Prior to the COVID-19 pandemic, we often hosted customer appreciation events, including educational seminars on specific financial planning topics.
Our most attended session to date has been estate planning and tax reduction strategies. We never thought that talking about death and taxes could fill a room.
Our previous column discussed the potential tax implications if successful, including income tax and probate fees. As promised, we are following strategies that can help reduce tax burdens:
1. Have an up-to-date will: First and foremost, make sure you have a will in place. Please review it every five years or after any major life event (marriage, divorce, birth of children, etc.).
2. Appropriate use of joint accounts: Placing assets / accounts in joint name of spouses or adult children can avoid probate, ease transition and ensure no invoices are canceled. Some examples include bank accounts, investments, vehicles, safes, and household bills.
In some cases, co-ownership may not make sense. For example, adding your adult child as your primary residence could jeopardize the asset if it experiences a marital breakdown, business bankruptcy, or personal lawsuit. Also, adding an adult child, but not all of your children, could lead to potential misunderstandings and / or conflicts. In addition, adding a person as a principal residence could result in the loss of part of the tax-free capital gains allowance.
3. Designate beneficiaries: Review your retirement savings plans (RSPs), retirement income funds (RIFs), tax-free savings accounts (TFSAs), insurance and pensions. Remember to also check work policies and investments, if applicable. Spouses should be designated successor annuitants for the TFSA so that they can maintain full tax-exempt status in their TFSA.
Sometimes it is wise to designate your estate as the beneficiary of your RSP or RIF so that the executor can facilitate the distribution and pay the taxes. It usually makes sense if single, divorced, or widowed.
4. Take More Income Now: One of the consequences of losing a spouse is the loss of the ability to split income, which can result in a higher tax bracket and loss of Family Security. old age (SV).
Three common areas to consider are:
I. Draw an RSP or FRR faster and / or before the age of 71, especially if you have larger balances.
ii. Reap capital gains on your non-registered investment each year.
iii. Earn additional wages or dividends from your business.
Pro tip: If you have a large amount of credits or deductions in a year (business or investment loss, charitable donation, medical expenses, etc.), be sure to consider the benefits. to take additional income to compensate.
5. Pre-inheritance and donation: Since there are no taxes on gifts, consider donating to loved ones as a pre-inheritance during your lifetime, so that you can see them enjoying it. Please note that there are special consideration and attribution rules when giving gifts to minors.
6. Charitable: There are significant tax breaks for philanthropists. This can include strategies such as designating a charity as the beneficiary of your RSP or RIF to eliminate the tax burden, donating securities with large capital gains to charities, or direct bequests in your will.
7. Insurance: Insurance can help replace income, pay taxes (including large capital gains on recreational property or business), and can be particularly useful for blended or complex family situations. It is generally paid quickly, tax-free and remains confidential because it is not subject to the will. There are additional opportunities for incorporated businesses.
8. Consider trusts: People with large assets can explore trusts to minimize taxes, avoid probates, ensure proper asset allocation, generate income, and maintain confidentiality.
The above is not an exhaustive list of estate planning. Because each family has different dynamics and values, and estate planning is complex, we strongly recommend that you seek professional advice in building your estate plan.
Until next time, invest well. Live well.
Written by Eric Davis. This document was prepared by Eric Davis, Vice-President, Portfolio Manager and Investment Advisor, and Keith Davis, Investment Advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by Private Investment Counsel, TD Wealth Management, a division of TD Waterhouse Canada Inc., a member of the Canadian Investor Protection Fund. All insurance products and services are provided by licensed life advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email [email protected]