Dear Nancy
I'm newly retired and want to update my will. Presently it is worded so that it leaves all my financial assets on a percentage basis to my three grown children, my grandchildren, and several charities. I have two RRIFs with investments in equity funds, some cash, and a TFSA.
If I die, is any income left to my beneficiaries considered taxable? I want to avoid this as much as possible.
How can I best do this?
Signed, Colin
Dear Colin,
Up to your date of death, the taxes on any income, capital gains and losses are calculated as being realized by the deceased. Then subsequent income, capital gains or losses are taxed as applicable to the estate. The estate's taxable events are calculated on a separate income tax return until the assets are dispersed to the beneficiaries.
The only possible way to avoid the beneficiaries from being taxed is to set up a testamentary trust. Then the estate or part thereof transfers and is taxed as an individual. This is a good strategy if your beneficiaries have enough wealth of their own that they would not be relying on your bequest. This possibly lowers the tax rate, but nothing ever really avoids the taxation entirely.
If they have allowable room in their TFSAs, that portion of growth and income will be sheltered from tax.
Estate planning and will drafting really requires professional legal advice and opinions. I strongly suggest you speak with an estate specialist.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com or visit her web site at nancywoods.com
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