When a person dies, the family can be shocked by the size of the tax bill on the estate. Although inheritance tax was abolished in Canada in 1972, people often don't realize that there may be tax to pay on assets that have increased in value. This includes things like property, stocks, shares, even jewellery.
When you die, the law assumes you sold all your assets the day before you died. Depending on what you own, there may be capital gains on some of those assets if their value has increased since you bought them. Since this is considered income, tax may have to be paid on capital gains to the Canada Revenue Agency (with exceptions, including property transferred on death to a spouse).
So along with the grief, family members can find themselves having to come to terms with a large sum of money owed to the government from the estate of the deceased.
By writing a will and seeking good professional advice, you may be able to reduce the amount of taxes to be paid from your estate after death. For example, if you leave your assets to a named beneficiary, the taxes may be reduced. Gifts in your will to a favourite charity, or a church, health organization, or a worthy cause like Amnesty International, may also reduce the tax burden. Such charitable gifts may include cash, or stocks and securities, or RSP and RIF assets. All of this may give you tax advantages, and so can taking out a life insurance policy while you're alive and naming the charity as beneficiary.
The key always is to ensure you have a well-written will. It's often difficult, however, to find our own way through complicated tax rules, so consulting the advice of a personal finance expert is highly recommended. A general information package on wills is available free from Amnesty International at 312 Laurier Avenue East, Suite 250, Ottawa, Ontario, K1N 1H9.