.


Minimizing Taxes


When drafting or updating your will, it may be useful to consider various ways to minimize taxes and enhance the amounts to be distributed to your beneficiaries.


For tax purposes, an individual's assets are considered to have been sold at their fair market value immediately before death. This may be problematic if capital gains have accrued on your assets as that may lead to a significant tax liability. Under some circumstances this tax can be deferred by transferring assets to a spouse or a qualifying spousal trust, for example.


When reviewing the distribution of assets in your will, you should estimate your expected tax liability at death. This will allow you to plan now to ensure you have sufficient liquid assets or enough insurance on hand to fund the estimated future tax liability.


There are a number of ways to minimize taxes on your estate. Testamentary trusts, or trusts created by way of your will, may provide tax savings through income splitting opportunities. Here, the trust is considered to be a separate taxpayer subject to tax at progressive rates, just the same as individuals, for the first 36 months of the estate. After such time, income splitting would result only if the beneficiary(ies) of the estate are not subject to tax at the highest marginal rate. Testamentary trusts also provide the benefit of having specific terms surrounding the administration of assets, allowing you to determine when certain beneficiaries will be entitled to receive their portion of your estate.


Charitable giving may also be another way to help minimize taxes. Careful planning will ensure that any tax benefits resulting from donations made in your will are fully utilized.


Other Considerations


To ensure that your will best takes advantage of tax minimization opportunities, you should provide your trustees with sufficient powers to allow for tax planning on behalf of the estate. Most generic will templates are either silent on this issue or provide very basic and insufficient powers.


Some jurisdictions assess estate administration fees (or probate fees). Here, you may consider the use of multiple wills (i.e., a primary will to hold assets subject to probate and a secondary will to hold assets not subject to probate, such as private company shares) to reduce the fees charged to the estate. These fees can also be avoided by holding assets in joint tenancy such that they will pass directly to the joint owner upon your death or by transferring the assets to a trust during your lifetime.


If you or any of your proposed beneficiaries are U.S. citizens or green card holders, you may require specialized terms and conditions in your will to avoid U.S. tax and/or U.S. estate tax complications.


As always, we recommend seeking advice from legal and tax professionals to ensure that your will takes into account all tax-efficient opportunities available.



This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views (including any recommendation) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Genuity Corp. The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Canaccord Genuity Corp. assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Canaccord Genuity Corp. are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is prohibited. The holdings of the author, Canaccord Genuity Corp., its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this newsletter.

The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant. Tax & Estate advice offered through Canaccord Genuity Wealth & Estate Planning Services. FOR DISTRIBUTION IN CANADA ONLY