There
are only two sure things in life...death and taxes! However, there
are strategies available to reduce or even eliminate taxes in your estate.
Probate
is in fact considered a form of tax. People have been known to go to
great lengths to reduce or try to eliminate probate. This, however,
may have been done at great expense and risk to the person. Joint
ownership is a popular way of eliminating probate, but care must be taken
with whom you make a joint owner. For example, I commonly see that a
widow will make one of her children a joint owner on her home so that this
asset will pass down outside of the estate. The issue here, is that
upon the mother's death, the child that has joint ownership has no
recourse to pay the other children their share of their mother's home.
The child with the joint ownership is now the sole owner and the home
hasn't formed part of the estate so that the Will can give direction.
This is one of many ways to break up a family. Great care and
thought must be given when naming joint owners other than a spouse.
It is highly recommended to talk to a lawyer in regard to this issue.
Another
way to reduce or even eliminate tax in your estate is through charitable
gifting. In the year of death, 100% of charitable gifts are eligible
for a tax receipt. If a gift is large enough, it can reduce or even
eliminate tax in the estate. This is often accomplished through the
use of life insurance at a significantly reduced cost as compared to an
outright gift. Please refer to the case study on this website by
clicking
here.
One
other strategy available to reduce tax in one's estate is, if possible,
spend down your registered assets during your lifetime. Great care
and much planning must be implemented before doing so. You must make
sure that you have sufficient income from other sources of retirement
income to sustain your current lifestyle. You must also take care in
the amount of income that you will take so that it doesn't trigger OAS
claw-back and at the same time, bump you into a higher tax bracket.
You must consult your financial and tax advisors before implementing such
a strategy.
RRSP/RRIF Spend-down leveraging strategies are also available to help
reduce your Registered assets and convert them into non-registered assets.
The details of this strategy are beyond the scope of this article.
Please
contact us for more information on the leveraging strategy.
