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2 potential liabilities that may need to be paid at death

British Columbia residents should be aware that Canada does not have true "estate taxes." However, certain liabilities may need to be paid upon the death of a loved one, by the estate of that loved one before the estate's assets may be distributed. Those include income tax due to deemed disposition and Registered Retirement Savings Plans and Registered Retirement Income Funds.

Whenever an adult Canadian passes away, the estate executor must pay the income tax due to deemed disposition by filing a terminal tax return on behalf of the individual. This tax return will account for all income earned during the year up to the day the individual passed away. In addition, the net capital gain must be included in the total income.

Tax liabilities related to recognized capital gains are not the only liabilities that may need to be paid out of a deceased individual's estate. Registered assets like RRIFs and RRSPs also need to be deregistered, i.e., collapsed. The values of RRIFs and RRSPs need to be put into a deceased individual's terminal tax returns. However, if the RRIF and RRSP are left to a spouse, common law spouse or in certain situations children and grandchildren, there may exist an exception to the deregistration requirement.

British Columbia residents might want to consider speaking with an estate planning lawyer to ask about the estate administration and probate process relating to their deceased loved. An estate lawyer can help families determine what tax liabilities their loved one's estate may face and also identify strategies for reducing the estate's tax burden.

Source: RBC Wealth Management, "Taxes at Death," Oct. 02, 2016

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