Readers please note: Due to the number of comments added to this thread, the site won't let me read all of the questions. 200 comments seems to be the limit. I would like to see your comments and questions though, so please feel free to add them to any thread on this blog
- lynne.
No, Canada does not have a specific tax that is levied against beneficiaries inheriting under an estate.
- lynne.
No, Canada does not have a specific tax that is levied against beneficiaries inheriting under an estate.
So if there is no death tax, why is there so much talk about planning ahead to pay for taxes in an estate?
There are plenty of tax consequences when a person passes away, even if there is no specific tax on dying. This is because a person's assets are deemed by law to have been disposed of by the deceased one minute before he or she died.
For example, everyone who owns an RRSP knows that we do not pay tax on the money we put into our RRSPs until we take it back out. In other words, the money is not tax-free, it is tax-deferred. Every time we take out a portion of the funds, we pay the tax on that portion. So if you were to dispose of your entire estate one minute before you died, and as part of that you took all of the money out of your RRSP (or RRIF), then you would have to pay the taxes on it.
In practice, your estate would pay those taxes, even though the person named as the beneficiary of your RRSP or RRIF is not your estate. You can avoid paying those taxes if the beneficiary you designate is your spouse or a disabled child.
Another tax liability that arises when a person passes away is capital gains tax. This is a tax on capital property (some examples of which are real estate and shares in private corporations) that has increased in value since the day you acquired it.
For example, if you bought a cabin at the lake for $50,000 years ago, and by the time you die the cabin is worth $90,000, then the value of your property has gained $40,000. Half of that gain is taxable. Your executor would then have to include $20,000 (half of the gain) on your last tax return as income.
This tax is also payable out of your estate.
There is an exception to this rule as well. Your estate does not have to pay any capital gains tax on your residence. This is referred to as a capital gains exemption. If you have a home and a cabin, or a home and a rental property, you can claim the exemption only on one property, that being your usual place of residence.
There are some tools that can be used to address tax liability, such as life insurance policies, beneficiary designations, trusts and restructuring of the ownership of assets, depending on your situation.
For this reason, it's worthwhile to sit down with an experienced estate planning lawyer to make sure that you're aware of all of the possible tax consequences of your death and that of your spouse.,You also want to make sure you're aware of ways to reduce taxes and to have cash flow to pay the portion that can't be reduced.
Lynn,
ReplyDeleteI respectfully disagree with the accuracy of the statement that, in Canada, there is no "specific tax that is levied against the estate of a person who dies". Ontario, for instance levies the Estate Administration Tax (EAT).
Ontario EATs away with its tax on the estate of the deceased as follows:
-one half percent of the value of the estate above $1,000 and up to $50,000
-one and a half percent of the value of the estate above $50,000
Further reference on the EAT Act 1998: http://www.search.e-laws.gov.on.ca/en/isysquery/77a53d6d-315f-46cb-af2e-7e141490650d/1/doc/?search=browseStatutes&context=#hit1
Hi, thanks for your comment. You're right that this statute exists. However, I would have referred to this as a probate fee, as it is charged against the estate at the time the letters probate (called estate certificate in Ontario) is issued. On this blog I always refer to the cost of getting a probate as a probate "fee". I feel that calling it a tax might make readers think there is a probate fee AND a probate tax. Hope that helps clear up any questions.
ReplyDeleteLynne
The Americans pay an inheritance tax and Canada does not. Have politicians in Ottawa talked about a tax on estates in the form of an inheritance tax? Would it be something they might consider in the future (given income disparities getting wider and new studies from the likes of Richard Wilkinson et al. suggesting it is the source of social ills)?
ReplyDeleteIt wouldn't surprise me if the Canadian government imposed an estate tax or inheritance tax at some time in the future, although I do not know of any specific dialogue about this at present. In my opinion it isn't going to happen while there is a minority government in office. Also, I think the imposition of an inheritance tax might be seen as sending a message that is inconsistent with creating the TFSA and the RDSP a couple of years ago.
ReplyDeleteLynne
My father died this past November and left everything to myself and sister, including his house/property.
ReplyDeleteIf we sell this property this summer, do we have to claim a capital gains? If so, on what part?
Thanks Mike
Only on what it has gained since you recieved it. If you have lived there, than it should be tax free.
DeleteMy parent is a non-resident of Canada, living in Hong Kong. They have assets in stocks and bonds; a principle home and some shares in a private Canadian company. There's no estate tax in Hong Kong. Do I have to pay any Canadian tax when I inherit the assets from them?
