So I wrote a rough guide on estate planning in Canada that I plan on following here: Estate Planning Guide for paying the lease amount of Taxes in Canada based on reading articles, what I have learned online, etc.
A few more things..
I did a bit more reading this year and I have decided to add the following for myself.
I ended up adding so much this is like a part 2 post lol.. I did a recap at the end though.
Considering GICs
I don’t like my money sitting around doing nothing. I have cash in high interest savings accounts, earning money and interest, which is great, but another way to park your money and let it accrue interest to act like cash in estate planning (no probate, no taxes), is to put them into GICs.
Someone baited me online saying there were GICs with 5% interest and when I checked, 4% was the maximum.
This is not interesting. I want at least 5% – 7% in a GIC, otherwise, putting it into a high interest savings account is better as I can access it immediately without waiting for it to mature.
Something to consider if GICs raise their rates.
Just be careful. People be out there losing 6-figure retirements to GIC scams.
hit the lowest tax bracket’s maximum income withdrawal
So in Québec at the time of this writing, that is about $53,000 (provincial) – $57,000 (federal) that you can take as taxable income to pay 18% taxes (lowest tax bracket).
Of course, the source of said income in dividends, capital gains or otherwise, will change the way it is taxed, but it is safe to say, that limit of $57,000 is about the top of the tax bracket before you move on to having to pay incrementally more.
Taxes are unavoidable.
(Honestly, it is going from 18% taxes to 27% for the second lowest bracket, a relatively tiny jump of about 9% in taxes, but every bit does count as it would be $9000 more given to the government if you were looking at $100,000.. as an example of amounts.)
But the main reason why I added this to my plan is because I would rather pay even 27% in taxes over the longer term of my life than to give 40% of taxes at the time of my final tax filing.
Let’s say I have $1M at the end, that is $400K going to the government, funding w@r and programs I am not interested in funding, when I would rather be funding schools, libraries and social programs to benefit the community and low-income households.
I would rather give that tax amount over my lifetime to my child and to charities that uphold those social values I have, and pay less taxes.
So to be clear:
I DO NOT MIND PAYING TAXES!!!!!
I welcome paying taxes to fund our roads, fix our lights, put in bike paths, fight climate change, put in public transportation, but none of this is happening with my tax money that I give in huge chunks every year, and it upsets me.
Example: We have been talking about a Toronto to Montréal high-speed railway train for EONS, and it STILL hasn’t materialized in the one route that would benefit the greatest from said railroad.
I would gladly pay my tax money towards that, and I wish I could vote to where my money went, or dictate that, rather than having the government decide that it should go to funding w@r crimes.
/end rant
Convert RRSP to RRIF to save on bank conversion fees
When you want to start really drawing down on your RRSP, convert it to an RRIF.
Why?
Banks charge (get this).. a fee to withdraw from your RRSP every time you do it. So if you took out $2000 a month, that is $600 a year in fees.
Read on Reddit. This thread says it is $50 each time you withdraw from your RRSP.
Convert to an RRIF at age 55
Parallel Wealth @ around 3:12 gives a good brief overview of RRSPs and RRIFs.
After watching his video, and thinking about it, instead of retiring at 65 and taking that money in an RRIF, I will do it at 55 and drain my RRSP as soon as I can.
(You don’t even need to convert the whole RRSP, you can do a portion, like $2000 a year and save on the $50 fee from the bank and get it tax-free).
It will be my smallest investment account, so it will be faster to drain that than anything else, then I can focus on draining my margin accounts which will be taxed more favourably with my capital gains and dividends.
By the way – I am assuming ZERO or near $0 being given to me from CPP (Canadian Pension Plan because I am in Québec), nor RQ (Retraite Québec) OAS (Old Age Security) or any QPP (pension plans of the government).
Honestly, it will be a few hundred bucks a month at best. I will just take it at age 65 and merge it into the RRIF income I will get at 55.
Move your RRIF money into your TFSA
If you do not need the RRIF money to live on, you can do an in-kind transfer, and simply transfer the SECURITIES or holdings of your RRIF to your TFSA, and you DO NOT NEED TO SELL THEM.
Now, this movement still triggers taxes, meaning they take the market value of your stocks ($7000 let’s say) and charge you taxes on that $7000 for the year that you move from RRIF to TFSA.
But your securities are not sold, and now can grow in your TFSA tax-free.
