If you’ve ever thought estate planning was just about saving taxes, you might be surprised to learn that the real challenge is finding the money to pay those taxes when the time comes.
Let me tell you a story from my recent trip to Korea.
Samsung’s founder passed away a few years ago. His heirs inherited billions—but they also inherited the biggest inheritance tax bill in Korean history. Over $13 billion Canadian.
That’s 50% of the fair market value of the assets, and 60% if you own a controlling interest in a big company.
Who has that much cash lying around?
They didn’t. So they had to donate millions worth of artwork, sell off properties, and even consider selling Samsung shares just to cover the initial tax bill. And they’re still paying it off.
Now, here’s the twist: Canada doesn’t have an inheritance tax.
But we do have something called “deemed disposition at death.” And if you’re not prepared, it can feel just as painful.
What Is Deemed Disposition?
In Canada, when you pass away, the government acts like you sold everything you own at fair market value—even though you didn’t. That’s called a deemed disposition.
Let’s say you own:
- A rental property worth $1 million, with an adjusted cost base (ACB) of $600,000
- RRSPs worth $300,000
- Stocks worth $200,000, with an ACB of $120,000
If You Passed Away Today, here’s what happens:
- The rental property has a capital gain of $400,000. Half of that is taxable, so $200,000 gets added to your final income.
- The RRSP is fully taxable. That’s $300,000 added to your income.
- The stocks have an $80,000 gain. Half is taxable, so $40,000 gets added.
Your terminal return—your final income tax return—will include all of this. That’s $540,000 of taxable income in one year.
Depending on your province and other income, your estate could owe over $270,000 in taxes.
And that’s just the beginning.
Projecting to Age 90 or 95
Now let’s say you live to 90 or 95 and your assets grow:
- Your rental property is now worth $1.8 million
- Your RRSPs are worth $500,000
- Your stocks are worth $400,000, with the same ACB of $120K
The tax bill could double. That’s why we run projections for our clients—not just for today, but for the future. It helps you see what’s coming and plan for it.
When you pass away, here’s how the tax is calculated:
- Rental property capital gain:
$1.8M − $600K = $1.2M gain → 50% taxable = $600,000
- RRSPs:
Fully taxable = $500,000
- Stocks capital gain:
$400K − $120K = $280K gain → 50% taxable = $140,000
Total Taxable Income at Death
- RRSPs: $500,000
- Taxable Rental property gain: $600,000
- Stocks gain: $140,000
Total taxable income: $1,240,000
Using a marginal tax rate of 50%, your estate would owe:
$620,000 in taxes
How to Lower the Tax Bill
Once you know the numbers, you can start planning:
- Family Trusts – Shift future growth out of your estate and reduce taxes at death.
- Selling Assets Early – If your kids don’t want the properties, consider selling them while you’re alive.
- Insurance – Use life insurance to cover the tax bill so your heirs don’t have to sell assets in a rush.
Talk to Your Kids
Here’s something most people forget: have the conversation with your kids.
You might want to leave all your assets to them, but they might not want anything to do with real estate. No leaky toilets, no basement conversions and, no tenant calls at midnight.
We’ve seen families fall apart because no one talked about what would happen. One child wants to sell. Another wants to keep the property. Another doesn’t want the hassle.
A simple conversation can save years of stress.
But It Doesn’t End There – Introducing Probate
Even after you’ve planned for taxes, there’s probate. That’s the legal process of validating your Will and giving your executor the authority to act. In Ontario, probate fees are roughly 1.5% of your estate’s value.
Let’s go back to our example:
- Rental property: $1,000,000
- RRSPs: $300,000
- Stocks: $200,000
Total estate value: $1.5 million
If you don’t have probate planning in place—no named beneficiaries, no joint ownership, no trust—your estate could owe:
$22,500 in probate fees
And that’s just the fee to get started. Your executor can’t distribute assets, sell property, or access bank accounts until probate is granted.
Income tax if die today = $540K
Probate if die today = $22,500
Total “taxes” due at death = $562,500
Why You Need a Will
A Will is a legal document that says who gets what when you pass away. Without one, the government decides—and it might not be what you want.
If you have kids, own property, or have investments, you need a Will. It’s the only way to make sure your wishes are followed and your loved ones are protected.
And if you have a blended family, business partners, or dependents with special needs, a Will becomes even more important.
What Happens If You’re Still Alive But Can’t Act?
Estate planning isn’t just about death. It’s also about protecting yourself while you’re alive.
What happens if you get sick?
Who makes decisions for you?
Who pays your bills?
Who manages your properties?
That’s where Powers of Attorney (POA) come in.
There are two types:
- Power of Attorney for Property – This lets someone you trust manage your finances, pay bills, and handle your real estate if you can’t.
- Power of Attorney for Personal Care – This lets someone make medical decisions for you if you’re unable to.
Without these documents, your family might have to go to court just to help you. And that takes time, money, and emotional energy.
What About Your Kids?
If you have minor children, you also need to name a legal guardian in your Will.
This is the person who will take care of your kids if something happens to you. If you don’t name someone, the court decides—and it might not be who you’d choose.
We’ve seen families go through painful custody battles simply because no guardian was named. It’s one of the most important decisions you can make as a parent.
Final Thoughts
Estate planning isn’t just about saving taxes—it’s about protecting the people you love and making sure your wishes are respected. Whether it’s minimizing your final tax bill, avoiding probate delays, or making sure your kids are cared for if something happens to you, the key is planning ahead. And the best time to start is now. You don’t need to have everything figured out, but you do need to take the first step.
We help everyday Canadians navigate the confusing world of taxes—so you can keep more of what you earn and protect the people who matter most.
Next Steps
We help everyday Canadians navigate the confusing world of taxes—so you can keep more of what you earn. Want to make sure you’re not leaving money on the table? Book a consultation with my team today.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