ReplyDeleteHi. I couldn't possibly give tax advice on a specific situation without the complete details, so you'd have to consult a lawyer or accountant in your area. What I can do, however, is give you some general information about estate taxation.
ReplyDeleteThe general rule of estate taxation is that when an asset is being transferred, the tax goes against the estate selling/giving, and not the person receiving.
For example, you mentioned shares in a private Canadian company. Those are capital property. So if they increased in value during the time your parents owned them, there will be capital gains tax owing. But you don't owe that; the estate does.
Also, the money held in stocks and bonds might be registered, which means it is held in something like an RRSP or RRIF. If so, when your parents pass away the registered funds will transfer to their estates, at which time the tax must be paid on it. That too comes out of the estate and not your pocket or anyone else's pocket.
When "the estate" pays taxes, it doesn't come out of a beneficiary's pocket. But taxes and all expenses are paid before beneficiaries are, so paying tax out of an estate means there is less left in the estate for anyone to inherit.
Keep in mind that if there is a lot of tax owing for some reason, assets may have to be sold or cashed in to pay the tax. Again, this doesn't mean that a beneficiary has to come up with the money, but it means the beneficiary inherits less money.
Also, I have absolutely no way of knowing whether Hong Kong would impose any tax on assets leaving the country to a beneficiary. I assume there is a probate fee to be paid in Hong Kong as well.
I strongly urge you to talk to an accountant if you need a specific answer, because certain facts can change the general rules I've set out here.
Lynne
Lynne:
DeleteI'm a long time client of the BNS, and a non resident Canadian citizen, just joining your blog readership.
I live in a country with a tax treaty with Canada (I would guess that Honk Kong does too).
As a non resident - I have no tax obligation in Canada on capital gains from investments in Canada and a reduced withholding tax on RRIF withdrawal, interest and dividends. And no obligations at all on property held in other jurisdictions.
I presume these rules would still apply when I die: so why do you say that there would be capital gains payable on investments? (excluding real property.)
I agree with your comment that estate taxes are likely in the future. In the past with defined benefits, the plans only needed to fund to the average lifespan. These days, with defined contributions and the focus on individualistic planning, we need to fund as if we will live to 95. We should see a massive growth in estates. At the same time, the government will need funds to stem the upcoming pension/healthcare crisis.
ReplyDeleteWhat is the tax rate on an estate of a house that has been lived in (no capital gains) that has been willed to the children? in B.C.
ReplyDeleteWhat is the tax rate if there is no will?
Hi,
ReplyDeleteIf the owner of a house dies and his house is his principal residence, there is no tax on the transaction from the deceased to the children. This is the same whether there is a will or not and it's the same in all provinces because this is a federal tax issue.
Lynne
If the tax return preparer should file in any form in the income tax return to present this tranfer to the children?
DeleteHello,
ReplyDeleteIf owner of a house dies and his house is his principal residence, and upon death, the house is passed to his grown children. If the children then subsequently decide to sell the house, will they need to pay taxes on the capital gains of the house? (Assuming they already have houses of their own so that house will not be their principal residence.) Is there an allowable period of time for sale of the house to avoid paying taxes on the gain?
Thanks!
Hi,
ReplyDeleteIf the children later sell the house and it is not their principal residence, yes they will have to pay tax on the gain, as you have described. No, there is no allowable period for sale to avoid paying capital gains tax.
Lynne
If the children sell their house, live in parent's house, should they pay tax for their house for capital gains?
DeleteWe are residents of US and our daughter lives in Canada. If a life insurance policy lists our daughter in Canada as benificery will she have to pay tax on the inheritence if we pass on?
ReplyDeleteWhat is the typical time frame to close an estate? The estate wasn't very complicated, we sold a house and currently have the cash in a liquid account and we are waiting for the taxes to go through.
ReplyDeleteHi. Most estates are wrapped up within a year. If you are waiting for a Tax Clearance Certificate from Canada Revenue Agency, you can expect to wait 6 to 9 months for that. Yep, that's pretty long, but there doesn't seem to be a way to speed up that part.
ReplyDeleteLynne
Hello from AB, I have read that the estate is responsible for all debts and taxes. My question is, there was allot of taxes and debts paid and to be paid on the estate because of the estates nature. Probate hasn't even been started and monies was borrowed against a business which is part of the estate from what I understand. Even though this may possibly be the wrong course, If all party's involve in the will are ok with this; do you see any problems with this situation in any way?
