What Happens Tax-Wise When You Die?

When you die, what taxes does your estate have to pay? Aravind answers this crucial question and explains the importance of solid estate planning in this clip from our latest podcast episode.

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Here’s a very basic question. We do these podcasts. We’ve talked about estate planning with a number of our guests, and then some of our listeners say, Dave, the one thing you’ve never really done is gone back to the very basic of what happens when I die.

So from a tax perspective, what happens in Canada?

Are there estate taxes? You know, the vast majority of Canadians, as you are aware, think there are estate taxes. So how does all of this work? When you die, what happens?

So at a surface level, so I would say the way you need to think about it is when you die, the government pretends that you sold everything that day. So if you have a house, they pretend that you sold it that day. A cottage sold business sold RSPs liquidated and pulled out TFSA, liquidated and pulled out non-registered investments sold.

So. There is what is called this deemed disposition. The government has essentially deemed or pretended that you have sold everything. As a result, there are potentially big tax bills that come along with that for all of these non-registered assets or withdrawing all of the money from your RSP. So that is the first step.

Now that sounds very scary, but this is where good planning comes into play because that’s the step one default. But step two is there are ways to manage or mitigate some of these taxes. We discussed one briefly, the RRSP rolling over to a spouse is a common example. Uh, TFSAs can be rolled over and merged with their spouse.

So now they can, if you do it right, not only do they get that money, but they get the TFSA room so you can double up your TFSA room principal residence is tax free. So this is where understanding. What that tax is and how it applies to different accounts becomes really important as well.