When planning an estate, there is a lot to consider. One of the most important aspects is maximizing the value of the estate and making sure heirs receive a fair sum. Unfortunately, one’s wealth is subject to taxes after death. Without some planning, this can deprive beneficiaries of tens of thousands of dollars.

Here are a few ways to protect your hard earned money – giving less to the tax-man and more to your beneficiaries:

Life Insurance

Proceeds from life insurance are tax-free upon death. Depending on your personal situation, and the agreement you have with your grown children (or other beneficiaries), purchasing whole life or “permanent” insurance might be a good idea. Although this type of insurance can be costly with a death benefit of $150,000 costing about $800 per month for a 75 year old man in good health – beneficiaries stand to gain quite a bit from this setup.

If the premiums are too costly, consider talking with your children and potentially split the cost or have them cover the cost themselves as they are the ones that will gain from it.

Recreational Properties

If you purchased a cottage in Muskoka in the 1950s, odds are that it went up in value significantly. Any recreational property that goes up in value is subject to taxes on the gain. Any increase in value, whether it be simply over time or through upgrades or renovations is subject to tax.

If your principal residence has gained relatively less value than your recreational property, you can designate your cottage as your principal residence on your tax return. This will allow your gain on the cottage to be tax-free and you can then list your house as your secondary property and be taxed on that gain instead.

Charity Contributions

Donating to your favorite charity can aid you in tax-reduction. If you have shares in a particular company and they doubled in value, you can donate the stock certificates to a registered charity without paying any tax on the gain. The charitable tax credit can also help offset taxes on other assets in your estate.

Withdraw RRSP

For those living on low-income, there may be up to a 50 percent tax on withdrawals from RRSP upon death. Making early RRSP withdrawals can save you between 20 to 30 percent.

Get Professional Advice

Although reducing the ‘tax bite’ is high on anyone’s list, it is not the most important aspect of estate planning. The true target of estate planning is making sure you are dealing with your heirs fairly. Working with a certified financial planner will put your mind at ease and help you to deal with all aspects of your estate.

Are you looking to free up cash by selling one of your properties or do you have any questions about investing in a property? I would be happy to help, call me at 416-921-1112 or email me at elli@ellidavis.com.