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How To Minimize Your Estate Distribution Costs

Most people are unaware of what can be done to minimize taxes and fees payable at death. First, let’s review how the value of your estate may be reduced before it is distributed to your beneficiaries.

How To Minimize Your Estate Distribution Costs

Income Taxes

At death, the Canada Revenue Agency (CRA) requires a terminal income tax filing. All income received by the deceased to the date of death is included in the return. All assets not jointly-owned or qualifying for spousal “rollover” are deemed to have been liquidated at death. A RRIF or RRSP, for example that may be worth several hundreds of thousands of dollars must be taken into income on the death of the second spouse. Because tax has not been paid on the deposits into a RRIF, the entire value of the RRIF becomes taxable. Any non-registered assets where capital gains have accrued over the years are deemed to have been sold at death. Those gains on shares that may have increased in value many times, suddenly become taxable in their entirety. As mentioned in an earlier article, most married couples (except possibly second marriages) hold the majority of their assets in joint name. This means that on the death of the first spouse, the assets become the sole property of the survivor. So there are no income taxes payable until the death of the second spouse, regarding those assets. Nor are life insurance proceeds taken into income.

Probate, Legal, Accounting and Executor Fees

Probate fees are a provincial tax on the dollar value of an estate. A Grant of Probate must be received from the Court before the executor can deal with certain assets. In British Columbia for example, probate fees are 1.4% of the estate’s value over $50,000. Be aware that the granting of probate can take many months.
Legal and accounting advice is normally necessary to complete the terminal tax filing and to receive probate. The fees charged are often a percentage of the estate’s value.

Executor fees are also based on the estate’s value. If the executor is a close relative the fee charged may be considerably less than 5%. However, if there is a corporate executor, the fee is normally about 5%.

How to Reduce Taxes and Fees

It is not easy to reduce the income tax bite to which estates are subject. However, with planning, some action can be taken to reduce income taxes at death.
Because a RRIF is fully included in income at death, most of it will likely be taxed at the highest marginal tax rate. Depending on your marginal tax rate while living, it may be wise to begin a RRIF meltdown, taking a larger percentage of your RRIF into income than the minimum.

Depending on your age, it may be wise to purchase an insured annuity with non-registered funds where income may be very high and taxes very low.

There are several good ways in which you can reduce the four fees: probate, legal, accounting and executor. Keep in mind that these fees can total 8 or 9 percent of the estate’s value. In broad terms, one needs to re-arrange assets in order to avoid probate. Specifically, this can be accomplished through joint ownership or beneficiary designation. Spousal joint ownership is common and usually very beneficial. However, after the death of one spouse, the survivor may be tempted to put a number of assets in joint name with a child. This can be very dangerous since the child would then have access to those assets and if he were to be pursued by creditors, the asset could be lost.

Designating beneficiaries to a RRIF keeps that asset out of the estate. Purchasing an insured annuity moves a non-registered asset into a life insurance policy where beneficiaries are again designated. One must qualify for life insurance coverage. If you cannot qualify, you can still buy a life insurance product where you may designate beneficiaries. For example, life insurance companies issue the equivalent to a bank GIC. They also issue segregated funds which are the life insurance equivalent to mutual funds.

One final important point should be made. While probate can take a great deal of time and delay the distribution of an estate for many months, joint ownership is immediate and beneficiaries should receive proceeds in about one month.


All of these concepts and products may not be appropriate for everyone. You should obtain the details for each, from someone knowledgeable in tax planning and insurance products.

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