Estate planning in Canada: what you need and what it costs

An estate plan in Canada comes down to four things: a will, two powers of attorney (one for money, one for health and personal care), beneficiary designations that match the will, and a plan for the tax due at death. A lawyer, or a notary in Quebec, drafts the documents. A fee-only planner works out the money behind them: what each account is worth after tax, who ends up paying that tax, and whether your heirs get what you meant them to. A one-time plan from a Canadian fee-only planner costs a median C$1,900.

Canada has no estate tax. The bill comes another way, through the final tax return, and that’s where most planning happens.

The documents, and what your province calls them

Every province lets you name someone to handle your money and someone to make care decisions if you can’t. The names differ:

We confirmed the Ontario, B.C. and Alberta names from each province’s own legislation. Quebec handles this differently, and we couldn’t load Quebec’s government pages to check the details, so a notary is the right first call. For other provinces, ask your lawyer which documents your province uses.

A will without powers of attorney leaves a gap: if you lose capacity while you’re alive, the will does nothing, and your family may need a court order to manage your accounts.

The tax at death

This is the part most wills don’t solve on their own.

• Investments are treated as sold. The CRA treats capital property as sold at fair market value immediately before death. A cottage or a share portfolio bought long ago can produce a large gain on the final return.
• RRSPs and RRIFs count as income. Their full value is generally included in income for the year of death.
• A spouse changes everything. Property and registered plans left to a spouse or common-law partner, or to a qualifying spousal trust, can roll over with the tax deferred until the survivor sells or dies. Most of the tax lands at the second death.
• TFSAs pass tax-free up to their value at death. A spouse or common-law partner can be named successor holder and simply take the account over.
• Life insurance proceeds aren’t taxed when received after a death, which is why insurance is often used to pay the final tax bill instead of selling the cottage.

A planner’s main estate job is to estimate this bill now, under the plan you have, and show you how it changes with different choices. Our guide to inheriting money in Canada explains the same rules from the heir’s side.

Beneficiary designations and probate

Accounts with a named beneficiary pass outside the will, and usually outside probate. In Ontario, RRSPs, RRIFs, TFSAs and registered pension plans with a beneficiary designation are left out of the estate administration tax. That saves money, but it creates a common problem: the RRSP goes to the named person while its income tax is paid out of the rest of the estate. If the will splits the rest equally, the split isn’t equal.

Probate costs vary more by province than most people expect, from a flat C$525 at most in Alberta to thousands of dollars on a mid-sized estate in Ontario, B.C., New Brunswick and Nova Scotia. See probate fees by province.

When life changes the plan

Ontario is a good example of why a will needs checking after a marriage or a split:

• Marriage no longer revokes a will in Ontario. Ontario repealed that rule, so a will made before marriage stays in force.
• Divorce revokes gifts to the former spouse, and their appointment as executor, unless the will says otherwise.
• Separation can now do the same. Spouses who lived apart for three years before the death because the marriage broke down, or who signed a valid separation agreement or got a court order or arbitration award settling their affairs, are treated as if the former spouse had died first.

These rules apply to the will. They don’t update the beneficiary form on your RRSP or life insurance, so do that yourself. Other provinces have their own rules, which we haven’t checked one by one here. If you’re separating, read divorce and money in Canada.

Common mistakes

• A will but no powers of attorney. It’s the incapacity years, not death, that catch many families out.
• Beneficiary forms that don’t match the will, or that still name a former spouse.
• Adding a child to the house or an account to avoid probate. It can expose the asset to the child’s creditors or divorce, cause a tax bill, and leave siblings out.
• Ignoring the second death. A couple’s plan often works well when the first spouse dies and badly when the second does, because that’s when the deferred tax comes due.
• Property in two provinces, or in the US. A cottage in another province can mean a second probate application. US property brings US rules; see cross-border financial advisors.

Questions to ask a planner

1. What would the tax on my final return be today, and at the second death in a couple?
2. Do my RRSP, TFSA and insurance designations line up with the will?
3. Is life insurance the cheapest way to cover the tax, or is there a better one?
4. How would you work with my lawyer or notary, and who drafts what?
5. Is your fee fixed in writing, and do you or your firm earn anything from insurance or products you recommend?

When a fee-only or advice-only planner is worth it

If your estate is a home and a modest RRSP going to a spouse, a lawyer and a simple will may be all you need. A planner earns their fee when there’s real money to sort out: a large RRIF, a cottage with a big gain, a private company, children from more than one relationship, or an heir who needs money held for them. Insurance often comes up in estate planning, and that’s where pay matters most. A fee-only or advice-only planner earns nothing from a policy, so a recommendation to buy one isn’t a sale.

Lawyers’ and notaries’ fees for the documents are separate, and we don’t have a figure for them. The planner samples are small, so compare two quotes; what fee-only advisors charge in Canada explains how to read them. For the difference between the two professionals, see estate attorney vs financial planner, written for US readers but the division of work is the same.

To find a planner, start with the estate planning and family wealth transfer specialties, the list of family wealth transfer specialists, or fee-only planners by province, such as Ontario, British Columbia and Quebec, in the public graph.