Death of a Taxpayer - Why You Should Get Your Matters In Order
It’s the topic that is taboo in many parts of our culture: death. It is also the only thing that is certain in life (besides taxes of course).
Although talking about your eventual passing may make you feel squeamish, it is essential that you consider your financial affairs for the generations to come. There are implications to your Estate in terms of taxes, and below we will highlight a few of them:
What happens when you pass away?
On death, you are deemed to have disposed of all of your property (investments, shareholdings, personal properties, etc.). If you are married and your significant other is still alive, all properties are disposed of on a tax-deferred basis to them (unless directed otherwise). If you are the last to die, all property is disposed of at its fair market value.
What are the implications?
Depending on what you have done in terms of Estate planning, many Estates can incur large capital gains. For example, if you are the sole shareholder of your company, and you paid $100 for your shares, and today the company is worth $1,000,000, you will have a $999,900 capital gain. There is the potential for a portion of this to be offset by your lifetime capital gains exemption, however, if you are disposing of multiple properties (rental homes, stocks, small business shares), the total gain can quickly add up and exceed your gains exemption available. It’s also important to note that although the business may be worth $1,000,000, the tax bill is payable on death, even though the corporation may not be liquid. The result of non-cash investments could mean forcing your Estate to sell off assets you intended to pass down to future generations to cover your tax bill.
How can I plan for it?
The most important thing you can do is talk to your family and talk to your accountant about what the future looks like for you. Consider things like creating a list of all of the assets that you own, and what you intend to happen to the assets when you pass away. There are different things that we as accountants can implement to reduce your Estate taxes over time, but the important thing to note is that many of these take several years to implement.
Although planning your Estate is not an easy topic to discuss, it’s an important one. The earlier you can begin Estate planning, the less of a burden you risk leaving to your family. As always, don’t hesitate to contact your accountant to discuss what we can do for you, or be an ear to listen to as you work through the process.