# Ways to reduce tax when last spouse passes away.



## agent99 (Sep 11, 2013)

The recent TFSA thread got a bit off subject, but got me thinking about estate planning. Getting toward that age 

One thing that became more clear, was that at time of death of last spouse, the unregistered accounts will be deemed to have been sold. Like many others, we have held some of our stocks for years and just collected the dividends. As a result, we have substantial paper gains. This led me to think I should start working on reducing the CGs, one way or another. 

However, maybe it is not worth bothering with. Let's say gains are in the $250k range. This would trigger income of $125k that would be taxed as part of the estate. Maybe $56k in taxes? At same time, RRIFs will be considered totally withdrawn. That would be a much bigger number. Lets say $1Million. Another $450k in taxes? TFSAs? I understand that those can bypass the estate taxation if a beneficiary is designated? 

Seems like some planning is needed! At least after the first spouse dies.


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## Speculator (May 9, 2018)

If the unregistered account is joint and it should be, there is no capital gain worry.


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## Speculator (May 9, 2018)

Ok sorry, you were probably asking when you're both gone. I yield


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## AltaRed (Jun 8, 2009)

agent99 said:


> Seems like some planning is needed! At least after the first spouse dies.


It is called Estate Planning and there are a number of ways to mitigate impacts on 'last to die'. Google the subject and you will find hundreds of links to materials. I do suggest starting by reading http://www.finiki.org/wiki/Estate_planning for some ideas and reference materials.

As suggested by yourself, one of the ways is to start taking cap gains while still alive to mitigate the impact of the marginal tax rate on a 'one off' hit. Another is to bequeath some assets to charitable causes, an endowment, etc. to potentially eliminate CG taxes entirely. I am thinking of utilizing both methods and have indeed, instructed my eventual executors to seriously consider the charitable tax deduction.

As you also suggest, there is no taxation of TFSA assets as of the date of death. Whatever exists is already tax free, but any gains/income from TFSA assets after the date of death will be taxed, either in the estate if no beneficiaries, or in the hands of beneficiaries if beneficiaries have been designated.

Naming beneficiaries for RRSP/RRIF/TFSA assets takes them out of the probate fee calculation.


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## OhGreatGuru (May 24, 2009)

AltaRed said:


> ... Naming beneficiaries for RRSP/RRIF/TFSA assets takes them out of the probate fee calculation.


But the taxes on RRSP/RRIF still have to be paid by the estate. And if there is insufficient money in the estate, CRA can go after the beneficiaries for the taxes owing. So you should plan to leave enough money in the estate, or otherwise accessible to the executor; to avoid tax complications.


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## AltaRed (Jun 8, 2009)

OhGreatGuru said:


> But the taxes on RRSP/RRIF still have to be paid by the estate. And if there is insufficient money in the estate, CRA can go after the beneficiaries for the taxes owing. So you should plan to leave enough money in the estate, or otherwise accessible to the executor; to avoid tax complications.


Certainly. I'd also say the estate's beneficiaries and the RRSP/RRIF beneficiaries (especially for sizeable RRSPs/RRIFs) should be the same to avoid 'inequitable' burden on the estate's beneficiaries paying the tax burden of collapsed RRSPs/RRIFs that benefit others. Either that, or specify in the will that RRSP/RRIF proceeds going to beneficiaries are net of income taxes imposed on the estate.


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## agent99 (Sep 11, 2013)

Thanks for the input. This is no doubt something I need to study and work on. 

I have been buying same stocks held in unregistered in RRIFS and then withdrawing those in kind each year. That has helped a bit with ACBs. We have used up almost all capital losses so not much in way of tax loss selling available. We have fairly large RRIFs so perhaps the testamentary trust is something to consider. I somehow thought that the rules for those had changed? Need to read more!

For now, we are both healthy and everything is left to the survivor. Taxable accounts are JTWROS (I have read that this might not be the best option). 

Another thing - I am not sure if we can name secondary beneficiaries for RRIF/TFSA. In other words the beneficiaries after final spouse dies. Or is this done when there is just one surviving spouse?


