Transfer wealth effectively with a will
By Alterna Wealth
February 09, 2024

Pop quiz: How much is the inheritance tax in Canada? It’s actually a trick question, since the federal government does not impose such a tax.


However, be aware that estates are still taxed federally and, to varying degrees via the probate process, by certain provinces as well. The Canada Revenue Agency (CRA) doesn’t consider the amount you inherit to be taxable income, but before you receive this inheritance, the CRA taxes property held in the estate of your benefactor (i.e., the person providing your inheritance). For tax-calculation purposes, the CRA treats property as if it had been “sold” the day before the estate owner’s death (i.e., a deemed disposition) at fair market value.


Once the CRA claims all the tax owing, including setting aside any taxes owing on income reported on the deceased’s terminal tax return, the remainder of the estate may be distributed to beneficiaries. If there’s joint ownership of an asset, such as spouses co-owing a cottage, then when one spouse dies the surviving spouse assumes full ownership and the property won’t be subject to tax. There’s also no capital gains tax on any increased value of a principal residence.


Since estate property is taxed, many people strive to make their estate as tax efficient as possible, allowing more of their money to reach those to whom they’ve bequeathed an inheritance. An essential component of any estate plan is the will. Let’s consider what a will is and why it’s important to have one when transferring wealth to loved ones.


What is a will?

It’s a legally binding document that provides clear and detailed instructions, according to your wishes, on how to distribute your estate assets after you die. Your estate is the sum of all your property, including cash, investments, land and real estate, vehicles, artwork, collectibles and heirlooms, as well as other assets. A will may also stipulate how dependents should be cared for and how to transition any business interests you might have. Wills are not just for the wealthy!


If you die without a will – known as dying “intestate” – you’re leaving it to the laws in your province or territory to settle your estate. Obviously, there’s no guarantee your assets will be distributed the way you like, and to whom you prefer. That’s why it’s a good idea for anyone with possessions to have a will, and to name an “executor” who’ll take charge of your possessions after you die and carry out the instructions contained in your will. Having an executor may also accelerate the court approval process so your estate can be settled expeditiously.

Tax-efficient strategies in a will

Facilitating intergenerational wealth transfer and appointing an executor to manage your estate affairs are two primary reasons for a will, but there’s also the matter of tax efficiency. The will is a powerful vehicle for helping to maximize the assets your beneficiaries receive by reducing tax obligations. For instance, if you create a spousal trust, you can defer capital gains tax typically applied on estate property that has increased in value. With a qualifying spousal trust, your surviving spouse (or common-law partner) will be the only person to receive whatever estate assets are held in the trust. Capital gains tax won’t be imposed on property that has appreciated in value until your spouse dies.


The rules around spousal trusts are complex, so working with an experienced lawyer is usually advisable. As life circumstances change – such as marriage, divorce, having (grand)children, buying or selling a property or business – be sure your will is updated accordingly so it continues to reflect your latest wishes.


Having a will is useful for the reasons discussed above, but in addition to making good financial sense, a will can provide much-needed clarity at a time when emotions are running high and your loved ones are less prone to thinking rationally. In that sense, a will may provide your beneficiaries with peace of mind – and you can’t truly place a dollar value on that.