When proactively planning an estate, one of the main focuses is often tax savings. Each year, countless individuals pay an excessive amount to the Canada Revenue Agency (CRA). Although paying taxes is an unavoidable reality, even with a well-designed estate, using the right tools and knowledge can significantly reduce or defer this sum.
A proper tax plan should account for both domestic and international issues.
Many families are unaware that internationally held assets, such as US property or investments, are liable to both US and Canadian estate taxes. Failure to structure these assets within a larger tax scheme will inevitably cause their real values to be reduced.
In addition to the aforementioned risks, foreign assets can also legally create multiple estates. For instance, by owning property in the USA, you are recognized to possess both an American and Canadian estate. Upon an individual’s passing, these two estates will need to be settled, adding considerably to the amount of time and money required. As experts, our contemporary understanding of current domestic and international legislation enables us to devise the most innovative means of minimizing the workload surrounding an estate while maximizing its total net-worth.
Client Challenge: In order to avoid high tax rates, many couples will spend their entire lives developing an estate with an equal division of assets. However, these couples are unaware that upon one partner’s passing, the remaining partner is automatically inserted into a higher tax bracket. Consequently, years of methodical and strategic income splitting are wasted.
Creative Solution: Upon one partner passing, the deceased spouse’s asset base is set to automatically be transferred into a spousal trust. The remaining spouse will continue to have access to the assets and monies held in the spousal trust. However, this mechanism will effectively prevent him/her from being bumped into a higher tax bracket. Moreover, the family unit can continue to income split.