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## AltaRed (Jun 8, 2009)

The link provides a good summary of the options. I didn't read the link in any detail, but GREs (Graduated Rate Estates) are simply a temporary measure to income split for I believe 36 months. Graduated Rate means that the tax rates increase each yet until the end of the 3rd year when they become highest marginal tax rate and thus it becomes a tax disincentive to continue them. GRE was introduced to stop the dragging out of testamentary trusts for years and years as a means of income splitting for wealthy families. It was/is the right thing to do.

JTWROS accounts with other than spouse* are indeed fraught with problems. They are often done to avoid probate fees but that is usually a case of being penny wise and pound foolish. They have income tax complexities and risk, never mind risk of loss of control of the assets by the other undivided owners (including claims in divorce settlements). There are a number of threads on CMF where people think they are pulling a fast one by having JTWROS bank and investments, even real property titles, with sons and/or daughters and I shake my head at most of them. I consider such antics misguided at best (I have other words for them but won't repeat them here).

Added: I am not aware of any provisions for secondary (or contingent) beneficiaries with RRIFs and TFSAs. It is available with life insurance (I have such a provision with my Group Life) but not other forms of assets that I know of.

* For most couples, this is the logical progression, but can be very different for those in second or third relationships with blended families, or a later in life relationship with each party having adult children. JTWROS accounts result in assets automatically being the property of the remaining co-owners. That may not be what is intended since the children of the deceased spouse would/could end up 'high and dry'. Be careful of intentions.


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## OptsyEagle (Nov 29, 2009)

agent99 said:


> For now, we are both healthy and everything is left to the survivor. Taxable accounts are JTWROS (I have read that this might not be the best option).


My memory seems to recall the government doing away with the spousal trust benefits a few budgets ago (as they should). Hopefully someone else can confirm this or tell me I am wrong, but I seem to recall that happening. The above article was written in 2002 and if the spousal trust is dead, it's time of death was definitely after that.


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## agent99 (Sep 11, 2013)

> JTWROS accounts result in assets automatically being the property of the remaining co-owners.


Considering those accounts are considered sold at FMV at time of death, who pays the CG taxes if the assets in those accounts are now the property of the co-owners? Is it the estate or the co-owner? 

In the case of the collapsed RRIF and other assets, does the executor sell off the holdings, create cash, pay the taxes and then distribute what is left to heirs?

How about other assets like home, cars, boats, art, collectibles, etc that may be left to more than one heir. Does executor determine FMV of those assets too and then try and determine capital gains & losses? I read this link about determining the values, but not about CGs. For example, deceased my have bought a collectible car or artwork or stamps that have increased or decreased in value. Does executor have to try and determine original cost as well as current FMV? Not easy in some situations. Then there is the family home. Can it be left to more than one heir and if so, what complications could that create, especially if they already own a home.

I am unsure about who to assign as executors in our wills. At present our two adult kids are named as joint executors. That might be an onerous assignment. Not sure if they should just be left to find the help needed at time or if a professional executor should be found and named this early?

Lot's of questions! Not expecting detailed help here. Just tips on how others have handled similar issues.


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## OptsyEagle (Nov 29, 2009)

OptsyEagle said:


> My memory seems to recall the government doing away with the spousal trust benefits a few budgets ago (as they should). Hopefully someone else can confirm this or tell me I am wrong, but I seem to recall that happening. The above article was written in 2002 and if the spousal trust is dead, it's time of death was definitely after that.


Yes. It was the 2014 budget where they closed that ridiculous loophole. Took them long enough.

https://www.dlapiper.com/en/canada/.../2016-rules-for-trusts-and-estates-in-canada/


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## OptsyEagle (Nov 29, 2009)

agent99 said:


> Considering those accounts are considered sold at FMV at time of death, who pays the CG taxes if the assets in those accounts are now the property of the co-owners? Is it the estate or the co-owner?


Estate first and then co-owner if there is not enough money in the estate.


