In law, succession is the legal phenomenon that regulates the collection and distribution of a person's assets after his or her death. Since the lawyer's fees and legal fees, as well as inheritance taxes can be quite expensive charges, many choose to organize their assets to avoid paying the tax related to the transfer of property rights in the event of death. In general, avoiding payment means ensuring that certain assets do not become part of the assets subject to taxation for the succession. To do this, read the following instructions.
Steps
Step 1. Name the beneficiaries in your life insurance policy
Since life insurance is paid directly to the named beneficiary, the funds will never be part of the estate and, therefore, will not be subject to estate tax. It is also possible that you would prefer to appoint a second beneficiary in case the first one dies before you.
Step 2. Store your assets in cash and / or bearer debt securities
Assets held in this way, for example converted into shares, can be excluded from the testamentary succession, reducing the related taxes. A bearer credit security is a financial instrument, such as a check payable in cash, payable by anyone who owns it.
Step 3. Add Pay on Death or “POD” (charitable donation in case of death) or Transfer on Death or “TOD” (transfer of assets in case of death) designation to your checking account
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The POD or TOD designation will allow you to decide to whom the assets you own will be transferred or paid after your death. As it will be paid or transferred directly to the designated person, it will not be subject to the payment of inheritance tax. To proceed with the designation, contact the bank or financial institution that manages your current account. The procedure varies from institution to institution and very often requires the completion and submission of a simple form.
Avoid Probate in Canada Step 4
Step 4. Assign ownership of your assets to a co-owner
The jointly managed assets that provide for the right to the share of the deceased, pass directly to the surviving co-owner and are never subject to inheritance taxes. Joint ownership is not convenient in all circumstances and, therefore, it is advisable to consider the following before appointing a co-owner of your assets.
- A co-owner can empty your checking account or mortgage your properties. Once someone has the right to access your assets, they will be able to incur debts against the latter or, in the case of a bank or investment account, to rob it without your knowledge or consent.
- You will need to get his cooperation in order to sell or mortgage the property. Once you have appointed a co-owner, it is necessary that he gives his consent to the sale of a property and to any mortgage that may be imposed on it.
- Appointing a co-owner, when he is not the only beneficiary of the estate, could cause discontent among the heirs. The other beneficiaries may feel that the co-owner should entrust the property to a trust for the good of all of them and, therefore, it is easy for disputes over who should inherit the estate.
- Tax consequences, including capital gains transfer taxes, may arise when you appoint a co-owner of an asset. You should consult with a Certified General Account (“CGA”), an accountant, or tax attorney before doing anything that may affect your obligations to pay taxes.
- As a co-owner owns joint property rights, so do his creditors. Assigning ownership of your assets to another person, appointing them as co-owner, can subject the assets to the rights enjoyed by the creditors of the co-owner and / or his spouse.
Step 5. Make donations
Donating your assets today will reduce the value of your assets at the time of your death, while reducing the taxes you pay. However, certain prerogatives and / or obligations may apply by law when making inter-vivos donations or while you are still alive for the purpose of reducing inheritance taxes. Therefore, consider the following:
- In reality, it is a question of ceding control of the donated property to the recipient of the donation. For example, if you donate an antique piece of furniture, you must give it to the recipient, giving up possession, or if you transfer a bank account to someone, you must add their name and remove yours from the account ownership.
- Tax consequences could arise for those who receive a donation. For example, if the market value of the donated property exceeds its price, the profit obtained may be taxable as a capital gain. The Canadian Revenue Agency ("CRA"), or the Revenue Agency of Canada, defines the market value as "the highest price, expressed in dollars, owned by an asset in an open market and without restrictions between buyer and seller helpful, both knowledgeable and prudent and acting independently of each other."
- The transfer of property and other taxes can occur when the donation of a property to someone occurs. It is advisable to consult an accountant, a tax lawyer or an inheritance lawyer before transferring the ownership of a property to a person, in order to ensure the protection of legal and financial rights.
Step 6. Establish a trust
A trust allows you to manage the ownership of your assets to a person called a trustee (trustee) on your behalf. You can appoint yourself as a trustee if you prefer. The trust will distribute the assets after your death. Since your assets are entrusted to the trustee, they will never form part of the estate contemplated in the succession and, therefore, will not be subject to inheritance taxes.
Step 7. Assign ownership of the assets that belong to you to your company
If you have outstanding debts other than mortgage debts, they will not be deducted from your assets when the value of your assets is determined at the time of your death. Instead, they will increase the asset value of your assets by generating a higher amount to pay for inheritance taxes. Transferring a loan and an asset acquired with it to a limited liability company will reduce the gross value of your asset, which in turn will reduce the amount of inheritance tax you pay.
Step 8. Make two wills
Individuals who own certain assets may decide to make two wills: a primary will, which covers those assets subject to inheritance taxes, and a secondary will, which provides guidance on the distribution of all other assets. While not a well-known practice, the court in Ontario recently approved this patrimonial organizational approach in the Granovsky Estate v. Ontario.
Advice
- If you want to control when a beneficiary will inherit your estate, you should consider establishing a trust instead of choosing Pay on Death or "POD" (donation to charity in the event of death) and Transfer on Death or "TOD" (transfer of the assets in the event of death).
- Talk to friends and family about how you want your wealth to be distributed after your death. If you really want a particular person to have an item and aren't sure if the one you love will respect your wishes, just give it to them now.
Warnings
- Before taking any action that could harm your legal and financial rights and / or duties, it is always useful to consult a specialized lawyer.
- Avoiding inheritance taxes is not always the right thing for everyone to do. You should consult with a lawyer to determine if the measures you can take to avoid payment are suitable for your situation.
- Appointing a co-owner of a current account will allow the latter to withdraw all the money paid or will produce a right of retention on the amount deposited in the current account against debt positions if he is sued and a sentence against him is pronounced. Choosing the Pay on Death or "POD" (donation to charity in the event of death) and Transfer on Death or "TOD" (transfer of assets in the event of death) solution could be the surest way to ensure that the assets pass to those wishes, without giving up the interest it generates up to the time of death.