ReplyDeleteHi Danna,
ReplyDeleteYes, I see a few problems with it.
You're on the right track when you suggest that if all parties agree with a certain course of action, it's ok. But this idea has its limitations. In my experience, everyone says they're ok with it, but nobody thinks it through and certainly nobody writes it down and signs it. An agreement like that can be fine until something happens that pushes it, and then everyone finds out they don't have a legal leg to stand on.
You haven't said who has borrowed the money. If it's the executor, that to me is a big problem. An executor is not entitled to profit personally from being the executor. And regardless of who it was, what if the person doesn't pay it back? How will the rest of you collect it back?
If the person who borrowed the money is a beneficiary, the executor might decide that the person's loan from the estate is their inheritance and the other beneficiaries inherit the business. What if the business fails because the loan isn't repaid? Would the other people sue the one who didn't repay it?
There is also the issue that no beneficiaries are supposed to receive an inheritance until all expenses and debts are paid. From what you've told me I already know that probate fees haven't been paid, nor have taxes. Has anyone thought about how the capital gains tax on the business are to be paid?
Best of luck,
Lynne
Hi Lynne,
ReplyDeleteYou mention that houses passing to children are not taxable. What about houses which pass to a niece and nephew? Is there any difference. I am referring to adults when I say niece and nephew.Both have their own principal residences and would probably rent or sell the houses in question.There are 2 houses in question. One is the decedents principal residence and 1 is a rental property.Appreciate your help.
Thanks
Harry
my mother past away in 2004. as far as i know the capital gains tax has been paid. but for 7 years the executor has not told 2 of the beneficiers nothing. so if the beneficiers find out the capital gains tax hasnt been paid can we sue the executor.
ReplyDeletethanks
tj
I have a question My mother passed away on Feb 1st I was left as the sole executor to the estate. She had no property, but she did have A GIC worth $13,029.57 An investment account with $1652.22 and she had $7,104.04 in a personal account for a total of $21,785.83 Oh and I forgot that she is getting a return on her taxes of $703. My question is this minus the probate and lawyer fee's Does the estate get taxed? and roughly how much of a percentage. She lived in Manitoba (Brandon)
ReplyDeleteI am the executor of my father's estate. He is still living. He has several GICs, Mutual Fund products, all with Canadian banks. Are these considered registered investments? If so, what are the tax implications when he dies? Thank you.
ReplyDeleteHarry, please note that I answered your question as a regular blog post. Hope you caught it.
ReplyDeleteLynne
Re: registered investments
ReplyDeleteHi, thanks for your note. You will know that money is in a registered account when the title of the account includes the word "registered", such as Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Registered Educational Savings Plan (RESP) or Registered Disability Savings Plan (RDSP).
It's possible for a person to hold something like a GIC with other assets in a registered account, or just on its own. Look at the statement for the GIC and read the name of the account next to the account number.
A registered account will list all of the assets - GICs, stocks, cash etc - together as a portfolio under one account number. If it's not clear to you, and you have a power of attorney for your Dad, call the bank branch and ask (I'm assuming you can't simply as your Dad or you wouldn't be asking me).
Whether money is registered or not makes a huge difference to an estate. For one thing, the owner of a registered account can name a beneficiary who will receive the money in the account on the death of the owner. This means that the funds might not even be in the estate.
For a second thing, registered funds are taxable. Money put into funds such as an RRSP consists of pre-tax dollars. The owner doesn't pay the tax until he or she actually takes the money out. Dying automatically triggers a cash-out, so the taxes become payable as soon as the owner dies.
The tax is payable by the estate no matter who receives the registered money.
Lynne
Thank you for providing this very informative collection of material on Estate Law. My parents are in their mid-80's, and although they are planning carefully to ensure a minimum of problems arise when they are gone, we in the family are all learning how very complex these matters are.
ReplyDeleteOne thing that I haven't seen addressed in your posts is the question of just how an 'estate' is defined. Is it the assets/liabilities held by a _couple_, or by an individual?
When the first of my parents passes away, will it be necessary to 'execute' the estate, or will this only happen when the second of them is gone? Their only property (their home) is of course held by the two of them together. It seems a bit ridiculous to have to go through the entire process of executing an estate twice ... (and probably in close proximity ...)
Apologies if this is a 'no-brainer' question, or has already been addressed here ...