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## OptsyEagle (Nov 29, 2009)

I will throw this suggestion at you so you can let it roll around in your head for a while. I wish it was a little more simple or something you could just google but it isn't, so I will need to list the strategy in more detail here. It may require some reading and perhaps re-reading.

When you are endeavouring to reduce the taxes on your estate you are effectively trying to maximize the amount of money that will inevitably go to your heirs. With that in mind I will tell you a little secret that many do not know. There is probably no better way to maximize the amount of money your heir will inherit then by purchasing a joint last to die, level cost insurance universal life policy that has been competitively quoted. Assuming two relatively healthy, non-smoking individuals are insured.

Many buy these vehicles to cover their estate taxes but lets face it, the taxes still get paid and since no one can tell you today exactly what you will owe when you die, this process is more of a sexy reason to buy insurance then reality. The reality is that it is bought because one can really increase their bequeaths with it, then they can without it.

Now before someone comes along and says that it is theoretically impossible, because when one buys insurance the insurance company makes a big profit and the agent makes a big commission and therefore when all the sums are added and subtracted it must be a NET negative for the estate, let me explain how it actually works.

The key points in my suggestion is that you buy "level cost insurance" and "universal life" and "competitively quoted". The UL suggestion is simply that for some reason you can buy term 100 (permanent term insurance) inside UL cheaper then buying it as a stand alone product. I am not sure why but I think it is because when it is UL there is sometimes some amount of cash in the policy and the want or need for that cash makes some people cancel their policies to get that cash. This will make more sense, why it creates a lower price, later on.

Competitively quoted. Every insurance company in Canada is covered under Assuris, which is the CDIC equivalent for the insurance industry. With that in mind, it just makes sense to look at the lowest priced insurers. This large price discrepancy comes about because with so many insurance companies in Canada, there are always some that think you will live longer then the others (causing a lower premium requirement) and others who need you business more then others to offset risk in their annuity business etc. Anyway, the differences are very material and you want to know what all the best rates are for the many insurers in Canada.

Lastly, the level cost insurance factor. Level cost insurance is just what it sounds like. The cost of the insurance is level. This is opposed to a rising cost plan. Rising cost plans work well if the insureds want to save money inside the insurance policy, but that is not what I am suggesting. I am suggesting buying as much insurance as you can that is absolutely worthless until you die and then it will become possibly the most valuable asset you give to your heirs.

Why is this. Well with level cost insurance the insurance company guesses how long the policy will run before they pay out. They calculate a level premium that will cover that death benefit, provide profit for themselves and yes, a juicy commission for the agent that sold it. In order to make this work, they need to set aside money from that level premium (into reserves) to cover the eventual obligation they have taken on by way of the guaranteed death benefit. Now, think about this. What happens to the money that they set aside to cover that eventual death benefit when someone decides to cancel their policy? I underlined that because it is important. This reserve does not form any cash value owed to the policy owners. In a perfect insurance world they would keep it all, high five each other on a great profit day and laugh all the way to the bank. Unfortunately for them, we live in a competitive insurance world and what actually happens is they estimate how many people will do this and then lower the premium to hopefully acquire more business.

What all this means is that because of the fact that the insurance company can invest your premiums completely tax free using the same investment vehicles that you are using on some taxable basis and because a very large amount of your net return comes from other people making the mistake of buying a UL policy and then cancelling it, you can multiply your investment much higher with life insurance that you could ever do yourself. 

Now all that being said, why do more people not do this. Firstly, what I just said above I would argue most life insurance agents might not understand and I guarantee you the average person on the street definitely does not understand this. Secondly and probably more importantly, I have found that most people would prefer to see their money grow in smaller amounts when they are alive then to see it possibly decrease while they are alive even with the guarantee that it will be larger when they are dead. The decrease coming from the requirement of taking money from your capital or income now to fund the premium, with no value associated to it while you and your spouse are alive, but the big kicker at the end, when you are both dead. This emotional objection happens even when the money going to the possibly will never be needed by the insureds, in their lifetime.

Most people are impressed that it is available but most people tend to not bother. Anyway, many people do and as I said, if you really want to make a material difference to your estates, life insurance will most likely provide multitudes more benefit then whatever you come up with in tax strategies and trusts.


