Exercise: Taxation at Death Scenario
Timofey and his wife Eunice are planning to retire next month, and they are starting to think about estate planning. They have no liabilities and the following assets registered in joint title with the right of survivorship:
- Their home and principle residence FMV $1,000,000 and ACB $480,000
- segregated funds (non-registered) valued at $100,000 and ACB $95,000
Timofey also has the following assets registered in his own name:
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RRSP valued at $200,000 (Adult son named as beneficiary);
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RRIF valued at $300,000 (Estate named as beneficiary);
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Universal life insurance policy with a face value of $400,000 and a CSV of $31,000 (estate is named as beneficiary);
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Cottage FMV $350,000, ACB $100,000
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Non-registered bond portfolio FMV $65,000, ACB $58,000;
Eunice also has the following assets registered in her own name:
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RRSP valued at $341,000 (No named beneficiary) -
TFSA valued at $61,000 (No named beneficiary) -
Term Life insurance with a face value of $500,000 (Timofey named as beneficiary); expires when they retire. Assume that Timofey and Eunice are the sole beneficiaries of each other’s estate and they will opt to maximize all rollover opportunities. Their adult son is the beneficiary of their estate once they have both died. Assume a 45% tax rate on each of their final tax returns.
1)
Prepare a list of assets for both Timofey and Eunice (individually). Indicate beside the asset if it is jointly held or if there is a beneficiary. 2)
If Timofey were to die today, calculate the amount of EAT and taxes that his estate would be required to pay. 3)
What would be Eunice’s net worth in the event of Timofey’s death. What would be the ACB on her assets? 4)
If Eunice were to die today, calculate the amount of EAT and taxes that her estate would be required to pay. 5)
What would be Timofey’s net worth in the event of Eunice’s death. What would be the ACB on his assets?
6)
Explain what would happen if Timofey and Eunice were to die together.
7)
What recommendations would you give them to reduce taxes and EAT in the event of their death. 8e69dbb34e10877181be748cc51fac661083aa59.doc
