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 The
Money Management Newsletter: Managing
Money
Plan ahead to secure your financial future
By Martin Kosterman and Rob Whipp
Money Management Newsletter - Aug. 1996
Estate
planning is a multi-faceted process
which affects us all at one time or another. It encompasses all areas
of susscession planning from simple wills to orderly reorganization of
multi-million dollar businesses including all the various tax and economic
factors involved. How do you decide if you are a candidate for financial
services? generally speaking, needs for the services fall into four broad
categories.
A) Those who have real estate holdings in addition
to their principal residence.
There are two separate considerations for people in this situation. The
first is the taxation of capital
gains on the property, while the second is the potential for recapture
of any capital
cost allowance that have been claimed. Upon death a deemed disposition
is placed on all of the deceased's property for tax purposes.
This can be postponed though a spousal rollover, if there is a surviving
spouse, but the full tax bill will be due and payable upon the survivor's
death. The impact of capital gain's taxation on the estate can be overwhelming.
B) Those who have RRSPs
or RRIFs.
The deemed disposition rules, mentioned above, require that all registered
plans be redeemed, and the tax paid on them in the year of death.
Even a relatively small RRSP or RRIF could result in the estate being
moved into the highest marginal
tax brackets. Again, a spousal rollover can be used to postpone the
tax bill until the second death.
For those who have surplus income in retirement from these sources, there
are a number of new strategies that utilize the tax sheltering under section
148 of the Income Tax Act. In short, these strategies allow you to minimize
your current taxes while maximizing the tax-free transfer of capital to
your beneficiaries
upon death.
C) Those who have assets in the United States.
This could include such things as real estate holdings or investments
portfolios. The tax treaty between Canada and The United Stares has no
offsetting mechanism for estate taxes payable in the United States. In
other words, there is no tax relief on Canadian income Tax Act for United
States estate taxes paid. This can result in double taxation on the same
asset base which could cause a massive depreciation of your estate.
D) Those who have interests in a business.
Those who have interest in a business generally have more complicated
estate but also have more planning options and opportunities.
There are a number issues that need to be addressed such as: taxation
of capital gains, business succession plans (who will run the business
when I'm gone?), shareholder's
agreement and their funding, to mention a few.
The largest need for estate planning exists within this area, because
in many cases you will have the largest tax bills as well as the highest
succession
costs. For those of you in this category, having no plans, or incomplete
plans, can be disastrous in terms of taxes and other economic
factors involved.
If you fall into any of the above categories, there
are estate planning strategies you can use today, that are tax favored,
to help you address these future problems.
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