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## kcowan (Jul 1, 2010)

OptsyEagle said:


> Most people are impressed that it is available but most people tend to not bother. Anyway, many people do and as I said, if you really want to make a material difference to your estates, life insurance will most likely provide multitudes more benefit then whatever you come up with in tax strategies and trusts.


Yes I bought one of these beasts in 2002. It was to replace my company pension for my second wife. Now it is to pay the substantial CGs on my investment portfolio. All the equity growth inside the plan is tax free, and the fee is for level term insurance. In simple terms, I spent $400K and now have $850K 16 years later while having coverage of $500K all this time. The whole $850K or remainder will flow tax free to DW. This was before TFSAs but was similar because it was after tax money that bought it.

We all have bias against insurance companies because of their costs but this seems to have worked out for the best because it was term insurance based. Plus I bought it from the same rep who had placed $1500k key man insurance on me as CEO of my company so I really think he had my best interest at heart.


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## OptsyEagle (Nov 29, 2009)

When used for your own benefit it is probably the worst vehicle to save and grow money, due to the insurance costs, high MERs on investment vehicles and taxation and possible surrender fees when money is removed for personal use, but when used for your estate, almost nothing with similar guarantees can ever matches it. 

Great idea to switch it to your estate as opposed to using it as a retirement savings plan.


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## Jimmy (May 19, 2017)

Generally, on the last spouse's tax return all property is sold at FMV and all cap gains are reported as income on their last return.

Not many ways to get around this but it may be a plan to start selling assets before hand so the CG are smaller/yr and taxed at a lower rate then if they were all sold at the same time and at a higher rate at time of death.


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## agent99 (Sep 11, 2013)

OptsyEagle said:


> My memory seems to recall the government doing away with the spousal trust benefits a few budgets ago (as they should). Hopefully someone else can confirm this or tell me I am wrong, but I seem to recall that happening. The above article was written in 2002 and if the spousal trust is dead, it's time of death was definitely after that.


Funny - I checked the date when I read and linked that. Date at top was in May 2018. But you are right that elsewhere it says it was a Moneysaver article from 2002.

So what options do we have now??


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## AltaRed (Jun 8, 2009)

agent99 said:


> Considering those accounts are considered sold at FMV at time of death, who pays the CG taxes if the assets in those accounts are now the property of the co-owners? Is it the estate or the co-owner?


You might be asking 2 questions here. One is the case where the JTWROS survivor is a surviving spouse. In that case, one can make election for a rollover at ACB to the survivor. It is only when the last-to-die spouse dies that CG taxes would be paid by the estate.

Another is where a parent decides to add a son or daughter or other family member to the account while still alive. Such a change triggers CG taxes at time the account is converted to the extent the account has cap gains (e.g. non-reg investment accounts). Per this quote from your link


> • Changing a sole account to JTWROS with anyone other than a spouse results in a disposition at market value on a pro-rata portion of the account. Therefore, this act could trigger a pre-payment of taxes for the original owner if the market value of the account is greater than its Adjusted Cost Base. Furthermore, changing a JTWROS to a sole account of one of the tenants does not trigger a potential tax event if only spouses are tenants on the JTWROS account. However, if there are non-spouses on the JTWROS account, then changing the JTWROS account to a sole account is a taxable event to the tenant(s) that has come off the account.


Bottom line, other than JTWROS bank accounts for matters of convenience, such as chequing or a savings account, JTRWOS accounts with anyone other than a spouse seems like a terrible idea.


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> Considering those accounts are considered sold at FMV at time of death, who pays the CG taxes if the assets in those accounts are now the property of the co-owners? Is it the estate or the co-owner?
> In the case of the collapsed RRIF and other assets, does the executor sell off the holdings, create cash, pay the taxes and then distribute what is left to heirs?


Pretty much, the way my sister described it. She was executor for my mom who was last to day.

The way both parents kepth last income tax return taxes that included the RRSP collapse from everything was to direct my sister to make payments while they were alive but dropping in health. 

