Inheritance tax in Canada
Canada, unlike the U.S., does not have an inheritance tax. In the U.S., the inheritance tax you’ll end up paying depends on your income and where the beneficiary lives.
In Canada, there could be some estate administrative taxes or some probate fees charged on the estate which affects the bottom line inheritance. There will be taxes paid on death by the estate, but there are actually no inheritance taxes for the beneficiaries.
Every single province in Canada sets their own probate fees, which may be called estate administrative fees or estate tax fees. Those are charged across most of the different provinces.
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Back where I’m from, in sunny Manitoba, they call it probate fees. It’s a 0.7% fee of the estate or $7,000 for every million dollars of estate value. Most provinces vary around that number. You can expect to pay that on any asset that goes directly to the estate.
Any asset that goes to the estate is going to have a probate fee attached to it.
How do you avoid that?
Anything that goes directly to a survivor or a beneficiary and that can bypass the estate, avoids the probate on these funds or on these asset value.
What assets can by-pass the estate?
Life insurance could go in there. Your RRSPs and your TFSAs can go directly to a beneficiary. You could also have corporate shares owned through a family trust and you could have an account that’s joint with rights of survivorship.
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All of those different assets and some other examples as well can go directly to the beneficiary. Now, the advantage of doing that obviously is you’re saving the 0.7%, the $7,000 for every million.
That’s the advantage and that’s why you’re doing it. The disadvantage some would argue is that perhaps, it would limit the flexibility you have. You gave instructions to your executor as to how they should allocate the sums because that piece has already been earmarked for a specific beneficiary. It’s a small con, but it’s also a small pro, as you’re saving that $7,000. You’re given up some flexibility in how the funds can be distributed from the estate.
What we do is we create a comprehensive financial plan to identify all of these needs and then we address any concerns in advance. We take a look at what happens to all the dollars when someone passes away. That’s how you optimize your wealth, reduce your taxes, and create the most amount of wealth and assets for the next generation wherever you’re leaving your money.
If an inheritance is a concern to you, you should go to speaktorob.com and set up a free, no obligation consultation. We’d love to chat with you about that.
📞 Call us directly at 204-259-2859 to schedule your FREE consultation