Estate Planning for Canadians

What you need to know about passing your assets to your heirs

Reviewed by Chip Stapleton
Fact checked by Pete Rathburn

Canada doesn’t have an estate tax like the one in the U.S. It does, however, have a deemed disposition tax, which applies to any capital property owned by someone at the time of their death. These assets are deemed to be sold when the owner dies, resulting in a capital gain or loss. If you’re a Canadian, you can minimize your estate’s exposure to this tax and structure a plan that ensures your beneficiaries get the assets you want them to receive.

Key Takeaways

• Canada’s deemed disposition tax is similar to the estate tax in the U.S.
• The tax is deferred when assets are transferred to or held in a spousal trust for a surviving spouse.
• Creating a trust allows you to transfer assets while you’re still alive so you can avoid probate costs when you die.
• Your home province decides how your assets are distributed if you die without making a will.

Taxation and Estate Planning

Your assets are considered disposed of when you die, which is why they’re called deemed dispositions. Any capital gains triggered by their sale are included in a final income tax return filed in the year of your death. A final tax return also includes the value of retirement accounts and income received from stocks, bonds, and real estate investments in the year of death beginning on January 1 up to the date of death.

This final taxation can be substantial because Canadian federal income tax rates range up to 33% as of 2025. Provincial taxes and probate fees also apply. Skipping out on probate costs is possible, however, with proper planning.

The deemed disposition tax is deferred when the assets are transferred to a surviving spouse. It’s deferred even if the assets are held in a spousal trust that provides income to the surviving spouse. But it applies if the spouse sells the assets. Half the capital gains of any stocks, bonds, real estate investments, or other assets are taxable at the deceased’s income tax rate when the spouse dies and the assets are passed on to other heirs.

Note

The government of Canada also has special rules that apply to depreciable property. These rules depend on the proceeds or deemed proceeds of disposition at the time of the individual’s death and they apply if this property isn’t left to a spouse.

It’s Important to Make a Will

According to Benjamin Franklin, nothing is certain except death and taxes. While you can’t control either of these two events, making a will can ensure that your financial affairs are managed according to your wishes when you’re no longer able to do so due to incapacity or death. A will leaves instructions as to how you want your assets distributed after your death and to choose an executor to handle the transfers.

If you don’t leave a will, you’re considered to have died intestate. In this case, your home province decides how your assets are distributed. The laws are different for each province and territory, but the surviving spouse normally gets a preferential share if there are children.

Dying without a will also tends to lead to court delays and extra expenses. The court will appoint a bonded administrator to serve as an executor of the estate in this case. Any assets distributed to children under age 19 must be passed to an appointed legal guardian. The process of appointing these administrators can be both expensive and time-consuming.

Additional estate-planning tools are available as well.

Consider a Power of Attorney

A power of attorney gives an individual of your choice the legal authority to manage your financial affairs if you become incapable of managing them yourself. It gives someone who is designated as your agent or attorney-in-fact the power to handle day-to-day tasks. These can include:

• Paying bills
• Filing tax returns
• Opening mail
• Banking
• Talking with accountants and lawyers

Important

Your spouse may have no legal authority to perform a variety of important tasks for you if you become disabled and you don’t have a power of attorney and they’re not co-debtors or co-owners with you.

Create a Living Will

A living will gives healthcare/mental powers of attorney to an individual of your choice. This person acts as your agent or attorney-in-fact and has the authority to implement the medical treatment you wish to receive if you become unable to express your wishes yourself.

The document informs doctors, family members, and the courts of your wishes for life support and other medical procedures if you become unconscious, terminally ill, or otherwise unable to communicate.

A Trust Simplifies Estate Planning

A will ensures that your heirs get exactly what you want them to get but a trust can simplify the process of transferring these assets to them. The main difference is that a trust lets you transfer assets to beneficiaries when you’re still alive. A will transfers your assets when you die.

A trust is a legal entity that owns some or all of your assets, such as bank accounts, real estate, stocks, bonds, mutual fund shares, and private businesses. The terms of a trust are more legally binding than those of an ordinary will because a will can be challenged in a court of law as to whether it fulfills the deceased’s moral obligation.

A trust also allows you to avoid the probate process in which the contents of your will are made publicly available. Laws governing Canadian trust funds differ from those of other nations.

Types of Trusts

A revocable living trust is the main type of trust in estate planning. You can change or revoke the terms of this kind of trust at any time while you’re alive. The trust instructs the trustee as to how to distribute your assets to beneficiaries while you’re alive, after your death, or if you become incapable of doing so.

You and your spouse can act as trustees and manage the trust’s assets yourselves. This feature of a living trust may be important if a family business is placed into it and you want to continue to have some control over its operations. The surviving spouse continues as trustee after one spouse dies but the trust becomes irrevocable in that only limited changes can be made to its terms after this point.

Trusts are subject to taxes even though they aren’t legal entities. The income from a tax is subject to the highest personal marginal tax rate but cannot claim individual tax credits. Assets that are transferred into or out of a Canadian trust are generally treated as if they’ve been sold. They’re taxed on any appreciation or increase in value from the purchase date. The alter-ego trust and joint-spousal trust allow you to avoid capital gains taxation.

How Much Is the Deemed Disposition Tax?

Half of capital gains are taxable at the deceased’s personal income tax rate when their spouse dies and the assets are passed on to other heirs. Canada’s income tax rates begin at 15% on taxable income of up to $57,375 as of 2025. The highest tax rate is 33% on taxable income over $253,414.

Does a Will Address Only Financial Affairs?

No. As in the United States, a Canadian will can appoint a guardian or guardians for your minor children. The Children’s Law Reform Act allows you to name a separate individual to take care of and manage a child’s inherited property.

But these temporary appointments last only 90 days. Your named guardian or guardians must apply to the court to make the arrangement permanent.

How Is Property Held in the United States Taxed to Canadians?

U.S. tax law provides a $60,000 estate tax exemption on property owned by Canadians but located in the United States. The value of American assets is determined as of the date of death.

The Bottom Line

You’ll need a last will and testament at a minimum and you also may want to consider creating a living will, a power of attorney, and/or a trust to ensure that your assets are distributed according to your wishes. This isn’t something you want to handle yourself, even if you’re well-versed in Canadian law. Consider enlisting the help of one or more professionals.