Navigating the estate settlement process is often an overwhelming task during an already difficult time. It can be challenging and time consuming, involving much coordination amongst your financial, legal, and tax advisors. Typically there are some common points of confusion or areas that clients have the most questions about.
Here are 10 basics of settling an estate, to help you understand what may be involved.
1. Multiple death certificates are helpful – some institutions require the original, even if it’s just to look at and send back to the executor.
2. Registered and TFSA accounts that have named beneficiaries or successor holders – beneficiaries will receive the proceeds of their entitlement prior to probate being granted in most cases.
3. Non-registered assets, corporate assets, and the sale of the deceased principal residence (amongst other things) will normally require probate granted before assets can be dispersed.
4. Tax must be accounted for at the estate level/deceased person’s level – beneficiaries do not typically pay tax on their inheritance.
- This can pose a problem if a registered investment account is named to beneficiaries who are not spouse or financial dependents of the deceased where a rollover may be used. Normally the full entitlement is sent to the named beneficiary, while tax must still be paid and managed at the estate level. It is important to ensure there will be money available to pay tax.
5. Assets are deemed “disposed” at the deceased’s date of death. Currently, a principal residence is not taxable. Registered investments, if no rollover is available and utilized are considered disposed and will be taxable as income on the deceased’s terminal tax return. Non-registered assets are also deemed disposed, and resulting capital gains or losses will need to be listed in the terminal return.
6. Unused capital losses can be used to reduce ANY income in the year of death, not just capital gains.
7. More than one tax return can be filed for the deceased, including the terminal return, and a “rights or things” return. An accountant can determine if this is necessary or beneficial.
8. Executors normally have a right to compensation and may or may not wish to take this. Finalizing an estate can be substantial work.
9. A clearance certificate should always be requested from CRA once taxes have been paid – in many cases, distributions to residual beneficiaries are best left until this has been issued.
10. Using an estate management system, such as Cadence, can save executors time and ensure nothing is missed when settling an estate.
Your Financial Advisor and other professionals are here to help you through the process. If you have questions about the estate settlement process, please contact us.
You can also find more information about our estate planning services here.
Estate planning ensures that if you are physically or mentally incapacitated, your affairs will be managed in a manner that you have prescribed and upon your death, your estate will be distributed according to your instructions.
Here is a brief overview of the three core estate planning documents you may need.
This document addresses personal care issues in the event of incapacity.
It is often referred to as a Living Will.
The agent appointed to act may have the authority to decide where you reside, whom you associate with, the nature of health care, etc.
ENDURING POWER OF ATTORNEY
Whereas your agent under a Personal Directive deals with your being, your agent under an Enduring Power of Attorney is responsible for the care and administration of your assets, often in the event of incapacity.
If the parties acting under a Personal Directive and Enduring Power of Attorney are not the same, they will generally work together in their respective capacities (i.e. decisions concerning where one resides will be influenced by the individual’s financial resources as well as the needs of the donor).
While the two previous documents deal with the affairs on an individual while they are alive, the Will addresses the testator’s estate at death.
When drafting a Will, one should consider;
- Who will be the executor(s) of your estate? The responsibilities of your executor(s) include, but are not limited to:
- Following the terms of the Will.
- Determining the assets and liabilities of your estate.
- Establishing trusts, if applicable.
- Gathering of assets.
- Managing the estate and trust assets.
- Maximizing the value of the estate.
- Preparation of multiple tax returns.
- Who will benefit from your estate? Family, charities, etc.?
- When will the beneficiaries receive their share of the estate?
- Who will be the guardian of your minor children?
- Who will benefit from your estate in the event of a family tragedy?
- What powers are you willing to grant your executor(s) so they can effectively manage your estate?
Please reach out to us if you have questions about the estate planning process. We are here to help identify your estate planning needs, and to develop a strategy and plan to meet those needs. We will also coordinate with your lawyer and accountant to ensure your plan is implemented.
