How to avoid making government an heir
 One
of the goals of any good estate plan is to minimize taxes.
Because unless you take steps to avoid it, a great deal of
your estate could go to the government. That’s largely
because of a rule known as “deemed disposition”.
Under the deemed disposition rule of the income tax act,
when you die, all your assets are treated as if they had been
sold.
The government will treat your registered assets –
your RRSPs and RRIFs – as if you had cashed them in
and taken all the money, requiring tax to be paid. One way
to avoid this is to plan to spend all your registered assets
before you die.
Of course, this strategy does require careful planning. Firstly,
you don’t want to deplete this resource before you die.
And second, you want to keep your withdrawals low enough so
that you don’t move to higher tax brackets or incur
a clawback on your OAS.
As for your non-registered assets, with the exception of
your home, they are treated as if they had been sold at market
value at the time of your death, and you would have to pay
tax on any capital gains.
In addition, your estate may have to pay provincial probate
fees. The fees vary but are usually set as a percentage of
the value of your estate.
Fortunately, there are ways to avoid or at least defer these
taxes. A few are discussed in the sections: Avoiding
or minimizing probate taxes and; Reducing
taxes with Planned Giving.
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