Estate Planning: Advice & Best Practices For Reducing or Eliminating Probate Tax
There are several important factors to consider when estate planning, especially if you’d like to eliminate the need for probate, minimize probate tax, and make it easier on your loved ones upon your passing. This includes creating a will, considering joint ownership, making beneficiary designations, gifting assets, and more. Here, we will share tips and best practices when it comes to steps to take in your estate planning that can eliminate or minimize probate tax.
Joint ownership means there is a right to the surviving owner when the other dies. Unless there is a reason not to, jointly owing your home with your spouse is a must. Upon your passing, your spouse can take full ownership of the home without the house having to be considered part of your estate and thus subject to the ~1.5% probate tax. The same approach can be taken for joint-bank accounts and investment accounts.
Another element to consider when working on your estate plan is to establish beneficiary designations on accounts such as RRSPs, RIFFs and TSFAs, so that the funds in all your registered accounts are assigned to a person or persons directly. Taking this step allows for the value of these assets to transfer outside of your estate and avoid being subject to probate tax. Moreover, the beneficiary will receive the funds much faster.
Assigning beneficiaries for your life insurance policy, pension and death benefits will also avoid the assets defaulting to the estate.
Instead of waiting until after you die for your estate to make a bequest to a loved one, you should consider gifting the personal item, asset, or amount to your loved one while you are alive. This will reduce the amount of probate tax, simply things for your executor, and provide you an opportunity to enjoy giving the gift.
If you own a private incorporated business, it may well be worthwhile creating multiple wills. The first will deals with your personal assets. The second will deals specifically with your shares in the private corporation. Using multiple wills will prevent the value of your shares from being subject to probate tax.
Estate planning is an important process that everyone should go through periodically as their life circumstances change. There are several important factors to consider when estate planning including creating a will, making designations, choosing beneficiaries, and more. By following these best practices, you can ensure that your assets are managed according to your wishes and that your loved ones are taken care of after you're gone.