Death and Taxes

Upon your death, taxes and other fees can play a significant role in the actual value of assets you leave to heirs. Estate planning is a very important process as there is no such thing as retroactive tax planning.

5 basic things to consider having in place prior to your death are:

1. Have a power of attorney and will in place. Power of attorney is important prior to death in case you become mentally incapacitated. Once you die the will take over and the power of attorney’s duties will cease. 2. Choose your executors carefully. Be sure the person is willing to be the executor and will be competent when the time comes. 3. Consider the use of joint bank accounts. This will allow bills to be paid while the probation process works out. 4. Look into the possibility of life insurance. Insurance proceeds can help cover costs arising after death such as taxes and estate fees. 5. Setup a Trust. Trust are great if some of the beneficiaries are minors or not competent with money.

When a person becomes deceased they are deemed to have disposed of all their assets at fair market value and subsequently must pay taxes on the capital gains. If they have a spouse or common law partner at the time of death, the assets will likely pass to them on a tax deferred basis. However, taxes will need to be paid upon the second spouse’s death.

You are allowed to give your children cash gifts while you are still alive but other assets, such as shares and property, are deemed to be given at fair market value and you need to pay capital gains. With well in advance tax planning, you can breakup the tax burden over years and likely lower your taxes. It should also be noted to hold more cash than you think you will need to cover taxes and fees as it is easier to distribute excess cash as part of the will, instead of needing to sell assets to cover the taxes and fees.

Be sure to seek legal, tax, and financial advice when doing your estate planning as

everyone’s circumstances can be different.