While there are all sorts of investment accounts and tax strategies to protect your life’s wealth from tax officials when you die, one of the most popular options among financial professionals for protecting your assets from inheritance tax is the , actually a tool many Canadians already own. – Free Savings Account (TFSA).
“You don’t pay taxes when you die. It’s a pure tax-free account,” said Sylvia Azuley, vice president of tax and estate planning at Richardson Wealth. Yahoo Finance Canada on the phone.
“I want to maximize the amount that I can contribute.”
TFSA pays no tax when you die.
If a spouse is designated as the successor, it will automatically pass to the holder’s spouse tax-free, regardless of whether the spouse has sufficient room to contribute. Upon the death of a spouse, the fair market value of the account is transferred tax-free to its property or beneficiaries.
Very flexible from a property planning point of view.Frank Gasper, CSR Wealth Management
Even if there is no spouse, TFSA holders can designate a beneficiary and the tax-exempt benefits will still apply.
Compare this to a Registered Retirement Savings Plan (RRSP). All money in the RRSP will be taxed in the hands of the account holder upon death, which can result in significant tax consequences for the family.
If your spouse is designated as the beneficiary of the account, it will not be passed on to your spouse and the tax will be paid immediately. However, it is important to note that taxes must be paid whenever there is a withdrawal from the account or if the surviving spouse dies.
That’s one reason Frank Gasper, wealth advisor and founder of CSR Wealth Management, also touts TFSA as a great property planning tool.
“Nothing downside,” he said. “It’s very flexible from a property planning perspective.”
Upon death, a deemed disposition is triggered on the person’s assets, as if all of their assets were sold at fair market value shortly before their death, resulting in a large tax liability for the family. There is a possibility.
Measures and additional financial planning strategies built into government and tax systems, such as tax exemptions and succession rules, can help protect your assets from taxation and leave more money for your family.
life insurance as an investment
Although less prominent than regular accounts such as RRSPs, TFSAs, and stock brokerage accounts, life insurance policies can also be used as an investment tool, with the additional benefit of tax-free investment expansion.
“Life insurance is available as an additional investment asset class,” says Azoulay.
“If you have money that you know you don’t need, you can invest it in life insurance so it will be paid tax-free to your heirs when you die.”
Segregated funds may also be used for estate planning. These are essentially mutual funds with an element of life insurance. We guarantee 75 to 100 percent of your original investment capital, so you can protect against market declines, and you can avoid probate fees because you designate your beneficiary.
But Gaspar, who is also a life insurance agent, said he “doesn’t believe much” in segregated fund fees because they are higher than other investments.
There are situations where it makes sense for clients, but they are rare, he says.
Real estate in real estate planning
When it comes to real estate, most Canadians are familiar with the principal residence deduction that allows them to sell their family home tax-free.
For married couples, the marital home is often owned as a joint tenancy, meaning that the property is owned by both parties. This allows the surviving spouse to seamlessly transfer the home to the surviving spouse at the time of the other’s death, Azule said, avoiding probate fees.
Minimizing inheritance tax can be much more difficult when secondary property such as cottages and vacation homes are involved. but, One of the main residence deduction benefits is that it can be divided into multiple properties.Not just the head family.
If one property was worth more than the other, an exemption can be applied to protect that interest. Azule said this would require some math and research, but could reduce an individual’s overall tax burden.
Michelle Zadikian is a Senior Reporter at Yahoo Finance Canada. follow her on her twitter @m_zadikian.