The best time to do this is when the market is down. Obviously we can’t predict when the market will drop (lol if only), but when the market is down, consider maxing your TFSA with your in-kind transfers so that the market value of the RRIF is low/depressed but you aren’t realizing the capital gains on it by selling it as you are doing an in-kind transfer.
You get more bang for your buck basically.
Avoid Trusts
This is a new rule for me.
I was hemming and hawing over it for a while but ultimately, trusts are more trouble than they are worth.
I won’t be in the position of gifting a 9-figure range of inheritance by the time I pass, so this is really not applicable to me.
I learned about testamentary trusts, living trusts.. and the brief skimming I did on forums and articles made me realize a few things:
- I am not rich enough for that. LOL.
- They take up to 5% of your assets PER YEAR just to manage said trust, so if you have $1M that is $50K a year in FEES. You all know how much I hate fees.
- They are a headache to manage and money will drain pretty quickly into the coffers of accountants, lawyers and other said professionals.
Note: an In-trust is not at all the same thing. An in-trust, if you are NOT living in Québec like I am, is a way to save for your children outside of the RESP.
There are a few rules like all dividends and interest are taxable to you, but the beneficiary would pay taxes on capital gains, and seeing as they are minors, it would be negligible unless you put tons of money in there.
It all seems a bit nebulous in terms of rules and enforcing said in-trust, and apparently the CRA can crack down on you and decide it is not a trust if you use it to shelter money.
Worth looking into, but also not… because you can just put the money under your name and invest it for them, and take the tax hit on their behalf when they need the money, which is what I am currently doing and I don’t need to file extra paperwork or go through any hassle.
NAME Your spouse the Successor HOLDERs/ANNUITANTS ON EVERYTHING**
**In Québec you need a will to name successors.
I mean you should always have a will, but in Québec they do not recognize successors on RRSPs, TFSAs, RRIFS, LRIFs, etc.
More than 50% of Canadians don’t have a will. You should have a will AT ANY AGE. ANYTHING can happen. Also, the laws are typically 1/3 goes to the spouse and 2/3 goes to the kids, the courts don’t GAF about your wishes if you don’t have a will.
But I digress.
In all the rest of English-speaking Canada, you should 100% name your spouse as the successor annuitant/holder (NOT a beneficiary) on your accounts – RRSP, TFSA, RRIF so that they get the whole account when you pass.
Also consider making your spouse the joint owners on things like homes, cars, etc… but only if you are OK with needing to always have their signature to do anything with the item (like selling the car).
Why?
So it doesn’t have to hit probate, they own the car with you, it is clear it goes to them.
But the downside is you need their signature for everything to do with that asset. Womp womp.
Bottom line:
If you do not have a joint owner on your assets, it WILL go to probate and it MAY cost money to sort out where it should go. To avoid wasting that $$$$ (if you deem it necessary), name your spouse as a joint.
Check the laws in your province regarding probate.
Probate is important to make sure you have the right will, going to the right people, but the fee is outrageous in some provinces.
Personally, as I am in Québec I have not done any of this and I have made a will, but I would have 100% done the successor annuitant/holder on my RRSP, TFSA accounts, we are already joint on the home, but I would not have made him joint on my car, or my Margin or any other account.
Note I: Successor Annuitant / holder
It absolutely MUST be a SUCCESSOR ANNUITANT/HOLDER so they get the full account free and clear.
So if they have $50,000 in their RRSP or TFSA, and you had the same, they now have $100,000. And it can also only be your spouse to be a successor annuitant.
If you name a BENEFICIARY, that means they will close out the account and give them the $50K in cash, and they will have $50K in their TFSA but the amount doesn’t increase to $100K in their TFSA.
So name your spouse as the SUCCESSOR Annuitant/Holder. Not a beneficiary. Save the beneficiary for if you don’t have a spouse, and it is your child for instance.
Note II: Probate fees
All provinces except Manitoba and Québec charge a fee or tax to probate a will; however, the fee in provinces such as Alberta is capped to a minimal amount.
So.. plan to die in Manitoba or Québec lol…!
In some other provinces, this cost varies based on the value of the estate, rising as high as 1.695% in Nova Scotia, 1.5% in Ontario, and 1.4% in British Columbia, which is just highway robbery, frankly. It is a new government tax on the estate.
Note III: Only your spouse should be a successor or joint owner
Only.. and I cannot stress this enough.
ONLY name your spouse as a joint owner on your assets or accounts.
