Succession Planning

What actually happens when somebody dies

Estates are settled in an order, and knowing the order removes most of the anxiety about them. The will is located first. Then somebody is appointed to act, either the person named in it or, where there is no will, somebody who applies for the authority. Then everything the person owned is inventoried and valued as at the date of death. Then debts and taxes are paid. Only after that is anything distributed.

That last sentence is where families are surprised. Beneficiaries often expect money within weeks, and the representative cannot responsibly release it, because one who distributes before the tax position is settled can be held personally liable for what is later found owing. The delay is not obstruction. The practical sequence is worth reading before it is needed.

Not everything travels this route. Assets with a valid beneficiary designation, and property held jointly with a right of survivorship, generally pass outside the estate and reach the recipient without waiting. That is an advantage where it was intended and a serious problem where it was not, because it can quietly empty an estate that still has to pay the tax bill everything generated.

The tax that arrives with the death

Canada has no estate tax and no inheritance tax, which is true and regularly misleads people. What Canada has instead is a deemed disposition. Immediately before death a person is treated as having sold their capital property at fair market value, and the resulting gain is reported on the final return. Nothing was sold and no money arrived, but the tax is real and due.

This is why an estate can owe tax on a cottage nobody wants to sell, or on the shares of a private company with no buyer. The property rose in value over a lifetime and the increase is taxed once, at the end, in one year.

Two reliefs matter more than the rest. Property left to a surviving spouse or common law partner, or to a qualifying spousal trust, generally transfers at cost, deferring the gain to the second death rather than removing it. And the principal residence exemption can shelter the gain on a home, but a family has one principal residence at a time, which is why a cottage and a house cannot both be fully sheltered.

Registered plans work differently again. The value of an RRSP or RRIF is generally brought into income on the final return unless it passes to a qualifying survivor. All of this belongs with a qualified tax professional working from the actual file.

Liquidity, and why insurance appears in this subject at all

An estate can be wealthy and unable to pay. That sentence is the reason a life insurance practice writes about wills at all. Value sits in a cottage, a farm, a rental building or the shares of a private company, and none of it is money. The tax lands on a date. Selling takes months and produces whatever price a deadline produces.

There are three ways to meet a bill like that. Sell something, which means choosing which asset to lose and accepting the timing. Borrow, which means approaching a lender and carrying interest while the sale is arranged. Or arrange the money in advance, which is what insurance for estate liquidity does: a policy pays on the very event that creates the bill, in cash, to whoever was named.

The same tool answers a second problem. Where one child works in the business or wants the cottage and another does not, equalisation lets the asset go to the person who will use it while the others receive comparable value.

Where a corporation owns the policy, a further layer applies. Proceeds received by a private corporation, less the adjusted cost basis of the policy, generally credit the capital dividend account defined in subsection 89(1) of the Income Tax Act, which can allow a distribution to shareholders on a tax free basis. That structure is genuinely useful and genuinely technical, and it should not be put in place without a qualified tax professional.

Probate, designations, and which one wins

Outside Quebec, probate is the court process confirming that a will is valid and that the executor has authority to act. Institutions ask for it before releasing significant assets, so it is usually unavoidable rather than optional. The province sets the fee, it is charged against the value passing under the will, and it varies enormously, which is why the provincial comparison exists and why every figure should be confirmed with the court in your own province.

Quebec does not have probate in the form the common law provinces know. A will made before a notary requires no court verification at all, while a holograph will or one made in the presence of witnesses must be verified before it can be acted on. The person who settles the estate is called the liquidator, and the difference in vocabulary reflects a different structure rather than a translation.

Then there is the conflict that fills courtrooms. A valid beneficiary designation on a policy or a registered plan generally governs where that money goes, and a will saying something different does not automatically override it. A separation agreement promising that an ex spouse will be removed does not remove them. Nothing does except the paperwork with the institution holding the contract. Reviewing designations is the cheapest and most neglected item in the whole subject.

The job, the harder households, and the papers to get in order

Being named executor or liquidator is an administrative job carrying personal exposure, not an honour. It means finding documents, securing property, notifying institutions and governments, filing returns, keeping accounts beneficiaries can inspect, managing people who disagree, and distributing only when it is safe. It commonly runs a year or more, and naming somebody who lives elsewhere adds cost and delay.

Three households need more than a standard will. In a blended family, leaving everything to a spouse and trusting it reaches the children of a first relationship is a hope rather than a plan, and the structures that work are well established. Where a beneficiary has a disability, an outright gift can end income tested benefits, and a properly drafted trust arrangement exists to prevent that. Where a business has more than one owner, the absence of a funded agreement gives the survivors the family of the deceased as a partner, which is what succession planning prevents.

The papers themselves are short. A will, drafted by a lawyer or notary. A power of attorney, or in Quebec a protection mandate, for incapacity rather than death. Designations read recently rather than signed once. A list of what exists and where to find it. The checklist puts them in order and the basics explain what each one does.

Questions people ask