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What are the essentials of a Canadian estate plan?

Even without estate tax, there is a need for estate planning in Canada. For starters, there is a deemed disposition tax that is applied to the estate. Canada law requires that any investments be deemed as sold upon an individual’s death. Any capital gains from that deemed disposition must be reported in a final income tax return.

However, the deemed disposition tax can be deferred if assets are transferred to a surviving spouse or a spousal trust. Upon the death of the surviving spouse, 50 percent of the capital gains will be taxable at the applicable personal income tax rate.

In addition to tax considerations, estate planning is important because most individuals want to direct how assets in their estate will be transferred. In the absence of a will, the laws of intestacy will be applied to a Canadian estate, which provides for a certain order of beneficiaries. A will, in contrast, allows an individual to distribute assets according to one’s own wishes. For distributions to children under the age of 19, there is an extra wrinkle: A bonded guardian or Public Trustee must be named as an administrator.

Finally, estate planning is about more than just asset distributions. With a power of attorney and living will, an individual can plan for the possibility of incapacity, perhaps from an accident or illness. The power of attorney names someone to make financial decisions on an individual’s behalf. A living will is similar, but empowers a person to make medical, rather than financial decisions in the event an individual is incapacitated.

Our Ottawa law firm can guide you in creating these fundamental estate-planning documents and attending to the details of estate administration. Since we have also helped many clients with estate disputes, our experience with litigation may help you take a more proactive approach to avoiding discrepancies.

Source: “Estate Planning For Canadians,” Melvin Pasternak, copyright 2016, Investopedia

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