One of the most popular choices among financial professionals to shield assets from inheritance taxes is actually a tool many Canadians already possess: the Tax-Free Savings Account (TFSA). Despite all the investment accounts and tax schemes available to hide your life’s riches from the tax man following your death, the TFSA is actually a tool many Canadians already own.

“It won’t have tax even after you pass away. Sylvia Azoulay, vice-president of tax and estate planning at Richardson Wealth, said over the phone to Yahoo Finance Canada that the account is purely tax-free.

“You want to contribute as much as you can,”

There is no tax due on your TFSA at the time of death.

Whether or whether the spouse has appropriate contribution capacity, the account will immediately roll over to the spouse of the holder if they are selected as the successor, free of tax. When a spouse passes away, the account’s fair market value is tax-free transferred to their estate or another beneficiary.

When it comes to estate planning, there are several options.

The tax-free benefit is still available if the TFSA holder names a beneficiary in the absence of a spouse.

RRSPs, in contrast, are Registered Retirement Savings Plans. An RRSP’s entire balance will be taxed in the account holder’s hands upon death, which might cause significant tax burdens for heirs.

The account will be transferred over to the spouse if they are listed as a beneficiary and no tax will be due right away. It’s crucial to keep in mind that taxes must be paid when money is withdrawn from the account or when the surviving spouse dies away.

Frank Gasper, a financial adviser and the founder of CSR financial Management, also promotes TFSAs as an excellent estate planning tool for this reason, among others.

There is just no drawback, he declared. From the perspective of estate planning, there is a lot of freedom.

When a person passes away, their assets are subject to a presumed disposal, which is the same as if they had all been sold for fair market value just before they died. This might leave family members with a significant tax burden to pay.

It is possible to prevent assets from being taxed and leave more money for family members by using built-in safeguards within the legal and tax systems, such as tax exemptions and succession laws.

investing in life insurance

Life insurance plans can also be used as an investment vehicle, with the added benefit of allowing the assets to grow tax free. They may not be as well known as the typical suspects like an RRSP, TFSA, or stock brokerage account.

Life insurance is a different type of investment asset, according to Azoulay.

If you have money that you know you won’t need for yourself, you may invest it in a life insurance policy, which will pay out to your heirs tax-free after you pass away.

Additionally, estate planning occasionally makes use of segregated money. In essence, they are mutual funds with a life insurance component. Since they guarantee between 75% and 100% of the initial investment, they can hedge against market falls, and because they have designated beneficiaries, they can avoid probate expenses.

Segregated fund costs are greater than those of other investments, according to Gasper, a life insurance agent as well, therefore he is “not a big believer” in them.

There are some circumstances in which they might make sense for a customer, but he claims that they are uncommon.

Estate planning and real estate

Most Canadians are aware with the principle home exemption, which permits the family residence to be sold tax-free.

For married couples, the marital residence is frequently owned under a joint tenancy, which means that both parties own the property. According to Azoulay, this permits the residence to pass effortlessly to the surviving spouse following the death of the other, avoiding probate expenses.

When other properties, such as a cottage or vacation home, are involved, minimizing estate taxes can be considerably more challenging. However, one advantage of the principle residence exemption is that it can be divided across numerous residences, not just the primary family home.

If one property gained more value than the other, the exemption might be used to offset the difference. Azoulay believes it takes some arithmetic and study, but it may reduce an individual’s overall tax burden.