After the death of an individual, every estate must file a final (or ‘terminal’) tax return. When an individual passes, all assets are deemed to be disposed of, which can trigger probate fees and other expenses.
A certificate of appointment (“Probate”) or Estate Administration Tax (EAT) is not always necessary to actualize the transfer of certain assets. Much depends on how the asset was held during one’s lifetime and the asset’s value being transferred. Some institutions will not require probate for assets under a certain amount. Concerning jointly-owned real property and bank or investment accounts, these assets will be passed on to the surviving joint tenant by right of survivorship. In cases where joint ownership of assets is considered for estate planning purposes, it would be prudent to obtain legal advice. Estate administration tax (EAT) may be charged on the total value of the deceased’s estate, depending on jurisdiction in Canada (which your accountant can confirm). EAT assesses the value of all assets owned by the deceased at the time of death, including:
- Bank accounts
- Investments (e.g., stocks, bonds, trust units, options)
- Vehicles and vessels (e.g., cars, trucks, boats, ATVs, motorcycles)
- All property of the deceased which was held in another person’s name
- All other property, wherever situated, including:
- Goods
- Intangible property
- Business interests, and
- Life insurance, if proceeds pass through the estate, e.g., no named beneficiary other than ‘Estate’.
- New taxation in Canada: As of June 25, 2024, the capital gains inclusion rate—the amount of taxable capital gains—will increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. 1
If the court issues a Certificate of Appointment of Estate Trustee with a Will Limited to the Assets Referred to in the Will, only those assets included in such will, are to be included.
What is exempt from estate tax? Assets that the deceased had before death but not at the time of death, such as insurance payable to a named beneficiary, assets where there is joint ownership with right of survivorship and real estate; where some assets outside of certain provinces, are not included in the value of the estate.
Note: We strongly advise you to get legal tax advice when you face estate taxation on large estates.
The life insurance solution Life Insurers offer life insurance policies, segregated funds, and term funds, which may designate one or more primary beneficiaries, and further contingent (secondary) beneficiaries, allowing probate/EAT to be circumvented entirely, enabling direct access to those funds without joint ownership or survivorship of a joint tenant. Segregated funds and term funds are classified as deferred annuity policies, and as such, these assets can help lessen the overall fees charged on your estate. Monies pass privately and directly to your beneficiaries, outside of your estate and the probate process.
Life Insurance purchased for large estate planning purposes can help pay large capital gains tax in an estate. These strategies are generally advised by accountants who have experience settling estate taxation.