Estate Planning Questions for Professionals

Here are some questions to review to get you on the right track:

Do you have a will?

A will documents how you want your assets distributed when you pass away. The instructions in your will should be consistent with your current wishes and capture your entire estate. If you die without a will, provincial legislation may dictate the distribution of your assets.

Certain assets can be distributed outside of your will. For example, you can designate specific beneficiaries for a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Tax Free Savings Account (TFSA), and life insurance policy.

Alternatively, you may want to consider transferring your assets prior to death.

Do you have two wills?

Many provinces allow for multiple wills. Multiple wills have been utilized as a technique to minimize probate fees in certain provinces. A probate fee is based on the value of the estate’s assets and it is separate from income tax.

When was your will last updated?

It is a good idea to regularly review and update your will as your family circumstances and wealth could change over time. Further, tax laws are constantly changing and legislative amendments may render results that are not compatible with your original wishes. 

Have you thought about the tax implications to your estate when you pass away?

For income tax purposes, you are deemed to dispose of your assets at fair market value immediately prior to death. An income tax liability is generated on the deemed disposition of the assets. One exception is a spousal rollover, which allows assets to transfer to a spouse or common-law partner on a tax-deferred basis.

Often overlooked are the income tax implications and complexities of owning private company shares on death. For example, if you are a professional, you may have operated your practice through a professional corporation. When you die, you are deemed to dispose of your professional corporation shares and will be required to pay income tax on the capital gain arising on the deemed disposition of those shares. A double tax issue may result when your professional corporation later distributes its assets. A well thought out income tax strategy can minimize the double tax issue.

You should also consider that the allocation of your assets to beneficiaries may have different income tax implications because each asset could be taxed differently. 

Will your estate have the cash to fund the tax liability on death?

Ideally, your estate has access to enough cash to pay the income tax liability arising on your death without causing financial issues. Otherwise, you need to determine how to fund the income tax liability.

For example, you may need to borrow against real property or sell certain assets. If neither borrowing money nor selling assets is viable, purchasing a life insurance policy to fund the income tax liability on death could be an option.

Are you concerned about any of your beneficiaries receiving assets on your death?

You may have family members who are not able to assume and manage the responsibility that comes with inheriting wealth. Family members could have health concerns and/or be in an unpredictable marriage. There are mechanisms available in these circumstances, such as the establishment of a trust that may allow control of your assets by others (at your direction) after you pass.