Preparing for death 'n' taxes

LAUREN KRAMER

It's one of those things no one really wants to think about, but mortality is an unfortunate reality and, according to those in the know, the wisest will have an estate plan firmly in place so, when their time comes to be lowered into the bowels of the earth, they are properly prepared, financially – at any rate.

"Under the Canadian Income Tax Act, immediately before an individual's death, there is a deemed disposition of the individual's capital property at the fair market value of the property determined at that time," said Shane Brown, a Jewish tax lawyer at the Vancouver tax law firm Thorsteinssons LLP. "If you die without planning for the tax consequences of death, your estate may pay tax of up to 22 per cent on the accrued gains on your property held at that time of your death. But, with proper tax planning and an effectively implemented estate plan, it is possible to substantially reduce that tax burden – even to nothing."

No one wants to die but few people relish the prospect of paying taxes, either. So it makes sense, said Brown, for anyone with a significant potential tax liability upon death to have a well-thought out and designed estate plan that suits their particular needs, of which a tax-efficient will is only one component.

How do you define "significant"? The word varies according to the person using it, he explained.

Clients who walk into Thorsteinssons' LLP for estate planning services range in age from their thirties all the way to the elderly. They seek estate planning for a variety of reasons that include minimization of income tax and probate tax, avoidance of complexity, maintenance of the secrecy of their estate, avoidance of conflict among surviving family members, minimizing the potential of a challenge by surviving spouse or children under the Wills Variation Act and to create tax-efficient structures for surviving family members that can pass the testator's assets to subsequent generations.

While any lawyer can draft a will, a tax lawyer should be considered because one of the primary considerations involved in estate planning is the minimization of tax. The Income Tax Act may not be well understood by some advisors, so it is best to consult with tax professionals.

The cost of your estate plan is harder to pin down. "Planning or reorganizing your estate can be done on a cost-effective basis. Obviously, the more complex your affairs, the more it may cost. You can go to your corner law office and get a will prepared for $300, but a will is only one part of an estate plan and often such wills do not consider the tax consequences arising on death," said Brown.

"You have to look at the potential tax liability on death for your own particular circumstances and decide if it merits engaging a professional tax planner to assist in minimizing or avoiding some of that tax," he advised. "In most cases, amounts expended on professional advice to avoid a much larger tax liability are quite readily accepted by taxpayers."

The amount of tax for which you will be on the line will depend on many things, including the accrued gains that might be present on your assets held at the time of your death, other income that may fall into your estate, the manner in which you hold your assets, the availability of deferring tax on assets left to a spouse or common-law partner and how you want your assets to be distributed among your heirs.

If you are thinking about putting an estate plan in place, you'll want to go in armed with all the right information. That includes the assets you have and how you hold them – legal or beneficial title, solely or jointly, among others – the fair market value of those assets and their tax costs, your desired distribution of your estate and many other considerations.

"As soon as you have children, you should ensure you have a will in place that sets out the guardianship of your children should both parents die," said Brown. "As new children are born, new assets are acquired, as your business grows and changes or as marriages wax and wane, you'll want to revise your will and consider your estate plan as a constant check on your current situation. It just makes good sense, particularly in these current economic times, to think about how best to preserve your wealth for your heirs."

Lauren Kramer is a Vancouver freelance writer.

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