Dave if you want to hear no-brainer questions you should hear me talk to the mechanic about my car. At least, from the look on his face, I assume that mine must be idiotic questions.
ReplyDeleteI'm often asked to define the estate, so I think many readers would like to know the answer to your question. I'm going to answer it as a new blog post, so please look for it on the main page.
Lynne
My father had two daughters from a previous marriage in India. He married my mother and had children with her in Canada. He 40 years ago and hi wife got the house. She has made a will that states her estate goes to her children in Canada. Before my father came to Canada, he made sure my sisters were set up in india with houses and a farm to collect rental income. Can they make a claim on the estate when our mother passes?
ReplyDeleteAs I understand your situation, your Mom owns the house outright, having inherited from your Dad. You are wondering whether your half-sisters, who are no relation to your Mom, could claim against the estate. As a general rule, only certain people can claim against someone's estate, including minor children, handicapped children and spouses. These girls are not even related to your Mom so they certainly don't fit any of the usual categories. In my opinion, if they thought they were entitled to something it would have been from your Dad's estate, not from your Mom's, and even then they'd have to prove they were dependents who hadn't properly been looked after.
ReplyDeleteLynne
If a married person inherits property from their parent, is that property theirs alone? or does their spouse have legal right to it, in the event of a divorce.
ReplyDeleteHi Mollie. Great question. So good in fact that I'm going to answer it as a new blog post, so please look for it there.
ReplyDeleteLynne
Hi Lynne,
ReplyDeleteI am the sole adult child of a divorced mother in her 70s living in Canada, though I have lived and worked overseas for years (as a non-resident I currently have no tax liability here). Hers is a small estate – her home, car, belongings and a few bank accounts, mutuals & RRIFs – for which I am named in the will as the executor and main beneficiary. My question is would it be better (ie. less net cost) to become a joint holder of my mother’s property and financial assets now, which I assume would expose me to taxation, or go through probate upon her death. Alernatively, would it be better to transfer some of these assets to me as gifts now?
Scenario: Grandma dies and leaves RRSP, RRIF, and Life Insurance to her 4 adult children, the named beneficiaries. 8 months later, one of the beneficiaries dies, before the funds have been disbursed. What happens to the share that would have gone to the child that passed? Said beneficiary was alive and well at the time of the policy holder's death, although it was known to the family that said beneficiary was dying of cancer. Do the funds go to the estate of the deceased beneficiary? Or is his share forfieted because he died before disbursement?
ReplyDeleteHi Lynne,
ReplyDeleteOn April 14 you said "If the children later sell the house and it is not their principal residence, yes they will have to pay tax on the gain, as you have described." In this case, is the gain the difference between the current market value of the inherited property and the market value of that property at the time of the parents death? Or is the gain from when the parent had originally purchased the property and todays current market value?
Hi, this is something I'm asked frequently so I should have been clearer in my post. The child will pay the gain on the value from the day the child acquires it, NOT from the date the parent originally acquired it.
ReplyDeleteLynne
Hi Lynne,
ReplyDeleteMy father died a few years ago, leaving everything to my mother. My mother was recently injured and is now incompetent. My sister and I are sole beneficiaries in her will, and also have power of attorney. She owns a numbered company that holds stocks as assets, and my question is whether anything can be done with ownership of the company or assets to reduce taxes payable on her death.
Thanks in advance for any help.
A.
Our Aunt died in 2006.benefactors she left in her will, predeceased her. She left no new will...Lawyers in possession of her will were notified of next of kin 2 weeks after her death and did nothing with the estate till 2009 when he finally sent letters to next of kin stating they needed to sign letters giving them Executors rights as we lived in the United States and could not legally be named as Executor as she was a Canadian citizen. We did this and now even though we got a lawyer from Canada the Executor has ignored our attorney requesting date he filed a Tax Clearance so that the estate can be finalized and monetary disbursements can be made. Property was sold in May 2010 and which everything was taken care of according to the Statements of Accounts,creditors,accountant fees,T3Trust, income taxes..everything but yet Executor will not give us the date of when he put in for the Tax Clearance or if hes gotten it back. How can we force him to give us/our attorney this information. This Executor has delayed the distribution of the Estate and dragged this out for over 5 years and we are very very upset by the way he is handling this Estate. Due to sitting on the will for over 2 years we lost 250k on the property as we had a few buyers willing to pay for this PRIME LOCATED PROPERTY up till 2007 and we couldnt do anything.
