ELORA – While death and taxes are a certainty, it’s also true that without a will, and without estate planning, more of your assets might go to taxes than to your survivors.
And if that’s a scenario you’d like to avoid, get in to see a professional to help with wills and estate planning, says Tom Blonde, a partner at Baker Tilly in Elora.
“Estate planning is important for most people,” Blonde said.
“If you have a house, a car, a bank account, those are assets that will need to go to someone.
“An estate plan spells all that out,” he added.
“The more you can make it easier for your survivors, the better.”
An estate plan is a plan for all your assets when you die – house, car, cottage, bank account, investments, valuable collectibles, a business, whatever you’ve got – and having one can ensure your loved ones get the most from the value of those assets and are not left with a hefty tax bill to pay.
An accountant or estate planner can help assess your assets and find the best path forward.
“Certain things will have no tax consequence, like transferring ownership of a home,” Blonde said. “But most others will have.”
For example, say you purchased property 20 years ago for $100,000 and it’s worth $2.5 million when you die.
That increase will be taxed as income, payment due with your final, after death tax payment.
Similarly, if you have RRIFs, the balance is 100 per cent taxable, Blonde said.
A way around that is to take more than the minimum taxable amount each year, pay the higher income tax, and avoid the big tax payout upon death.
If there’s a family business, it should be included with personal estate planning, Blonde said.
“If you pass away unexpectedly, who will manage the business? How will it transition? These are the kinds of things an estate plan can address,” he said.
Blonde said with farms, “there’s quite a lot of tax preferences to minimizing taxes. But a non-farm business is often more limited. That’s why it’s important to get started planning early. You’ll have more options.”
Life insurance is another way to mitigate tax impacts. Life insurance proceeds are tax-free and if the insurance payout essentially equals the taxes owed, you’ve left your finances in good condition.
“Consider this when you are 40 or 50 and still building significant assets with big tax costs,” he said.
“Look at insurance as a way to deal with tax consequences.
“But don’t wait till you’re 70. Then it becomes cost prohibitive,” he added.
“If you know the tax consequence, an estate plan can help reduce that.”
Don’t just think about the money you’re leaving when thinking of your loved-ones, Blonde said.
Think about the work you’re leaving them as well.
Blonde told a story of an elderly man with dementia who eventually had to move from his house into long-term care.
It took his children three months to go through all the stuff in the house, distribute, sell or chuck it, and get the house ready for sale.
“When I think of estate planning, it’s not just monetary,” he said.
“It’s the things you can do to make it easier on your loved ones when you’re gone.”
So go through the basement and the attic while you’re still able; keep your bills up to date; and have all your important paperwork in an easy-to-find place.
“For people with very few assets, there’s still something they can do,” Blonde said.