NOTE: THIS SUMMARY IS NOT INTENDED TO PROVIDE LEGAL ADVICE. CONSULT A SOLICITOR WHEN DRAFTING A PERSONAL DIRECTIVE, ENDURING POWER OF ATTORNEY, AND WILL.
One of the objectives of estate planning is to review and minimize potential taxes on your remaining assets.
Lets review how some common assets (RRSP/RIFs, TFSAs, Non-Registered Accounts, and Principal Residences) are taxed upon death.
RRSP (Registered Retirement Savings Plan) / RIF (Retirement Income Fund)
The accounts can be left to a spouse as a named beneficiary. This transaction will generate a tax slip, but this is not a taxable event. The spouse can receive the proceeds of the RRSP/RIF.
In some circumstances, the RRSP/RIF could also pass to a dependent child without triggering tax.
TFSA (Tax-Free Savings Account)
No tax and no reporting is necessary.
If a spouse is named as the successor owner, the full value of the TFSA can become the spouse’s with no tax impact (even if the successor owner spouse may have no TFSA room available).
You can name beneficiaries such as children, and the assets would be provided once appropriate legal requirements are met after death.
Death is a taxable disposition and all assets are deemed disposed on the date of death (meaning they are considered sold). The applicable gain or loss must be considered and tax paid.
No tax is owing on the sale of a principal residence, however it must be noted when filing taxes that the property was deemed disposed.
If you have a question pertaining to your specific financial situation or need some assistance with estate planning, please reach out and our financial advisors would be happy to assist you. You can learn more about the estate planning services we provide here.
We invite you to join us for an upcoming webinar, Protecting Your Estate hosted by Daniel Collison on March 16, 2022 7:00-8:00pm. Register for the webinar here. The registration form enquires who invited you to this event – please fill ‘Blackburn Davis Financial’ in this field. Please feel free to pass this invitation along to any family member or friend you think would find it useful.
If you have any questions or would like further information about this event or speaker, please reach out to us.
This is as a friendly reminder of the contribution limits and cut-off dates for RRSP and/or TFSA contributions.
The cut-off date for your RRSP contributions to count toward reducing your income for 2019 is Monday, March 2nd, 2020. In order to meet this deadline, you should make your contribution by February 25th to allow for your deposit to clear your bank account. The 2019 contribution limit was 18% of your taxable income up to a maximum of $26,500, whichever is less. The 2020 contribution limit is $27,230. If you have unused contribution room from previous years, you may contribute more than the maximum, but one needs to be careful not to over-contribute.
If you would like to contribute to a TFSA for 2020 the limit is $6,000 for the year, unless you have not maxed out your contributions. The maximum one could have deposited into their TFSA account since 2009 is $69,500 as of 2020.
Contributions can be made through one of the following methods:
Transfer from Non-Registered Account: If you have a Non-Registered account set-up with enough funds in it, you can simply send us an e-mail indicating the amount you would like transferred from this account to your RRSP or TFSA. Instructions must be sent to us by 11:00am on Tuesday, February 25th in order to meet the deadline.
Online Banking Transfer (Bill Payment): Add your Custodian (“Credential Securities” or “National Bank Financial”) as a “Payee” through your online banking and enter your account number as the bill account number. If you need assistance finding your account number or are unsure who your Custodian is, please contact our office. If you choose this method, please also notify us with the amount you are contributing, so we can have your Portfolio Manager watch for it. Please note this must be submitted before midnight on Saturday, February 29th in order to meet the deadline.
EFT from your Bank: You will just need to sign an EFT form if you have not already done so, which allows your Custodian (Credential or NBIN) to take the money directly out of your account with your consent. Once you have signed the form, we will just require an email from you indicating the one-time amount you are authorizing them to withdraw from your bank account and which account you would like it deposited to. We must receive these instructions by Friday, February 28th at 3:00pm at the latest in order to process in time.
If you have any questions or would like to book an appointment to review your accounts, please contact our office at 780-490-4200.