Financial myths and realities: Succession planning

Education Saving Plans Vancouver

Financial myths and realities: Succession planning

Education Saving Plans Vancouver

There are many money myths around, and advisors have heard nearly all of them. Here are 2 about succession planning – and the realities behind them.

There’s no shortage of misconceptions about money. Well-meaning but mistaken people often spread them to family and friends, and sometimes even try to insist to their financial advisors that these misunderstandings are correct.

Myth #1: When I die, my kids will be able to sell my house to pay my final expenses

“Many of my clients think their children will just sell their houses to pay death-related expenses,” explains Sun Life Financial mutual fund representative Nathalie Jacques. “But to do this, the house would have to be sold and the sale closed in the month following the death, which isn’t very likely.”
Many people have assets (family home, cottage, RRSP, other investments, etc.) that will create an inheritance for their children, but few are aware of these 2 points:

1. The children will have to cover funeral expenses, legal fees and day-to-day expenses before these assets are sold, sometimes without any cash earmarked for the purpose, forcing them to dip into their own funds.

2. Many assets are considered for tax purposes to be “disposed of” at death at their fair market value, even if they have not actually been sold. Capital gains that result from these deemed dispositions are taxable in the hands of the deceased – that is, the estate. These deemed dispositions can therefore trigger a significant amount of tax for which a clearance certificate should be obtained (confirming that tax payment has been made or that a security has been provided) before estate property is distributed to the children. And sometimes this happens before cash from the actual sale of the property is available to pay the tax.

“This is where proper legacy planning and a statement of liquidity at death help to assess the succession’s impact on the children,” says Jacques. “It’s a way to avoid unpleasant surprises. Keep in mind that it can take a long time to deal with all the paperwork after someone dies, and while all that’s going on, the tax department and service providers won’t wait.”

A life insurance policy can provide tax-free funds quickly to help cover the bills after your death.

To read the second myth in this article by SunLife, CLICK HERE. If you have any questions please be sure to contact Harry or David.