Another way was to have all of us kids names as beneficiaries on insurance policies.



agent99 said:


> ... I am unsure about who to assign as executors in our wills. At present our two adult kids are named as joint executors. That might be an onerous assignment. Not sure if they should just be left to find the help needed at time or if a professional executor should be found and named this early?


Unless they are both in a reasonable distance of each other - the joint part is a pain. The distant one has to signoff to get anything done. Even with faxes, it still slow things down.

As for pro or kid(s) as executors, YMMV. My sister had a flexible job with everything close to her. She is also detailed orientated and thorough. Others who are not this way have hated what they had to learn and do.

Cheers


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> Unless they are both in a reasonable distance of each other - the joint part is a pain. The distant one has to signoff to get anything done. Even with faxes, it still slow things down.
> 
> As for pro or kid(s) as executors, YMMV. My sister had a flexible job with everything close to her. She is also detailed orientated and thorough. Others who are not this way have hated what they had to learn and do.


What will sometimes happen with co-executors, one of them will sign a legal document assigning their executor rights and obligations over to the the other person. I had to do that when my father died. I was an ex-pat in Washington DC at the time, so signed my co-executor duties over to my bro who was located in the same province as our parents. He sent me all the materials as they were completed, but I didn't have to do anything.


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## ian (Jun 18, 2016)

Understand the rules surrounding probate in your province. Ensure that all assets are jointly held or transferred prior to death. Try to avoid the tax, and the probate process itself. If you cannot avoid probate at least organize the affair ahead of time so that probate is very straigthforward and can be handled by the executor/next of kin vs. using the services of a lawyer.

My parents did this. It made the whole process so much easier. And we avoided probate taxes and lawyer's fees.


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## agent99 (Sep 11, 2013)

ian said:


> Understand the rules surrounding probate in your province. *Ensure that all assets are jointly held or transferred prior to death.* Try to avoid the tax, and the probate process itself. If you cannot avoid probate at least organize the affair ahead of time so that probate is very straigthforward and can be handled by the executor/next of kin vs. using the services of a lawyer.
> .


Talking about LAST spouse passing away.


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## AltaRed (Jun 8, 2009)

agent99 said:


> Talking about LAST spouse passing away.


The last-to-die spouse should NOT be entering into JTWROS accounts with anyone else for the reasons stated in the link you provided.... other than perhaps a chequing account or bank savings account with limited funds for an executor to manage an estate. It is penny wise and pound foolish to worry about probate fees in any province given all the downside possibilities of JTWROS accounts with other family members. And it sure will cause a legal battle if the Will's beneficiaries are not the same as the JTWROS co-owners. The Will's beneficiaries can sue and win for funds bypassing the probate and estate distribution process. There is legal case history of such screw ups.

Simple example 1: Let's say my mother decided to make my bro a JTWROS co-owner of her investment account, but in her Will, she says estate should be equally divided. Upon her death, my bro suddenly owns the JTWROS account and I get nothing. I'd immediately sue (and win) for my 50% share of that 'estate'. 

Simple example 2: Mother has a $1 million investment account and daughter is a JTWROS owner. Daughter sues for divorce. Her estranged husband is likely to get 50% of the daughter's presumed 50% of the $1 million investment account (in the absence of any paperwork on beneficial interests in the account).

Simple example 3: Mother has a $1 million investment account and son is a JTWROS co-owner. Son through a variety of life circumstances runs up huge debt and collections comes after him. As a co-owner of the JTWROS account, collections or bankruptcy trustee will come after the JTWROS assets and likely collect.

By far the very best option is for a surviving spouse to start cashing in assets and gifting funds on his/her own terms while still alive.


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## OhGreatGuru (May 24, 2009)

agent99 said:


> ...
> 
> Another thing - I am not sure if we can name secondary beneficiaries for RRIF/TFSA. In other words the beneficiaries after final spouse dies. Or is this done when there is just one surviving spouse?