Otherwise, if your name your child, they may decide they do not want to sell whatever the asset is, and you are stuck ceding to their wishes because they are joint owners and you may realize in hindsight how dumb it was to let them steamroll your wishes.
Gift unrealized stocks to charities
I was already going to gift to charities but instead of giving cash, give the stocks instead with unrealized capital gains and dividends so they can benefit from that.
I was going to sell the funds and then gift the after-tax amount but to give them even more money, give it before you sell!
Brilliant.
In brief summary of estate planning*
*tailored to me of course, as I am the one looking at my own money and making notes that may help the rest of you
Leave your TFSA to the end
TFSAs transfer TAX FREE to ANYONE you put as a beneficiary.
I will also add that I am personally going to max out Little Bun’s TFSA + FHSA as per my 2021 post to help drain my estate over time and to give him money when he needs it to grow the most (age 18, and into his 20s and 30s until he tells me not to contribute any longer?).
Treat TFSA’s as your last account to touch.
Don’t touch your cash either
Cash goes tax-free to anyone. I mean obviously use it to pay bills and so on, but don’t use your cash over draining your RRSP or Margin accounts first.
Drain your RRSP first
It is the one that gets slammed the hardest, tax-wise out of the TFSA & RRSP and even your margin accounts
Continue to top up your TFSA(S) and/Or FHSA(S)
Transfer those amounts from either account to top up your TFSA amounts each year, so that yes, you pay taxes in your retirement years as you are tax sheltering them but it stays in your TFSA and can be withdrawn tax free later by you or anyone else.
This is also why I want to contribute to Little Bun’s TFSA + FHSA once he hits 18.
Convert your RRSP to RRIF
Once you are ready to take RRSPs, this will save on bank conversion fees once you are ready to take the money out of your RRSP and you are retired.
Convert into an RRIF at age 55
55 is the earliest age you can do it.
This only applies to me because I want to smooth out the income to achieve optimal tax efficiency and to not kick the problem down the road wherein I will have to pay 40% in taxes rather than paying more now at 18% or even 27% at an earlier age (age 55).
Move your RRIF into your TFSA using in-kind transfers
Don’t trigger capital gains taxes by selling your holdings in your RRIF and then using the cash to top up your TFSA.
Just do an in-kind transfer up to your TFSA limit, and while you WILL pay taxes that year on the market value you are moving (you are going from an RRIF to TFSA), you will keep the unrealized capital gains growing in your TFSA.
Try not to gift houses as investments
The tax laws seem kind of tricky around this versus the straight up Margin accounts where capital gains are taxed 25%; I didn’t look into it because I do not plan on owning any homes as rentals to do this, but it sounds complicated & gave me a headache.
Avoid Trusts
Avoid life insurance plans
Self-explanatory. Unless you have a mortgage and underage dependents on your income, you don’t need life insurance.
Aim for the the lowest maximum income you can withdraw in a tax bracket as your income
Aim for that if you want (or the next tax bracket up), and pay those lower taxes rather than waiting for the 40%+ taxes at your final tax filing.
In Québec 2025, it is $53,000 – $57,000 to pay about 18% in taxes.
So if you have a lot of money (YAY!), consider draining it slowly over your lifetime and spreading out the taxes instead of getting one massive tax bill at the time of your passing
Anything else – unregistered accounts, houses, will all be considered “sold” at the time of your passing and they WILL pay taxes on the capital gains, and market value of the homes.
Gift unrealized stocks to charities
Instead of your after-tax cash, gift them stocks instead. They can then sell as they wish and manage that money.
Consider GICs
They are treated like cash at the time of death. They can also be cashed out early at time of death rather than waiting for them to mature (just present a death certificate). The only problem is finding one paying 5% or more, which is my benchmark for even buying any, as my money would be locked in for years.
NAME your spouse as a successor annuitant/holder ON EVERYTHING** and a beneficiary for non-spouses
**In Québec you need a will to name successors.
In all the rest of English-speaking Canada, you should 100% name your spouse as a successor annuitant/holder on your accounts – RRSP, TFSA, RRIF, LRIF… you name it so it doesn’t go to probate and they get the full account as-is.
Otherwise, if they are a non-spouse, they will be named a beneficiary which means they get the money from the account but not the account itself.
But be leery of adding them as joint owners to other assets like cars, as then it will have to take TWO signatures to do anything like sell the car.
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