Gabriel Lalonde
February 23rd, 2022

How to Protect Your Estate

It is always a joy to see our hard work pay off. Chances are, by now, you have already acquired several assets, including those you intentionally added to make your retirement fun and enjoyable. You may end up passing on most to your heirs. But a few of these assets come with tax liability when you or your spouse dies.

Classes of Assets

Wondering what constitutes assets? Here are three main asset classes;

1. Assets of a capital nature. These include the shares you buy in private and public companies, as well as a vacation property or second home anywhere.

2. Income-generating assets, with the generation continuing after your demise. These include registered assets (RRSPs or RRIFs) or assets taxed as income, for example, interest-bearing assets like money market funds or GICs.

3. Assets that are either not taxed on your demise or fully tax paid. They include cash, TFSAs, a principal residence, and the tax-free proceeds from a life insurance policy.

If you plan to pass these assets down to your loved ones and family, you must understand how to fund this tax liability after your demise effectively. That is the only way to ensure a seamless transition with no issues.

You can provide the liquidity required to pay these taxes on your demise in four ways, each option with a few advantages and disadvantages. Let’s check them out.

Liquidating your assets – market conditions and business cycles largely determine the value of any asset. That said, you cannot be certain of what the conditions would be like at your death. Likewise, potential buyers will almost see your move to sell your estate before as a signal of urgency, limiting your chances of realizing full value.

Borrowing funds – you can access funds by using your assets as security. However, this comes with a slight risk. Considering your goal is to distribute your assets to certain beneficiaries, using them as loan securities make it almost impossible to achieve the goal. Also, the market loan rates change with market conditions. Therefore, you cannot be so sure what the rates would be at that time.

Creating a cash reserve – this strategy involves saving as much as possible in your lifetime. But this is not practical. No matter how committed you are to the savings, the uncertainty of your death time means you cannot know if you would have enough cash available at that time.

Purchasing life insurance – here, you can transfer the risk in advance while eliminating several risks that come with funding the tax liability on your demise. As well, you can get the liquidity just when you need it. As a Canadian, you can work with your Ottawa certified financial planner to ensure that your chosen beneficiary’s liquidity is paid tax-free.


Most Ottawa CFPs advise that you take a good look at your present and future tax liabilities when planning your estate. That is because it helps develop the solution that works best for your situation. It also ensures your loved ones get your estate as is, without any alterations or restructuring.

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