Can life insurance help with estate planning in Canada?

• The deemed disposition at death can create tax even when nothing is sold.
• Insurance proceeds arrive as cash, usually within weeks, unlike illiquid property.
• Named beneficiaries generally avoid probate on the insurance proceeds.
• Insurance can equalize when one child inherits a business or cottage and others do not.
• A rollover to a spouse or common-law partner may defer, not eliminate, the tax.

A final tax return reports the deemed disposition of capital property and the full value of remaining RRSP or RRIF assets, unless a qualifying rollover applies. Families holding a cottage, a rental portfolio, farmland or private company shares often face a substantial bill even though the assets are not being sold.

Insurance sized to the projected liability lets the executor pay taxes, debts and administration costs without a distress sale. This is often the difference between keeping a family property and selling it in a weak market.

If one child will take over a business and others will not, a policy can fund cash inheritances of comparable value. This makes the will easier to administer and reduces the likelihood of disputes.

Beneficiary designations override the will for insurance and most registered plans. Designations, wills, shareholder agreements and any trust documents must be reviewed together, ideally by a lawyer, so they do not contradict each other.

• Projected tax at death changes as asset values change; review the amount periodically.
• Insurance is one tool; trusts, gifting during life and share freezes may also be relevant.
• Provincial probate rules and fees differ; Quebec's civil-law regime differs substantially.

• Doing taxes for someone who died — Canada Revenue Agency
• Income tax information for individuals — Canada Revenue Agency
• Life and health insurance in Canada — industry resources — CLHIA