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Estate Planning Part ll: What You Need to Know

In Part-One of this series we discussed the steps of creating an estate plan, the importance of having a will, and the practice of gifting assets while living.

In this second part of the series on estate planning we will discuss the merits of life Insurance and what you can expect in terms of taxes when a loved one dies.


Life Insurance

Most people understand the importance of having life insurance, but haven’t fully considered the important role it plays when it comes to estate planning. When a person dies, their life insurance can be used to:


  • Pay for final costs: Life insurance can be used to cover funeral costs and estate administration fees, pay medical bills not covered by insurance, offset taxes, and compensate for other expenses associated with death and dying.
  • Pay off debt or replace income: Life insurance benefits can be used to cover essential expenses, such as paying off a mortgage balance, or creating college funds for kids. It can also be used to provide an ongoing income for a living family member after a person has passed away.
  • Provide an Inheritance: Most insurance policies have the holder name an heir as a beneficiary, hence securing an inheritance for family members.
  • Charitable contributions: Life insurance policies can ensure a person’s philanthropic desires are carried out after death.



How do death taxes apply?

Contrary to what many people think, there is no actual estate or inheritance tax in Canada. When a person dies, unless their estate is inherited by their surviving spouse or common-law partner, CRA treats the estate as a sale, and the estate pays the taxes owed to the government, rather than the beneficiaries paying the taxes.


What is the tax process at the time of a death?

If you have been appointed a legal representative for someone who has passed away, you are required to file a ‘deceased tax return’ to the Canadian Revenue Agency (CRA), so that any taxes owing can be taken from this return prior to the settling of the estate. After you have settled the deceased person’s estate, the CRA will issue a ‘clearance certificate’, indicating that all income taxes have been paid. It is important to note that you must obtain this clearance certificate before you disperse of any property, otherwise you can be liable for any taxes owed.


What are the tax rates?

Again, there are no inheritance taxes per say, but rather income owned by the deceased person is taxed on a final tax return.


  • Assets: Non-registered capital assets are treated as though they were sold at fair market value prior to the death. Any capital gains on these are taxable at 50% and added to all other income of the deceased. A final return is issued and taxes are calculated according to applicable personal income tax rates. Capital gains tax rates also apply.
  • RRSP: Fair market value of RRSP or RRIF is also included in the deceased person’s income and it is taxed at the applicable personal income tax rates. There is no exception for any capital gains earnings within the scope RRSP or RRIF.



Probate is an approval process that validates your will and confirms the appointment of your executor. To learn specifics about probate, go to: https://www.sunlife.ca/ca/Learn+and+Plan/Money/Financial+planning+tips/What+is+probate?vgnLocale=en_CAAlberta

Probate fees are calculated according to the value of the estate. To review probate fees in Alberta go to:



This is just skimming the surface of things to know when it comes to estate planning. To learn more about this important process visit:  http://www.rbcds.com/estate-planning-guide.html