Life is all about perspective.
Yesterday, I got 4 back to back calls from my tenant in Toronto, while I was having my best round at golf this year. The last time I got 4 back to back calls from this tenant, it was about how the fridge broke down and he couldn’t get the delivery guy to show up on time.
I didn’t give in, didn’t call my tenant back until after the golf game to this seemingly urgent call.
When I finally got to call him back, he apologized for not having sufficient funds in the bank account to clear the pre-authorized debit request. He went on to explain to me how hard he tried to have sufficient money for the withdrawal for 15 minutes.
He was willing to compensate me for the NSF fees.
I told him that I just went to my client’s funeral last week. He died young. He was only 35.
His death changed my life perspective.
A NSF cheque here and there may drive you crazy, but in the grand scheme of things, it’s really no big deal.
When you’re stressing out, step back, take a deep breath. Maybe you can still work it through.
Compared to life and death crises, many of our problems seem small.
Speaking of life and death, I want to take this opportunity to reshare my blog post about drafting up a will.
This exact experience made me realize how important it is to have a will.
- You can decide what you want
If you don’t have one already, please get one done. When the unfortunate things happen suddenly, at least you already lay out a plan. You lay out exactly what you want to get done, you lay out how the assets can be distributed.
- Estate distribution can be a lot longer
At least, whoever has to take care of the assets and liabilities can do it without going through months of waiting.
When you have no will, the next of kin (spouse or children or parents) has to apply to become the estate trustee. This person has to post a bond to pay the Government. The bond application process is time consuming and difficult.
- The government decides how your assets are distributed when you don’t have a will
If you don’t have a will, the first $200K of your assets are first given to your spouse and anything over $300K is shared between the spouse and descendants.
If your kids are minors at the time when the unfortunate event happens, and if you don’t have a will, this automatic allocation can pose problems.
- Higher income taxes and higher probate
When a Canadian taxpayer passes away, all your assets are deemed to dispose at fair market value.
You might not have actually sold your properties at that time, but the Income Tax Act still deems the sale have happened.
This means that your estate would need to pay taxes, based on the increased value of the property.
If your families are not prepared for it, they may have to sell a few of the properties to pay for the final tax bill.
If you plan ahead, there are ways to minimize the tax at death.
On top of the income tax liability, the Ontario government also charges Estate Administration Tax at 1.5% on assets over $50K.
If the fair market value of your assets is $3M, you will have to pay $3M x 1.5% tax = $45K.
Can this amount be minimized? Absolutely. This can only be minimized with proper planning.
Here’s the previous blog post about the 8 items you should consider when you set up a will.
Until next time, be grateful.
Cherry Chan, CPA, CA
Your Real Estate Accountant