Empty Nest

Estate Planning and Tax Issues

2017-01-24

Estate Planning

Now that your children have left home, it is probably time to revisit your estate plans. The most important aspect of your estate plan is your Will. Objectives change over time and your Will should reflect these changes to ensure that your estate is distributed according to your wishes. If your children are self-sufficient, it may have a bearing on how you plan to distribute your estate. There may be assets such as a family cottage where some consideration might be required to determine how that property is to be passed on.

Here is a link to a basic Will: Last Will and Testament

A lawyer should be consulted when a Will is being considered. There are legal and family issues that need to be addressed if this route is taken.

The presence of grandchildren may change how you want to distribute certain assets. Depending on the situation, you might think about the use of trusts to hold and maintain assets for beneficiaries. Trusts are very flexible and useful estate planning tools, but should only be established after careful thought and the assistance of qualified legal counsel. Assets such as RRSPs, RRIFs, Segregated Funds and Insurance that have named beneficiaries should also be reviewed to ensure that the beneficiaries match your goals and objectives. Here are a few helpful tools that you can share with your family members when planning your estate planning checklist, Will planning checklist and personal record keeper.

Tax Issues

As with most things in life, change can have tax implications. When your children leave home, there are a couple of issues that may need to be considered:

Principal Residence Exemption (PRE)

Although this will most likely not be an immediate concern when you become an ‘empty nester’, PRE needs to be considered as a part of your retirement and estate plans. This is one of the more generous tax breaks available for the average Canadian and provides for the sheltering of tax on any capital gain on a person’s ‘Principal Residence’. Simply put, if you have always lived in your home and then sell it at a profit, you will not be taxed on the gain. There are numerous specific rules relating to the PRE. I can provide you with much more information and specifics about this measure.

Estate Planning and Passing on Assets

You may be starting to think about passing on various assets to your children such as investments or property. In almost all cases, this will be viewed as a ‘deemed disposition’ for tax purposes. In other words, even though you are not actually selling the asset to your child, it will be viewed as a sale by the tax authorities and capital gains tax can arise. For example, if you give the family cottage to your child which cost $100,000 and it is now deemed to be worth $500,000, you will have to report a taxable capital gain of $200,000 (($500,000- $100,000) X 50%) and pay the resulting tax. On the plus side, your child will have an asset worth $500,000 and any resulting gain if it is sold in the future will be the child’s responsibility. You need to carefully consider whether it is better to pay the tax now and pass on the subsequent growth or to keep the property and pay the tax yourself in the future. Professional tax/legal advice should be sought.