Estate Planning for Canadians

If you named beneficiary dies before you, what do you do? If you do nothing, your beneficiary automatically becomes the estate. This has two potential problems. One, if your estate is otherwise incapable of paying your debts, your creditor can now claim against the death benefit. Secondly, you have also caused the proceeds of the life insurance policy to become an asset of the estate which will be subject to tax. Be sure to name a new beneficiary immediately if this happens.

RRSPs

RRSPs are an asset of your estate. Like insurance, you can choose whether they form a taxable asset or non-taxable asset by naming a beneficiary, other than your estate. Following the same principal as insurance, if you fail to name a beneficiary or replace a deceased beneficiary, the RRSP benefit will pass within the estate and will be subject to tax. Naming a beneficiary allows the benefit to pass outside the estate and, as such, will not be taxed.

Unlike insurance, RRSPs are an asset that you own during your lifetime, meaning you could have, in theory, accessed those funds for whatever purpose you wished. A creditor may successfully make a claim against the proceeds of your RRSPs when you are alive and they can certainly do this after your death. This means that a creditor has a right to your RRSPs before the beneficiary.

Some RRSPs offer insurance components that are essentially creditor-proof. You may wish to discuss this option with your financial advisor.

Real Property

Your home or cottage and any other real estate you own in your personal name forms a taxable part of the estate unless the property is held jointly with another person, in which case it passes to the surviving owner without tax consequences. If the joint owner is not your spouse, discuss the situation with your lawyer as their may be family law issues that could arise and upset your estate planning goals.

Often professionals will put title to their homes in the name of their spouses alone to make it creditor proof. Depending on your profession, this might be a prudent course of action. However, once you have retired or there no longer remains an issue of personal liability, consider putting your home back to joint ownership.

Shares of Corporations

Individually held shares (i.e. shares not held within a mutual fund or RRSP) form a taxable asset of the estate. Quite often, people set up corporations to own real property as investments to limit liability and/or to gain tax advantages. As we get older, sometimes we need to review these goals and it becomes a matter of weighing one goal against another. For example, if liability is no longer an issue, can this real property but put as a joint asset?

Obviously there are many questions and situations, but consulting with your accountant, financial planner and lawyer should be able to sort out the details. Review your goals and your assets regularly. Once you understand what you have, how they will be treated and where you want them to end up, then you can work with your lawyer to prepare a will that will accurately reflect and uphold these wishes.