Q: I have three assets: a $1 million home; a $1 million RRIF; and a $1 million Open portfolio. I also have three adult sons. Should I give each of them one asset? Wouldn’t that be fair and equitable?
A: If the goal is to treat your three children equally, giving them each one asset through your will is not going to accomplish that!
The son receiving the house will potentially get the best of it. Assuming your home has been your principal residence over the whole time you lived there, your $1 Million residence remains an asset worth $1 Million less expenses such as real estate commissions, property transfer tax and probate fees.
The son receiving the $1 Million RRIF can potentially get the worst of it. The RRIF experiences what is called a deemed disposition on your passing, the $1 Million RRIF is considered income in the year of your death and triggers the highest marginal tax rate: 53.5%. In most cases, the RRIF account would be held until probate is filed, once filed the RRIF account could be settled less 30% withholding tax. After fees and income tax, the son who is the RRIF beneficiary may be left with a little less than half of the $1 Million amount.
Then there is the son who receives the $1 million Open portfolio. Depending on what the investment was, there will likely be significant capital gains and/or dividends and/or interest to be paid at death. This is reconciled on your individual and final tax returns.
While the three assets start out at the same point, they end up in very different places. That is why it is so important to speak with your Account Manager. Your professional tax preparer can provide you tax advice that may influence your Last Will and Testament (“Will”).
For example, in the above situation splitting the three assets so that each son receives a third of each asset would be fair and equitable. An even better solution is to ensure that the RRIF and the Open portfolios are in segregated funds. Then there is the matter of taxation. While taxation cannot be avoided, with proper planning and a charitable disposition, the taxable proceeds can be redirected at death from the government to your charity(ies) of choice! In addition, insurance planning can effectively take a significant bite out of your inevitable final tax bill!
It is very important that segregated funds, guaranteed insured annuities and life insurance policies are not included in your Will. The goals are to not undo privacy, confidentiality and pay probate and legal fees unnecessarily (unless deemed necessary). Having eligible assets excluded from probate is one of the valuable benefits in utilizing Life Insurance company products in estate planning, and naming beneficiaries through these various plans. Speak to your Account Manager and/or lawyer regarding this!
If you have a Will, perhaps it is time to sit down and do a review. After all, when was the last time you reviewed your Will? If it has been more than 5 years, we strongly urge you to book an appointment with your Account Manager to discuss the tax implications and any changes that may have taken place during that time.
If you do not have a Will, you should still want to meet with your Account Manager to prepare you for seeing the lawyer. Thoughtful estate planning can save your beneficiaries thousands of dollars or more! Of course, we then encourage you to see the lawyer and ensure that your wishes are addressed.
Either way, let MWFS guide you to financial success!!
p.s. In addition to your Will, you may also want to discuss Power of Attorney and Representation Agreement documents!! Call us. We can and will help you with both your tax and estate plans.
