Real Time Web Analytics

Thursday, February 17, 2011

Am I taxed on my inheritance?

The general answer to the question of whether you will be taxed on your inheritance in Canada from a Canadian estate is "no". If you receive an inheritance cheque from an estate, you do not have to declare it on your income tax return.

You should be aware though, that there are circumstances under which you might end up paying tax. For example, sometimes a will states that each individual beneficiary must pay any tax arising from the transfer of an asset from the deceased person to the beneficiary. This is rare, but these clauses are sometimes used when a testator is trying to equalize a distribution or control the amount of taxes that will be levied against the estate.

There is also the matter of the increase in value of an asset from the time the testator dies to the date the beneficiary takes possession of it. The increase in value of the asset during that time may be taxed to the beneficiary.

It could also be the case that you may receive an asset from an estate without paying any tax, but when you sell or dispose of the asset, you have to pay tax on the increase in value. This would be the case, for example, with a house or cottage that is not your principal residence.

Even if you normally do your own taxes, it would be worthwhile to consult an accountant in the year that you inherit a significant amount from an estate. Tax rules are complex, and general information can never replace a one-on-one discussion where you get a chance to explain the details of your specific situation.

11 comments:

  1. Hello,
    My father has told me I am to receive 25% of his estate when he dies. (my brother is to receive 25% and his wife 50%)His wife is the executor of his will and very hostile to us, his children. How do we ensure that she properly provided us with our inheritance? Should we hire a lawyer to ensure it is done legally and that the 25% is honored, or is this necessary?

    ReplyDelete
    Replies
    1. Yes! Just went through a very unusual situation like you are asking about. To be sure if the funds are left in control of your step Mom there may be nothing left by the time you "inherit". If something were to happen to her "long term" where she required care, her family may have control of the estate, which could include your shares. If it goes to you upon his death that's different, but you should be sure of the exact wishes and have a signed stamped copy of his will regardless and know where you stand. Accounting to the beneficiaries is required as well. Best to see a lawyer and get the exact legal advice you require.

      Delete
  2. If the executor is hostile to you, you are in for a world of trouble. Tell your dad to appoint an independent executor (his lawyer or accountant), or to also put you as an executor.

    Otherwise, you could easily lose it all and be forced to spend thousands of dollars and years of litigation to (maybe) get anything back.

    ReplyDelete
  3. Tax Planning Tips Helpful tips and useful guidance to help you manage those ever increasing tax charges. Helping you pay less tax and avoid unecessary fines. Tax planning tips, tax return status.

    ReplyDelete
  4. Absolutely you need a lawyer to represent your "future vested interest."

    ReplyDelete
  5. I am on CPP and just received $53000 from my mother's estate can this affect my disability benefits? Is there a specific amount a person can receive before benefits are affected?

    ReplyDelete
    Replies
    1. It's my understanding that receiving an inheritance does NOT affect your CPP benefits. However, it could well affect your provincial benefits, if you receive any, and could result in you losing provincial benefits altogether. The specific amount person can receive varies widely from province to province.

      Lynne

      Delete
  6. Hello, I will inherit a lump sum pension benefit payout from a family members estate. Iyo, will this be taxable? Will it impact my D-CPP benefit?

    ReplyDelete
  7. Hello, I will inherit a lump sum pension payout from a family members estate. Is this considered taxable income? Will it impact my D-CPP benefit? Any guidance will be appreciated.

    ReplyDelete
  8. My father passed away in December of 2016. His wife (my mother is deceased), said we are beneficiaries to his RRSP money. My brother, his wife and myself received equal lump sums. Now his wife says I need to give her $12,000 of that money for taxes.... is this right? Should this have not been taken care of before we received our cheques? Also, my Dads house just sold and she has not shown us a copy of the will. Being beneficiaries, are we entitled to a copy?

    ReplyDelete
    Replies
    1. When an RRSP is paid to a beneficiary, the beneficiary gets the full amount. The taxes owing on the amount are jointly the responsibility of the estate and the beneficiary. Canada Revenue Agency's policy is to get it from the estate if they can. If you are being asked by the executor to contribute to the taxes, it should be because there is not enough money in the estate to cover the taxes. And yes, in your shoes I'd want some proof of that.

      If the estate cannot pay the taxes, you are legally on the hook for your share of them. You mentioned that it should have been "taken care of before you got your cheques" but that is not usually the case.

      Since the house was just sold, there might be money available for taxes.

      Are you beneficiaries under the will? So far, you've said that you're a beneficiary of an RRSP. That is not part of the estate and is not controlled by the will. So if that's all you're getting, then no you are not entitled to see the will. If you are named as a residuary beneficiary of the estate, then yes you are entitled to see it.

      Given that you are a child of the deceased, you might find that you can get a copy of the will by asking formally for that. I say this because most executors would prefer not to be taken to court for something like that and risk having costs against them.

      Lynne

      Delete

You might also like

Related Posts with Thumbnails