Preserving your estate for heirs

According to the Income Tax Act, you are deemed to have disposed of your assets immediately before death, and therefore must remit tax based on the taxable capital gain.

The cost of an asset at the time of acquisition is the adjusted cost base (ACB). The current value of an asset is referred to as the fair market value (FMV). The taxable portion is 50% of the difference between the FMV and the ACB. Assets such as shares of Canadian small businesses and farm property may be eligible for a special $500,000 lifetime capital gains exemption. The total exemptions claimed may not exceed $500,000.

You cannot control when the tax liability will become due. It could be at a time when it is inconvenient to liquidate assets. Your heirs may end up having to sell at a loss what was left to them. That is probably not what you had in mind. Certainly, you didn't work hard all those years to make a large posthumous gift to Revenue Canada. So the question becomes, "how much tax may have to be paid?" and "how can you protect the value of your estate from erosion due to taxes?"

Your answers to a few questions will determine if your estate will be subject to tax and what the amount is likely to be now and in the future.