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Understanding Estate Planning in Canada

Canada does not have an "estate tax" like the United States. However, there are several costs that arise when someone passes away. The most significant are deemed disposition taxes, probate fees, and the taxation of registered accounts like RRSPs and RRIFs.

Deemed Disposition at Death

When you die, the CRA considers you to have sold all your capital property (investments, real estate other than your principal residence) at its fair market value immediately before death. This triggers capital gains tax on any unrealized gains. The capital gains inclusion rate means 50% of the gain is added to your final tax return as taxable income (for gains up to $250,000; 66.7% for gains above $250,000 as of June 2024).

Provincial Probate Fees

Probate fees (also called estate administration tax) vary significantly by province. These fees are charged on the total value of assets that pass through the will. Assets with named beneficiaries (like life insurance, RRSPs with a named beneficiary, and jointly held property) generally bypass probate.

• Ontario: $5 per $1,000 on the first $50,000, then $15 per $1,000 on the remainder
• British Columbia: No fee on the first $25,000, $6 per $1,000 from $25K to $50K, then $14 per $1,000 over $50K
• Alberta: Flat maximum of $525 (capped regardless of estate size)
• Quebec: Notarial wills require no probate; non-notarial wills approximately $200

RRSP/RRIF on Death

The full value of your RRSP or RRIF is included as income on your final tax return. This can push you into the highest tax bracket. The exception is if you name your spouse or common-law partner as beneficiary, in which case the funds roll over tax-free to their RRSP/RRIF.

Spouse Rollover Rules

If you have a surviving spouse or common-law partner, most assets can be transferred on a tax-deferred basis. This includes RRSPs/RRIFs (rolled to spouse's account), capital property (transferred at adjusted cost base), and the principal residence. This does not eliminate the tax, only defers it to the surviving spouse's eventual death.

Principal Residence Exemption

Your principal residence is exempt from capital gains tax at death, just as it would be during your lifetime. Only one property per family unit can be designated as the principal residence for any given year.

Strategies to Reduce Estate Costs

• Name beneficiaries on RRSPs, TFSAs, and life insurance to bypass probate
• Joint ownership with right of survivorship for bank accounts and property
• Life insurance to cover expected tax liabilities
• Testamentary trusts for tax-efficient distribution to beneficiaries
• Have a valid, up-to-date will to avoid intestacy complications
• Power of attorney for property and personal care while living