Employers & Employees

Reducing Taxes at Death

When you die, do you want your estate to go to Revenue Canada, or to your heirs?

In tax terms, we sometimes refer to it as the "Wall of Death" -- you pass through it, and the things you own crash into it and don't follow you through. If you have money invested in an RRSP, that will all be considered a "deemed disposition" -- they treat it like you've cashed it all in -- and added to your income. If you have a rental property, or a recreation property, or company shares, you'll pay Capital Gains Tax if they've gone up in value since you bought them. If you're a business owner, the value of the business will come into play. All of these things are basically added together -- along with any pension you received that year -- and treated as your income that year.

The end result: your estate could be paying upwards of 39% of its value to the Federal Government in taxes. In the case of a recreation property like a family lake cabin, your heirs could end up having to sell the cabin just to pay for the taxes on it.

So first, the good news. If you have a spouse, your assets will transfer to that spouse tax-free. As well, your principal residence isn't included in the calculation. But here's the bad news: when the second of you passes away, all of these taxes will immediately come due. So how do you end up making sure that your estate goes to your heirs instead?

Reducing Taxes at Death

As part of your Capital Group Voluntary Benefits, you and your employees have access to Joint Last to Die Insurance that can help to reduce your taxes at death. This insurance can help cover your tax burden, and when set up correctly, can even redirect the money that you would have paid to the government to a registered charity of your choice. Your heirs get 100% of your estate; your favourite charity gets a significant donation; and you're reducing your taxes significantly.

It's a great -- and cost-effective -- way to put Planned Giving into your Estate, and ensure that your loved ones, not Revenue Canada, are your major beneficiaries.