The Estate Protector
One thing apparent to me during my career working with clients is they often vastly overestimate (like my golf tee shots go 300 yards…) the amount of inheritance they expect to leave to family. It seems they forget, or are simply unaware, that a significant tax liability related to many of their assets will likely be triggered upon death.
They have accountants who conscientiously prepare their annual tax returns. However, too frequently little, if any, attention is given by people to their ticking financial “time bomb” – the large tax bill that will be paid to Canada Revenue Agency upon death.
This tax cost can perhaps be hundreds of thousands of dollars or more, and typically increases during lifetime as the value of assets grows. So it may serve you well to focus on this!
Another thing I have come to realize is that many clients think they are invincible, indestructible and will never die (at least not for a very, very long time). Unfortunately, you and your spouse will indeed pass away one day and CRA will share in your hard-earned wealth. This CRA claim stands to dramatically reduce the value of your estate for your heirs or for charitable purposes.
If you don’t own valuable assets, will never die or don’t care about maximizing the value of your estate you will leave to family, you can stop reading and go back to what you were already doing. I won’t be offended. For the rest of you eager to leave maximum wealth to loved ones, I suggest you keep reading.
For example, an individual might have a $400,000 tax liability owing to CRA upon death. To finance this, the estate may be able to borrow the necessary funds. Or, estate assets could perhaps be sold to raise the necessary funds. Neither of these options is likely ideal.
Borrowing would burden the estate / heirs with debt and non-deductible interest charges. The latter scenario may require the sale of a cherished asset (such as a cottage) or forced liquidation of assets when the market / sale price is diminished.
For many clients I am able to recommend and help implement a better strategy, which does not require the use of estate property to fund the tax liability.
The funding received through this strategy typically significantly exceeds the cost of participating in the strategy. The result is more money available for your family or charitable initiatives.