THE IMPORTANCE OF THE SPOUSE AS BENEFICIARY

In the long term assets have appreciated in the value, so that there are untaxed capital gains. These assets should generally be left to the spouse, or a qualifying spouse trust. That way, the property “rolls over” to the spouse without immediate tax. Otherwise, the assets will usually be treated as if they had been liquidated at current market values (qualifying farm property passes to children or grandchildren).

The trust must be resident of Canada and to obtain tax deferral benefits on transfers to a spouse or common-law partner trust, the property transferred must indefeasibly vest in the trust within 36 months of the death of the person. A trust will be considered a valid spouse or common-law partner trust if it is created by the deceased’s will or by court order. The longer the lapse of time between the death of the transferor and the death of the beneficiary, the greater the tax advantage to be derived—whether the transfer is made directly to the surviving spouse, or to a spousal trust, the deemed disposition will be deferred until the death of the surviving spouse.

Rollover include real estate investments, shares of a corporation, investments that have gone up in value. Accordingly, in order to defer “death tax”, shares of a family business are usually left to a spouse. However, there can be tax exposure even if the asset has not actually appreciated in value. An example of this would be a rental or other property on which depreciation claims have been made. Also, many older tax-shelter investments, even if virtually worthless, may attract tax if they are in what is known as a “negative cost base” position; generally, where the personal cost of an investment is less than the overall tax losses claimed and cash or other distributions from the partnership. If so, these too should be left to the spouse.

Don’t forget that a second home which we call investment property may no longer be covered by the principal residence exemption, so that if this is not left to a spouse, there could be capital gains tax on it.

For qualifying small business corporation shares ( farm or fishing) property that is eligible for the capital gains exemption of up to $750,000 are held, a number of options will be available. There is a proposal for this limit to increase for $800000. If the exemption is available, the individual will generally want to use it up by the time he or she passes away. The surviving spouse is potentially eligible for his or her own capital gains exemption. If it is expected that, after death, there will be future appreciation in the shares that will more than the surviving spouse’s capital gains exemption, it may be a good idea to leave at least some shares to children (or grandchildren) if it is intended that they remain within the family. This could be done before death through an “estate freeze” reorganization, to meet the family’s financial needs.

Call Sahib Insurance Advisors for details.