At death, your assets can trigger significant tax obligations, which are often met by liquidating the assets of your estate. Your registered retirement savings, unrealized capital gains and U.S. assets are all taxable. Are you and your family prepared for this tax liability?
Almost half of your registered retirement savings may be payable to the government at death. The top marginal tax rate is often applied to all remaining assets in your RSP or RIF on your or your spouse's final tax return. On a $300,000 RIF account, up to $150,000 will be payable in taxes.
Capital gains tax
Your assets can be transferred to your spouse at death without triggering taxation. But on the death of your spouse, the government considers your assets to have been sold at current market value for tax purposes - even if they haven't actually been sold. This can result in taxable capital gains. Half of any capital gain must be claimed as income in your or your spouse's final tax return.
U.S. Estate Tax
Up to 50% of the value of certain U.S. assets, such as stocks and real estate, may be payable to the U.S. Internal Revenue Service at death. U.S. Estate Tax only applies if you are a Canadian resident who is not a U.S. citizen or green card holder. It may be payable if your worldwide assets exceed U.S. $1 million and you own U.S. real estate (U.S. $1.2 million if you do not).
Meeting the tax bill
Your executor will have several options to choose from in paying these taxes:
To learn more about the Tax Protector, please contact a life-licensed Investment Advisor or ask a life-licensed Investment Advisor to contact you.
- Pay with cash from the estate when the bills come due, assuming there is sufficient cash in your estate to allow for this.
- Pay the tax liabilities with other liquid assets. This is not always a preferred choice as it can result in a "fire sale" of your assets. Your executor may not be able to sell your assets fast enough and the full value of your assets may not be realized, thereby running the risk that the funds raised might not be enough to pay the liability.
- Your estate can borrow the funds to pay the taxes. This option is predicated upon whether or not your estate will have enough credit available when needed, and whether your estate will have adequate assets to provide the security required for both the loan and the interest.
- Purchase Tax Protector life insurance now to pay your taxes later. Tax Protector strategies prevent erosion of the final value of your estate, and considerable expense and inconvenience to your heirs.