How to plan to reduce taxes on your estate

Joint accounts with beneficiaries (adult children)

I have seen situations where one adds their adult children as joint owners on their investment accounts to avoid probate fees. Be careful in this situation as your actions may have adverse consequences (for example, exposure to your beneficiaries’ creditors or their marriage breakdown). Probate fees in British Columbia are only 1.4% of the value of the estate. You might want to consider a Joint Gift of Beneficial Right of Survivorship (JBWRS) account instead.

Surplus money in a corporate investment account

If you are a business owner, you may have surplus profits accumulating in your Canadian Controlled Private Corporation (CCPC). This may be in either your operating company or in a holding company. Funds left to accumulate in the corporation are generally used for business purposes or they may be left to accumulate in corporate investment accounts. The corporate wealth transfer solution involves moving corporate investment dollars from a tax-exposed environment to a tax-deferred one. By doing so businesses can minimize taxation on investment growth and business owners can maximize the amount that is available for estate purposes (less tax, more left in the estate, growth is tax-exempt). 

Gift assets

Gifting assets to your children or grandchildren during your lifetime is a simple strategy that may help reduce the size of your estate and therefore possibly reduce probate and taxes on these assets during your lifetime and on death. For tax purposes, it’s important to recognize that when you gift assets, you’re deemed to have disposed of those assets at fair market value (FMV). Further, if you make gifts to minors, be careful of the attribution rules, which could result in the income earned on the gifts attributing back to you and being taxed in your hands.

U.S. estate tax

If you own any U.S. situs assets (for example, a property in Palm Springs or a portfolio of U.S. stocks), it’s important to examine your potential U.S. estate tax exposure. You may be subject to U.S. estate tax even if you’re not a U.S. citizen.

Charitable donations

If you have philanthropic intentions, you may want to consider gifting directly to a qualified donee. Qualified donees may be charitable organizations, public foundations, or private foundations. Typically, a registered charity is a qualified donee. You will receive a charitable donation receipt which may reduce your tax bill. Donations can be made while alive or after you are gone (via your estate).

As a proud alumnus, I donate to SFU annually via the Pamela Yoon Award in Economics that supports SFU students wishing to go into the field of finance post-graduation, with a special emphasis on the Chartered Market Technician or the Chartered Financial Analyst program. My philanthropy is intentional and is built into my financial plan. 

View part 1 and part 2 in the series

Before taking any action on any of the strategies discussed in this article, make sure you get qualified professional advice. To learn more, get in touch with Pamela Yoon at pamela.yoon@rbc.com

Want even more tips on giving strategically? RBC Dominion Securities has a 28-page document on charitable giving.