Some financial institutions have started this for RRSPs/RRIFs. They are called "contingent beneficiaries". RBC and its subsidiaries, PH&N and Dominion Securities have such beneficiary forms for example. But you have to be aware of the tax consequences, because the Estate is responsible for the tax bill. I didn't think they were available for TFSA's, but a quick web search says a TFSA with RBCDI can use a contingent beneficiary form.


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## ian (Jun 18, 2016)

Prior to both of may parents passing they transferred several accounts into joint with us,their children,in order to avoid probate taxes. Real property was transferred prior death. Only one term deposit was overlooked was subject to probate tax. Everything else passed freely because it was either joint or had also been previously transferred. Probate in BC is nothing but a huge rip off. We avoided a fair amount of tax, professional fees,and angst by planning ahead. Realize this is not always easy to do.

As as aside, it is one of the specific questions that our accountant asked each year (plus is your will and asset listing up to date). This question made me ensure that the correct form was filled out making my spouse the beneficiary of any vested stock options. Our investment adviser does exactly the same from time to time.


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## AltaRed (Jun 8, 2009)

Your parents plan obviously worked in your case, but the problem is, one does not really 100% know in advance whether that plan will work (given the variables of beneficiaries and their spouses). It can easily go off the rails and is not recoverable if it happens. Poo happens in unexpected ways.

Real life example with a friend about 7 years ago now. Her last parent died, leaving the estate (investments and a farm) to her and her two brothers. She thought the probate process would go smooth but one of the bros sued for the farm to the great surprise of her and her other bro. Two years later and the matter is still before the courts. Imagine the complexity had the investments and the farm been JTWROS. The moral to the story is one does not really know what is going to come out of the woodwork after the last parent dies.

I thus maintain don't be penny wise and pound foolish about little side issues like probate.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> What will sometimes happen with co-executors, one of them will sign a legal document assigning their executor rights and obligations over to the the other person ...


It would worked but run number one was the learning experience where before run number two, a codicil switched it my sister as the main executor where if she couldn't do it then I was the next in line.
A friend was complaining that for him and his two siblings, it took over a month to get the legal documents properly registered so he as the local sibling could proceed.

It seems more efficient to avoid the "co-executor" format where there are long distances involved.


Cheers


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> IIt seems more efficient to avoid the "co-executor" format where there are long distances involved.


I agree!


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## ian (Jun 18, 2016)

Probate was only one of the outcomes. The main outcome was an estate that was thought out and documented in such a way that there was no misunderstanding or dispute when it came to disposal and distribution of the estate. At a subsequent meeting with a family law practitioner on another matter I was asked why my parents did this. I was then told that this was the exception. The issue that the lawyer saw was not only the potential legal issues and depreciation of the estate, but the two or three years of personal angst and legal issues that some of his clients have gone through. It becomes an even larger issue when there is no will or the will is drawn up after the deceased exhibits the first diagnosed signs of dementia.

The process gave us the impetus to get the will completed. And then to update it ten years later.


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## agent99 (Sep 11, 2013)

AltaRed said:


> The last-to-die spouse should NOT be entering into JTWROS accounts with anyone else for the reasons stated in the link you provided.... other than perhaps a chequing account or bank savings account with limited funds for an executor to manage an estate. .


No intention on our part to do that. I am more interested in putting something in writing to assist remaining spouse in modifying our account beneficiaries, should one of us die. Perhaps include some guidance on how RRIFs, TFSAs and other investment accounts could be unwound as surviving spouse ages.

One problem I see, is that the small practice family lawyer who helped with our wills, does not profess to be on top of estate and financial/taxation issues. I do need to talk to him and see if he has someone he would refer us to for those issues. It may not be easy to do one-stop shopping for this sort of thing. Lawyers also age and retire, so maybe a larger law firm or trust company might be a better bet?


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## ian (Jun 18, 2016)

On the two occasions when we have made our will we engaged a lawyer whose practice focused on wills and estates. The last time, ten months ago, when we had it updated the fee was approx $800. We view that as a very good investment.


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## agent99 (Sep 11, 2013)

Can't recall what we paid. It was some time ago. I need to pull wills out and see if they need updating. 