ReplyDeleteI am one of 2 benefactoers of an estate currently in probate. Most of the money we will be receiving is from her RRSP account. I realize that money will be taxed but my question is this. I currently learned of the ODSP and I have Multiple Sclerosis. I am not a relative of the deceased or was I a dependent in any way. I do not receive benefits from the government as I have been able to stay employed. Is there a way if I open an ODSP account, that I can avoid the taxes on her account. Can her RRSP be transfered to me tax free? Thank you in advance.
ReplyDeleteLynne,
ReplyDeleteIf a person inherit a revenue property that was originally purchased many years ago for 100k and is now worth 300k
when the beneficiary (that person that inherited)eventually goes to sale the property - say it will be sold for 350k, is he subject to a full capital gain tax, going back to the original purchase price of 100k or just on the gain made from the day he was an owner (50k)?
Hi, this was such a good question that I answered it as a new blog post on November 12, 2011. Please look for your answer there.
ReplyDeleteLynne
Dear: Lynne:
ReplyDeletecan you please advise if or not the executor (My eldest brother of three sons, two of whom reside in California,USA)have ramifications in conducting the duties of executor in Canada? Our Mother has suggested and she is considering, depositing her investments and putting them into three (3) separate accounts (Maybe GIC) and naming each of us as a benificiary on one of those three accounts. Do you feel this is a wise move?
Hello: Lynne:
ReplyDeleteWhat is your opinion in having more than one executor named in a Will vs.one?
Regards. Vancouver, BC.
Hi, I'm answering this question re multiple executors as a new blog post so please look for it there.
ReplyDeleteLynne
Hi Lynne,
ReplyDeleteAre there any tax implications to funds received from the sale of our deceased parents property that is outside of Canada. The probate was done in that country, and all taxes applicable to the sale was also paid. We the children are living here in Canada, should we have to pay taxes on the net sales here in Canada?
I would appreciate any help you can offer.
Thanks
Hi Lynne
ReplyDeleteIf the inheritance is a result of a sale of property from outside of Canada is it still subjected to capital gain taxes in Canada? (the property was inherited 15 years ago)
Hi Lynn,
ReplyDeleteMy question is, if the husband (registered as a non-resident) has passed away, how does his wife (NOT a Canadian resident) and child (minor, non-resident) claim their inheritance?
The husband had some shares in a privately owned company.. What is needed to effect the transfer from the husband to the wife and child? Or at least the child since the mom is not a Canadian citizen.
Thanks!
Hi Lynn,
ReplyDeleteI have anxieties over this question I have. I live with my 82 year old father. He intends to leave this house, our principal residence, to me on his death. If he passes will I lose my home? I have very little money and could not afford to pay any taxes and Dad is not that well off to be able to leave a lot behind. Please help if you can put me at ease.
Hi,
ReplyDeleteOne of my parents passed away and I will inherit some shares in various public companies. These are dividend bearing shares. The shares would simply be transferred to me as I have no intention of selling them at this time. What, if any, are the tax implications when this transfer is done and is there a way to minimize any tax?
Thank you.
Hi lynn,
ReplyDeleteMy father (UK resident) has died leaving shares quoted on the Canadian stock market- value $35000. My sisters and I (all UK residents) are the beneficiaries and are applying for grant of Probate in the UK. What taxes will be payable in Ontario and do we need to obtain probate in Canada? Thanks for your help
Hi Lynn,
ReplyDeleteMy father's third wife has is the executor of his estate. She hadn't notified any of his children upon his death, and didn't indicate if there was a will invloved. She has ignored letters indicating the need for such information for eight years. What are the possible routes to take in this situation, because we all agreed she has something to hide. I know (from a relative)that he had a private accounting business and wasn't claiming income tax from 1993-2002.
Would the best bet be to check the Ontario probate records, and how would a person get this information when living out of the province?
Hi Lynn, I am listed as the sole be eficiary of my Parents principal residence... Which is a rebuild on an existing property, they basically built there dream house where they have always lived. They also own two other rental properties through our family business. I assume that because their principal residence(dream home) is the only residence they own personally then there would not be capital gains payable on the home?? Just on their assets?? I'm concerned about having enough money to cover this amount as they built their home for very cheap-- doing a lot Of the work themselves but it has recently been appraised for a million+... We love in Alberta. Thankyou very much for your reply.
