Estate Transfer

What Will be the Tax Impact on Your Investments Upon Your Death?

The key to understanding what really goes to your heirs is to determine what is taxable.

For example, upon death, all assets are deemed to have been sold at fair market value; if applicable, tax will be payable on the gain, hence the importance of immediately predicting who will be bequeathed the assets and types of accounts that should be prioritized, in order to reduce the tax payable upon death.

Various Account Types: Various Impacts

Registered Accounts

RRSP or RRIF: Funds held in these plans are taxed upon death. If it is a bequest to the spouse, the assets can be "rolled over" without any tax impact. It is important to know that a common-law partner can benefit from a spousal rollover, but only if the bequest is provided for in the will. If the RRSP is bequeathed to minor children, it is possible to transfer the amount to them without tax and to pay them in the form of an annuity until 18 years of age.

TFSA: No tax is payable on funds held in a TFSA at the date of death. These can also be added to the spouse's TFSA, regardless of the spouse's contribution limit.

RESP: This plan is not subject to any taxation upon the death of the subscriber. A new subscriber may be appointed to manage recipients' post-secondary education dollars.

Non-Registered Accounts

Capital gains and investment income are taxable on death. The gain is calculated based on market value and adjusted cost base (ACB). A portion of 50% of this gain will be taxable at the deceased's marginal tax rate. Deferred capital losses can be used to reduce all taxable income. As for investment income, interest accrued on the date of death will be taxed as well as dividends declared before the date of death. In non-registered accounts, taxation plays an important role in the final return. Choosing securities by type of account can make a difference on the annual tax bill, and even on the amount of the bill payable upon death.

Did you know...

By donating your publicly traded securities that have added value to a charity, you could benefit from two tax advantages:

• The liquidator may claim the charitable donation tax credit either for the estate or for the deceased;
• The capital gains generated by these securities will be deemed to be nil.

To plan the transfer of your wealth, here are some steps that will make your work easier and will offer some peace of mind to your loved ones.

To Do:

• An inventory of your assets makes it possible to list all your assets, (including your investments, your real assets...) and to transmit this financial and legal information to your heirs. By informing them of the existence of your brokerage account, the classification of your documents and the professionals who can assist them (advisor, accountant, notary, tax specialist...), you make it easier for them. At all times, be sure to keep your transaction notices and account statements.
• An estate balance allows you to estimate the after-tax net worth of your estate at the time of your death. You could benefit from the support of an advisor and Desjardins partners, who can develop one and make recommendations.
• Put in place tax strategies that are appropriate to your situation: plan now how to structure your investments to reduce the tax payable by the estate.
• Your will: write it by specifying your wishes and any particular bequests you wish to make.