Seems it is possible to create a will on-line these days. https://www.legalwills.ca/Prices. Could be sufficient for many, although once all pieces are added in, maybe $150-$250 for a couple?


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## CPA Candidate (Dec 15, 2013)

Being the executor of my Dad's will and a CPA, I have been going through this process lately and thinking about what could have been done differently, especially the $400k RIF that will come into income on his final tax return creating a massive tax liability. Essentially half of it will evaporate in taxes.

I guess the first thing that strikes me is that my Dad was under spending in retirement. His RIF was basically remaining the same size, the withdrawals were more or less just the dividends piling up each year. He had contributed too much and withdrawn too little over time. His RIF could have been managed a lot better. If he had lived another 20 years, the RIF would have been just as large. Last summer, as a 73 year old cancer patient, he was attempting to paint the exterior of his house himself. I'm not sure if I should be impressed by his frugality or ashamed at his stubbornness to ever spend a cent. 

As far as his non-registered account, some timing in recognizing capital gains could have reduced the final tax bill. He had decades of capital gains waiting like a bomb to go off at death. This is made worse by recognizing the RIF in income in the same year. Selling off a bit each year, paying the tax and distributing would have been better. He had about $2 million, so there was no concern about running out. There was even a time when my family could have used some help and he didn't act at all.

At the risk of turning this discussion into another issue, being really frugal can become like a disease of the mind. My dad was a multimillionaire that lived in a house with cracks in the walls, paint peeling off the outside, untidy because he didn't clean and wouldn't pay someone to do it. In the end a lot of what he saved will just go into government coffers when he could have enjoyed it.


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## fireseeker (Jul 24, 2017)

CPA Candidate said:


> Being the executor of my Dad's will and a CPA,


Sympathies for your loss, CPA. And thanks for the illuminating and valuable post.
My 90 y/o MIL does not have that level of assets. But what she had was in expensive mutual funds. I offered to manage the money, shifting it dividend earners. 
I did this over three years, triggering a healthy capital gain each year (but not enough to move into the top tax brackets) while disposing of the funds.
Now, her annual investment costs have been cut by 2.5 percentage points, she has very little end-of-life tax liability, and her annual investment income attracts very little tax. 
It required her to trust me, but in the end she and her estate are better off.


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## AltaRed (Jun 8, 2009)

CPA's story is pretty common among the Depression era folk and the early Boomers in particular, e.g. 1920's through 1940's. Me included. For whatever reason, frugality, good investment luck, or both, many built up assets managing them with a keen regard for tax efficiency, meaning pay no tax before it is due. That can leave a horrendous tax bill upon death. 

I have to learn to start crystallizing my unrealized cap gains more aggressively and a key way to do that is to 'donate in kind' to reduce the tax bill. I've been looking into what it would take to start a personal endowment with some "foundation" with a view to dissipate that tax bill. I highly recommend those with the potential for a 6 digit tax bill seriously look into how that would work for you.

To CPA: It may not be too late to consider that for your Dad's estate. It can be quite tax effective while putting his name on something important in your community.


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## OnlyMyOpinion (Sep 1, 2013)

As always, everyone is different. Depending on other income and assets, I wouldn't say having $400k per person in RRSP/RRIF's near the start of withdrawls at age 72 is too much. 

CPA, your dad unfortunately didn't get many years drawing his down, but he may have lived a long life and perhaps chosen senior living in his early 80's where he would have been using $45-$50k/yr. We just don't know the future.

He did benefit from tax deferral each year he contributed to an RRSP. It's having to 'return' all of that tax deferral in full in one year that hurts (the estate - not him).

My folks began burning through over $90k/yr in their last year when they were forced to live apart. One stayed in their seniors apt, one went into LTCH. Their money didn't seem to be too much at that point. Then they both died and it seemed like they had left too much, not RRIF's but proceeds from their house they'd sold a few years prior.

So there is just no way to know. But I'd sooner be in those years without financial concerns than with. 
That said, I agree with you that tax-efficient estate planning is very worthwhile if a person is willing or can be convinced.