ReplyDeleteMy husband's aunt died recently with a will that states he and his siblings and parents will inherit, equally, the whole estate, which consists of her home, various investments such as stocks, bonds, etc. The full value is between $1,200,000 and $2,200,000. Because the aunt is not a parent, does that change how the monies, when dispersed are taxed? Or will the estate simply have to pay capital gains tax as in situations where wills list children as benificiaries? Thanks. We had assumed, up until doing some research on this site and others like it, that when my husband got his dispursed share, that we would have to pay income tax on the monies received.
ReplyDeleteHi, thanks for your question.
ReplyDeleteBeing a parent or not will have no bearing on the situation.
The good news is that no, your husband won't have to pay tax on his inheritance, at least not from his own sources.
You're right that the estate has to pay taxes before the assets are distributed to the beneficiaries. This of course reduces the size of the estate available for distribution, which means your husband and the other beneficiaries may receive less.
As you mention, there may be capital gains tax, depending on the type of assets and the amount of time they have been held, combined with any exemptions available to the estate. This isn't the only kind of tax possible though. If the estate has assets like an RRSP or RRIF, all income tax on that has to be paid too.
When a person owns a RRIF or RRSP, it's considered to be cashed out right before death, which makes all of the money in there taxable.
Lynne
Lynne Great forum.
ReplyDeleteI have a question and wonder if you can help. It is somewhat complcated but I will do my best to expalin.
My husband and I built a home 2 years ago, The home has a mortgage which we pay weekly as well we pay all the bills and taxes.
Here's the issue.
We pay everything in cash and pay it all to my father in law who pays the bills, taxes and mortgage which are all in his name. We have no receipts and have been told that when he passes the house will be then willed to us.
The question I have is will we have any issues or taxes to pay when the home is left to us. I have been told by others that we may have to pay Capital Gains tax when we receive the home.
Is there anything we should know that we are not aware of. My parents do not like the situation and have advised that we set up our own mortgage and get the home into our name as soon as possible, and of course my father in law says the way it is setup now is the best for us in the long run.
Any advise would be appreciated.
My advice would be to run, not walk, to a real estate lawyer and find out how to protect yourselves. Here's what I see so far. You built a home that you don't own. You have made two years worth of mortgage payments but can't prove it because they were in cash. You hope that one day the home will be willed to you but in the meantime it can be sold or mortgaged by someone else. You've had bad tax advice, since capital gains is not paid by the person who receives a home, but by the person who sells or transfers the home. Nothing here is in your favour. You have no protection or control. Don't wait a day longer; get this fixed ASAP.
ReplyDeleteLynne
When my mother passes away both my sister and myself will inherit her house. We plan to sell the house and split the proceedings from the sale. Are we entitled to capital gains exemption from the sale? If so, how much is the capital gains exemption? Neither myself or my sister has used the capital gains exemption in the past. The value of the house is approximately $170,000. Does the estate administration tax bracket EAT in Ontario apply to the $170,000? I believe this is also referred to as probate fee in Ontario. IE 1/2% for the first $50,000 and 1 1/2% for the next $120,000. Do you have to pay tax when you sell the house? Does the capital gains tax exemption apply when an individual dies and leaves you their primary residence home? If myself or my sister decides to make the house their primary residence as neither of us currently owns a home will anything change? Thanks for your help!
ReplyDeleteCapital gains tax is a tax on the increase in value of a property while someone owns it. An exception to the rule is a principal residence. And capital gains tax is paid by the seller, not the buyer/inheritor.
DeleteWhen your mother passes away, the first transfer of the property is from your mother to her estate (legally this is known as a transmission). There is no capital gains tax at that time because the house is her principal residence.
The next transfer is from the estate to you and your sister. Most of the time, this takes place immediately after the transmission so there is no opportunity for the property to increase in value while the estate holds it. If it stays in the name of the estate for a long time and increases in value, then the estate might have to pay tax on that increase.
The next and final transfer is from you and your sister to a third party. As I understand it, the house is not the principal residence for either of you. This means that any increase in value will be taxable. However, if you sell the house pretty quickly after you inherit it, that increase should be small, if there is any at all. Except in very volatile markets, there is usually very little increase to deal with.
Be careful with the probate paperwork; do not understate the value of the house on the inventory. If you do, and then you sell the house for a decent price, it will appear to have increased in value.
I realize that this is a general sort of answer, but that is intentional. For specific tax advice, you should sit down one-on-one with an accountant.
Lynne
Hello Lynne,
ReplyDeleteCan you tell me what qualifies for a capital gains exemption. How much is the exemption? Thank you very much.
