16.5 Estate Planning Basics

Estate planning arranges a person's affairs so that, at death or incapacity, assets go where the person wants, at the lowest reasonable cost in taxes and fees, with the least delay and conflict. Advisors do not draft wills (that is a lawyer's or notary's job), but they must understand the basics, because estate issues affect account registration, beneficiary choices and investment decisions.

Wills and Intestacy

A will is a legal document that:

• names an executor (called a liquidator in Quebec) to administer the estate;
• directs who receives the assets (the beneficiaries);
• can create trusts and name guardians for minor children.

A person who dies without a valid will dies intestate. Provincial law then sets who inherits (typically a spouse and children in fixed shares), and a court appoints an administrator. Intestacy can produce results the person would not have wanted, such as leaving nothing to a common-law partner in some provinces, and it causes delay. Wills should be reviewed after marriage, separation, divorce, births and deaths, because some of these events can revoke or change the effect of a will.

Probate

Probate is the court process that confirms a will is valid and the executor's authority to deal with the assets. Financial institutions often require probate before releasing large accounts. Provinces charge fees or taxes based on the estate's value:

Probate also makes the will a public document and can take months.

Passing Assets Outside the Estate

Several common arrangements pass assets directly to survivors, avoiding probate fees on those assets:

• Beneficiary designations on RRSPs, RRIFs, TFSAs (where provincial law allows), life insurance and segregated funds.
• TFSA successor holder: a spouse or common-law partner named as successor holder simply takes over the TFSA, keeping it tax-free.
• Joint tenancy with right of survivorship (JTWROS): the surviving joint owner takes the asset automatically. Adding an adult child as joint owner can avoid probate but may give the child's creditors or spouse a claim, can trigger a disposition for tax, and can cause family disputes about whether the child was meant to keep the asset.
• Trusts created during life (inter vivos trusts).

Powers of Attorney

A power of attorney (POA) appoints someone to act if the client cannot:

• A continuing or enduring POA for property lets the attorney manage financial affairs, including investment accounts, and remains valid if the client becomes mentally incapable.
• A POA for personal care (or a health care directive or mandate in Quebec) covers health and living decisions.

Without a POA, family members may need a court order to manage the client's affairs. Advisors should know who holds a client's POA and watch for signs of financial abuse; the trusted contact person and temporary hold rules support this.

Trusts in Estate Planning

Taxes at Death

Canada has no estate tax as such, but death triggers income tax on the final return:

1. Deemed disposition: capital property is deemed sold at fair market value immediately before death, so accrued capital gains are taxed, unless the property passes to a spouse, common-law partner or spousal trust, which defers the gain.
2. RRSPs and RRIFs: the full value is included in the deceased's income, unless it rolls over to a spouse or common-law partner (or, in some cases, a financially dependent child or grandchild).
3. TFSAs: growth up to the date of death is tax-free; growth after death is taxable to the beneficiaries unless a spouse takes over as successor holder.
4. Final return deadline: April 30 of the following year, or six months after death if death occurs in November or December.

Charitable gifts made through the will can produce donation credits that offset tax on the final return.

Worked Example: Taxes on the Final Return

Daniel, a widower, dies in March 2026 owning:

• an RRIF worth $300,000, with his adult daughter named as beneficiary;
• non-registered shares worth $200,000 with an adjusted cost base of $80,000;
• a TFSA worth $60,000, also with his daughter as beneficiary.

On his final return:

• The full $300,000 RRIF is included in income, because there is no spouse to roll it to and his daughter is not financially dependent on him.
• The shares are deemed sold for $200,000, producing a $120,000 capital gain, of which 50% ($60,000) is taxable.
• The TFSA adds nothing to income; its value at death is tax-free.

The RRIF and TFSA pass directly to the daughter outside the estate, but the estate is primarily responsible for the tax they generate. Advisors should check that the assets left in the estate can cover the tax bill; otherwise the executor faces hard choices and the beneficiaries of the will may receive less than intended. Life insurance is often used to fund taxes at death. Because Daniel died before November, his final return is due April 30, 2027.