# Estate tax question



## marina628 (Dec 14, 2010)

This week we received some devastating news about a close friend ,she is in fact my very best friend in the world and I am absolutely devastated but decided I need to try to help her as best I can right now.My friend lost her husband to cancer less than 2 years ago and she learned this week she has stage 4 cancer and maybe only 3-4 months to live.She has her home in Ontario ,2 condos she rents out in Ontario a sizable rrsp (around $300,000) .She has only 1 child and asked me what she should do so not to leave a mess .I do not know the answers to any of this right now so wondering if somebody here has an idea where to start .It may give the impression they are well off but the only reason they have two condos is because they took on about $400,000 in mortgage on current home for down payments on the rentals ,the current home is worth about $750,000.


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## Mukhang pera (Feb 26, 2016)

Sorry for the bad news. 

She should see a lawyer right away to make sure she has an updated will and to get ideas about how to simplify her affairs for estate administration purposes. But, she should keep in mind she just might beat the odds and live much longer.


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## AltaRed (Jun 8, 2009)

Sorry to hear the bad news as well. I echo the recommendation to ensure the Will is updated, but be sure to also have an Enduring POA in place as well for someone to handle finances near the end, and also to have a health directive in place so as someone can make the final decision on when to end the pain and suffering.

As to arranging the finances, it depends on how much your friend intends to leave to the only child, and how much will go elsewhere. If everything goes to the child, I would suggest the 2 rentals be sold ASAP to get that baggage out of the way. There is no point of your friend being a landlord now nor to handicap the child with that baggage.

Your friend may also want to ensure there are no complicated vehicles in the RRSP that will be difficult to monetize. A simple stock and bond portfolio will do. Also if it is intended that the value of the RRSP go to the only child, make that child a beneficiary of that RRSP to avoid it going through probate. It can be settled and disbursed (net of estimated income taxes) fairly quickly before probate. Estimated taxes needs to be held back pending the estate's ability to pay the income taxes from collapse of the RRSP.


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## OnlyMyOpinion (Sep 1, 2013)

Sorry Marina. There will be some tough days ahead. 
You don't mention if her child is a minor. That will change things of course since she will need to ensure she has trustee details set up when she revisits her will with her lawyer. Her estate in trust will support her child until they are adult. Her will & lawyer are a top priority.

You say 'estate taxes' but there are no estate taxes as such. 

I agree with AR that if she can arrange to have the rentals sold now it will simplify the estate. She will presuambly have taxable capital gains from them, so funds for taxes should be set aside. I assume it is her intent that her child (if adult) will inherit the house, so she should pay off the mortgage with the condo proceeds (net of pending taxes) if possible. Is the mortgage life insured by chance? Any excess she could put in her TSFA if that is not max'd out and have her (adult) child designated as the successor for the TSFA.


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## RussT (Jul 11, 2016)

If your friend lives in Ontario there is an estate administration tax of 1.5% on all of the assets of the estate including the principle residence. It would make sense for your friend to gift any excess cash assets to her daughter before she passes to avoid the estate administration tax on those amounts. For other assets there are deemed disposition rules that need to be considered.

An executor can sometimes manage an estate with this level of complexity without a lawyer. It is a lot of work and requires considerable research to learn all of the legal, tax and financial implications. Shop around for a lawyer if one is required because rates vary considerably.


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## Nerd Investor (Nov 3, 2015)

Ensuring proper POAs are in place is very important as mentioned. If her intention is to leave everything outright to her only child (ie: no desire for trust or anything) I would probably look at adding his name so that they own everything joint with right of survivorship. In addition to saving probate tax, this will facilitate the child's ability to have instant access to everything. Normally I would not recommend that due to some of the risks (ie: if the child gets sued, divorced etc) but in this case it makes a lot of sense.


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## kcowan (Jul 1, 2010)

Sorry to hear about your best friend Marina. I don't have anything to add to the suggestions already made. The joint title on the PR and RRSP beneficiary is obvious. She might want to test the resale market for the condos before changing title. Any proceeds of sale should go into a joint account.

We had a similar situation with DWs cousin. Wife died suddenly within a year of the husband. Daughter was sole heir. More complex with properties in Arizona, Edmonton, Ft Mac and Ontario. Worked out just fine. But it was a big load, especially because the wife had been in shock and had not taken all the desirable steps.


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## marina628 (Dec 14, 2010)

The daughter is a divorced mom and 40 years old ,the condos were the sticky thing as we were not sure if they have to be sold and if daughter needs to qualify for the mortgages .Obviously on rentals it makes sense to have mortgages.The condos are in GTA and sell very fast so getting rid of them won't be an issues.All wills ,POA etc are done as she just buried her husband not long ago but they assumed she would live a long life.Thanks for your response .


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## Mookie (Feb 29, 2012)

Hi Marina, my mother was diagnosed with stage 4 cancer about 5 years ago and is still here and still fighting it. I realize every cancer is different, but tell your friend not to give up and to keep fighting. You never know how things will turn out.


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## Mukhang pera (Feb 26, 2016)

Mookie said:


> Hi Marina, my mother was diagnosed with stage 4 cancer about 5 years ago and is still here and still fighting it. I realize every cancer is different, but tell your friend not to give up and to keep fighting. You never know how things will turn out.


That's why I too suggested that Marina's friend should consider the possibility of a longer life and not take irreversible steps to dispose of her estate without due consideration. While she might have an updated will, etc., it might be prudent to consult with a solicitor who does estate planning to explore different options, tax consequences, etc. that might apply given different scenarios. She might want to include her daughter in the discussions if the daughter is to be sole/principal beneficiary and possibly estate executrix.


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## RussT (Jul 11, 2016)

Creating a joint ownership with the right of survivorship for the principal residence carries some risks. This may result in the loss of the principal residence capital gains exemption, and there are other potential issues. Hopefully the child is financially responsible and the PR doesn't become a target for creditors. Legal advice is strongly suggested. The estate administration tax on the PR in this case is $5,250. That's significant of course, but there are risks associated with saving that tax.


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## marina628 (Dec 14, 2010)

Things are moving along quickly for obvious reason ,today the cheaper condo is going on the market and with the proceeds my friend is going to loan her daughter the down payment to buy the more expensive condo.Both condos cash flow nicely but the daughter could never swing doing a private purchase on both.The daughter owns her home but is going to sell and move in with her mom as soon as possible ,thatis probably all the changes that will occur.


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