Dear Lynne,
ReplyDeleteHello. My question is: what are the tax implications for this situation:
The husband passed away, appointed his non-Canadian citizen wife as his executor. He has shares in a privately owned company and these shares are willed to the daughter who is a Canadian citizen -non- resident.
The shares will not be sold.
The daughter (4years old) will just hold the shares. The company deals in property rentals.
Are there taxes needing to be paid in this situation? The shares are not traded so if there will be taxes what are the taxes on?
And what are the implications if the executor and guardian of the child is a non Canadian citizen?
Thanks very much
Does Canada have an allowance for tax free gifting (eg. $13000/recipient/year) similar to what our US counterparts have?
ReplyDeleteDear Lynne,
ReplyDeleteMy mother has a number of works of art totalling approximately $250,000 and a concert Steinway grand piano ($150,000). In her will the piano and half the paintings are being donated.
If there is any unused tax benefit from the donations what happens to it?
For the paintings that go to family members is there any captial gains implication if they sell them?
Thanks
Lynne
Hello Lynne,
ReplyDeleteMy husband is a canadian citizen and last year received his share of the cash profits from the sale of a property owned by his father who passed away three years ago. The property had been transferred to his brother's name after the death and he sold it last year. I know in Canada there is no inheritance tax, but does this lump sum of money wired to my husband's bank account need to be shown anywhere in his tax forms?
I've read that banks disclose information to CRA when larger sums of money are deposited to accounts, do you know if there is a minimum amount at which this happens and if so, how would we show that is was from the sale of a foreign property owned by his family?
Thank you for any info you can provide.
Hi Lynne
ReplyDeleteMy father wrote a will long time ago and named my mom, my brother, my 2 sisters and I as the beneficiaries but unfortunately, one of my sisters died 10 years ago. Will her husband and her only son take her part and become beneficiaries? Her husband has got married right after my sister's death? Should my father delete my sister's name from the will if he does not want to leave money to her husband?
Many thanks!
Hi there,
DeleteThis kind of question always has to take into consideration anything specific that is said in the will. Most of the time, a person will say that money goes to one of the kids, and if the child should for some reason die first, the money goes to that child's children. But this is not required by law. It could also say that if the child dies, the money goes to the child's siblings. So the wording of the will is always important.
Having said that, I can tell you that the spouse of a child does not automatically inherit anything. In fact, in all the years I've been doing wills, I can count on one hand the number of times that a parent said they want a bequest to go to a son-in-law or daughter-in-law. Normally inheritances follow the bloodlines.
This means that most likely your sister's son will inherit her share. You don't say how old the son is, but your father can state the age at which your sister's son can inherit his share.
Although I've said that the husband won't inherit anything, remember that if the son is a minor, the son's money could well be put in the hands of the husband for managing. If your father wants to leave money to your sister's son but doesn't want the husband to manage the money, this can be set out in his will.
I don't think this is a will that your dad should be doing without legal advice. I'd hate to see it end up in a messy court application. It would be worth his peace of mind for him to see a lawyer to have a will prepared.
Lynne
Hi Lynne - question on the house deed. My father has the house in his name only. My parents have been together for 60 years (and in the same house). Should my mother push to have her name added to the deed or is it assumed that after 60 years of being in the house it's considered hers too? My father's health is starting to fail and I just want to make sure everything is in place. He did leave her the property in his will, but not sure if that would cause tax issues?
ReplyDeleteI'm answering this question as a new blog post on march 26, 2012.
ReplyDeleteLynne
Hi Lynne,
ReplyDeleteMy Dad passed away several years ago and my mom payed off the house from his life insurance so she owned the house outright. My mom recently passed away and we discovered that she put 2 of us kids as "joint tenants" shortly after his death but there are 4 of us.
The question I am wondering about is that I was thinking about purchasing my moms house and to buy out the other 3 which no one is against...How does it work for paying capital gains when it comes to this. Do we pay taxes on the entire amount we all inherit (meaning all for of us individually) or does it come out of the my moms estate? Wondering if it's something I need to consider if I purchase the property and ensure I don't put myself into trouble financially when it comes to it and wasn't expecting to pay out more cash. If it does come out of her estate, can the executor of my moms will turn around and bill us all for it? Thanks for your help!
Hi Lynne, when a person inherits a principle residence from a parent, is there something called "Crystallization" of realestate, and if yes, how does it work.
