Taxes payable by the estate
When someone dies, their final estate still pays income tax. Any remaining funds in RRSPs or RIFs is withdrawn and taxed as income in the final tax return. If the estate executor is a family member and not a lawyer, it’s a good idea to hire an accountant to prepare the final tax return to be absolutely certain that the taxes are filed correctly before the estate funds are handed over to the beneficiaries.
Taxes payable by you
The Canadian government repealed inheritance taxes in 1972, but you may want to check with your accountant if the inheritance contains property or anything valuable besides cash. Capital gains from properties may not be exempt; as a result, most estates sell properties so that their values can be passed on as cash.
Leaving a property to your family
Leaving a property in a will can be problematic, because whoever is receiving the property may have to pay capital gains on the fair market value of that property. However, if it’s something sentimental and high in value like a family cottage, beneficiaries may be willing to split the capital gains charges to keep the property rather than purchase another one. This is something you’ll want to discuss in advance with your family when drawing up your will.
Leaving a legacy to charity
Life insurance and inheritance
In addition to helping you leave a legacy to charity, using life insurance as a component of your estate planning can help offset estate taxes on property and final income taxes on your estate. Talk to your Financial Advisor for more details.