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## Eclectic12 (Oct 20, 2010)

CPA Candidate said:


> ... At the risk of turning this discussion into another issue, being really frugal can become like a disease of the mind. My dad was a multimillionaire that lived in a house with cracks in the walls, paint peeling off the outside, untidy because he didn't clean and wouldn't pay someone to do it. In the end a lot of what he saved will just go into government coffers when he could have enjoyed it.


My condolences.

You are in a better position to figure if it was or was not a disease. For those in my family of a similar vintage, it seems more of a force of habit. Those who noticed their parents doing similar made a conscious decision to spend once and a while to avoid one habit taking control. 




AltaRed said:


> CPA's story is pretty common among the Depression era folk and the early Boomers in particular, e.g. 1920's through 1940's ...


Make me appreciated my Depression era folks discussing these issues in the '80's where they concluded that passing on what you could, when the kids actually needed it was better than jumping through hoops to try to reduce the big band income/tax bill of the final return.


Cheers


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## agent99 (Sep 11, 2013)

OnlyMyOpinion said:


> As always, everyone is different. Depending on other income and assets, I wouldn't say having $400k per person in RRSP/RRIF's near the start of withdrawls at age 72 is too much.
> 
> CPA, your dad unfortunately didn't get many years drawing his down, but he may have lived a long life and perhaps chosen senior living in his early 80's where he would have been using $45-$50k/yr. We just don't know the future.
> 
> ...


Some of the concerns in CPA's post are what prompted me to start this thread. Some of the observations in OMO's post above are what came to mind when I read CPA's post. 

$2million in taxable account means that there should be more than enough for heirs even after GOC gets their share. Not many of us will be in that situation. I wouldn't be complaining 

We have been in RRIF territory for about 7 years. We have had to withdraw from RRIF at an ever increasing rate and pay taxes on those withdrawals. Tax on $400k soon after converting to RRIF may seem a lot, but if CPA's father had lived longer, the taxes would have had to be paid anyway. Drawing out more than the minimum when there was already $2million outside the RRIF, would have probably attracted tax at the max rate. Money in RRIF is kind of stuck there unless you are prepared to pay the government to withdraw it. Depends of course on size of the RRIF and resulting withdrawal, relative to other income.

There is no way to know just what to do without knowing the future. While we are both still alive, our plan is to live in our normal somewhat frugal way. As a result, there should be enough to cover retirement/nursing home care for both or one of us if that should be needed. Our home would probably cover most of those costs. Otherwise, our kids will benefit. And nearer the end, we will try to eliminate or at least reduce CGs in taxable accounts.

As we get older, we are more and more hiring others to help us out. Lawn care service, snow plowing, painting, yard cleanup etc. Also not worrying as much about what things cost. And getting away in winter for longer periods.


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## AltaRed (Jun 8, 2009)

agent99 said:


> As we get older, we are more and more hiring others to help us out. Lawn care service, snow plowing, painting, yard cleanup etc. Also not worrying as much about what things cost. And getting away in winter for longer periods.


Likewise! And we are not in RRIF territory just yet. Joy of life's pleasures is far more important in one's senior years than physical drudgery, never mind physical tasks become more difficult to complete.


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## kcowan (Jul 1, 2010)

CPA Candidate said:


> At the risk of turning this discussion into another issue, being really frugal can become like a disease of the mind. My dad was a multimillionaire that lived in a house with cracks in the walls, paint peeling off the outside, untidy because he didn't clean and wouldn't pay someone to do it. In the end a lot of what he saved will just go into government coffers when he could have enjoyed it.


At the risk of sounding insensitive, the good news is that your Dad was totally oblivious to his looming tax bill. Had you influenced him in his living years, you would have probably upset him. Sorry for your loss. OTOH my Dad lived to be 95 and he used all his meager savings before passing. Plus he used to say that paying taxes was a privilege.

The only way to deal with these situations is to convince yourself that it was the tax free accumulation that provided this massive tax bill. Inefficient yes. But it is the design of our system.


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