ReplyDeleteThanks
We are doing some Estate planning and there is property involved. Looking at Service NB Parcel Information we see that one of the properties has three people listed under the Interest Type. Two of them who are listed as Owners are husband and wife, but they are both deceased. The third person is a daughter who is shown under the Interest Type as having a "Life Interest" - can you explain to me what that might mean? Thanks
ReplyDeleteI know that you have to pay tax on a RRIF RRSP and investment accounts when a person dies. However, I have a joint bank account with my mother and I understand there is no taxation on this account when my mother died. Is this correct? Thanks.
ReplyDeleteHi Lynn,
ReplyDeleteI live in New Brunswick and my husband Uncle want to give us his house as they have no kids and I was the care taker of his terminal ill wife until she passed last fall.I also agreed to care for him if he was ever to need in.As he doesn't want to go to a old folks home.So I am wondering can he give us the house if he hasn't passed away? Please email me at sharontownes85@hotmail.ca
That is not my primary email so don't bother spamming it spammers.
Hi Lynn, I have a question. My husband died resently, and I am now taking the steps to see if he has a will, but I was wondering. Can a spouse decline the other spouses inheritance if the one that died owes more than he is worth??
ReplyDeleteI'm so sorry to hear about your husband's passing. I really want to give an extensive reply to your question so I'm answering it in a new blog post dated May 8, 2012.
DeleteLynne
I had inherited property. The question's I have is. Is my wife entitled to half of the property and can I add another person name to the deed along with her's with out her knowing or permission
ReplyDeleteNo, your wife is not automatically entitled to half of what you inherit, unless of course the inheritance was left to the both of you.
DeleteIf you are asking whether she would be entitled to half if you two divorced, the answer is still no, as inherited property is exempt from distribution on divorce. This assumes, of course, that you haven't put the asset in joint names with her.
You can add someone else to the title if you like. I would suggest that you get some advice on whether there are any present or future tax implications for you or the other person before you go ahead.
Lynne
Hello,
ReplyDeleteOne of my parents has recently passed away and the siblings have come into a little issue with one of the major banks on transferring the accounts to the surviving spouse. The institution states that they can not transfer the accounts even though they have a copy of the will and a lawyers certification of tis will as true and real. their contention is that sincce the accounts are valued at more than one hundred thousand dollars and that they need a letter of probate and other documents. I quess, basically my question is is there a provincial or federal law or regulation that supports their argument or is it just an individual bank policy? Afterall, they have all the proof they need to proceed to carry out the wishes of the deceased. This situation is Alberta based. I look forward to your reply and thanks in advance for answering.
This is a bank policy, based on the fact that the bank would incur liability for the funds if it was later discovered that there was a later will, or the will was found to be invalid. A grant of probate is a court order that indemnifies anyone who follows it. You will find that all banks, in fact all holders of assets, will have a similar policy.
DeleteLynne
Hi Lynne,
ReplyDeleteWould an outright gift to a relative of second real estate property be taxable to the donor/original owner while the donor is alive?
Hi Lynne,
ReplyDeleteIf my estate has only cash dollars in it in my bank account + some of my personal furniture and other household items, would my daughter have to pay tax on this money. I live in Thailand and will be selling my property here so That she doesn't have to deal with this difficult process therefore my estate will be cash only. If she does have to pay tax on this money how can it be avoided ...??
Well, I don't know what the law is in Thailand, but I can tell you what the situation would be in Canada.
DeleteA beneficiary in Canada doesn't pay tax on money or goods she inherits.
Any tax that must be paid, is paid from the estate. However, non-registered funds and household goods shouldn't trigger any tax.
Hi Lynne
ReplyDeleteI posted a question but seems to have disappeared ..? If an estate only comprise of cash $$ in a bank account will my daughter have to pay tax on that cash amount..? If so how can this be avoided ..?
Hi there,
DeleteI know it looks like it disappeared, but in reality none of the posts show up until I've had a chance to see them and click "ok". I do this to keep out the spammers. Also, I tend not to click "ok" on the ones that I believe would cause someone to have "poster's remorse".
The information in the site is invaluable. Thank you so much! I am presently a non-resident of Canada, however I am planning to return one day for retirement. I have a large portfolio of stocks in a Canadian account. I understand that upon my death, the stocks will be deemed to have been sold. My question is this: is it possible in any way to leave the portfolio intact, leaving the income that it produces (from dividends) to my surviving spouse and children?
ReplyDelete