The real message behind this expression is: “I received nothing from my parents, my children will know how to manage. With openness and benevolence, I regularly welcome this affirmation that could not be more Quebecois. By its formulation and its well-felt tone, first of all, but also because this “what will remain will remain” illustrates well the generational inexperience of our inheritance culture.
Paradoxically, I also often hear other clients express their frustration at the tax bill to be paid when settling the estate of their recently deceased relative. For lack of knowledge, these people believe that their parents should not have accumulated so many RRSPs (registered retirement savings plan) and liquidated them during their lifetime in order not to leave them with this unexpected bill. In reality, their error is quite different. It is true that the RRSP, a registered account that allows tax deferral, should only be disbursed when needed. However, the bill could and should have been estimated in advance! By having planned it, certain choices and strategies could have been modified in order to provide cash accordingly and thus avoid hassles for the estate.
Estate planning makes it possible to estimate estate liquidity needs according to different asset disbursement scenarios, and at different hypothetical ages of death. In the case of a couple, the first death is generally tax-neutral thanks to the tax rollover of assets to the spouse. When the second parent dies, it’s different: taxes to be paid according to the disposal of the various assets on the day of death, repayment of debts, probate fees, last funeral expenses.
Get organized, without depriving yourself
The fact of resorting to such calculations or forecasts does not in any way mean having to “deprive oneself” to leave more to one’s children or grandchildren. Indeed, the reality is that assets are likely to be insufficient to fund many people’s retirement or adequately protect them against longevity or inflation risks. If it is then pointless to discuss estate strategies involving permanent life insurance, estimating estate liquidity will at least allow exploring avenues of temporary protection: the brokerage of funeral prearrangements, or the use of a separate fund in their investment portfolio, allowing the designation of beneficiaries.
For other households, the balance sheet shows a higher net worth with real estate other than the second home, non-registered investment accounts, shares in a company or companies, etc. Although it is obvious that the estate balance sheet in the majority of cases will be positive, it must still be provided that the estate may have to pay the taxes payable following the disposition of all these assets, at their fair market value. , the day of death…
Estate planning should be based on your actual and projected cost of living. Thus, the calculations, although based on many assumptions, will allow you to determine personalized strategies that do not result in forcing one generation to deprive themselves in favor of the next.
Optimize through life insurance
What if it was possible to leave more and make life easier for the estate while achieving your own goals? Permanent life insurance, as an asset diversification tool, should be considered for this purpose when non-registered or corporate investments are significant. It is a potentially very effective tool in situations with a significant balance sheet, but still often unknown to the general public since it requires the advice of experts in the field. The creation of cash value in these contracts also potentially allows them to be used during one’s lifetime to finance business projects or retirement expenses.
The use of life insurance also allows you to provide you with a fairer estate plan in the case of blended families, in which testamentary wills often give rise, upon death, to higher tax costs, the consequence of legacies. well-meaning but ill-considered individuals. For example, life insurance would make it possible to bequeath assets to the new spouse in order to benefit from the tax rollover, while offering non-taxable capital to children who have reached adulthood and who would otherwise have been taxed. Planned giving remains an avenue to explore as well, whether through the bequest of stocks, works of art or life insurance policies.
A reader recently asked me about property that is taxable upon death. In fact, remember that the majority of them are, except for what concerns the tax rollover to the spouse. The estate balance sheet must be carried out with a professional before the signing or revision of the will providing for the consequences of the various legacies.
Financial planner, Sandy Lachapelle is president of the independent firm Lachapelle intelligent finances.