Covering estate costs

Life insuranceLife Insurance Insurance that pays cash to your family or other beneficiary after your death. This can give them income and help pay your funeral and other final costs.+ read full definition can provide your estateEstate The total sum of money and property you leave behind when you die.+ read full definition with the ready cash needed to pay debts, taxes or other obligations. This can avoid the sale of estate assets – such as a home or cottage – that beneficiaries may want to keep in the family.

3 common estate costs

In addition to funeral costs, your death can trigger costs to your estate that you may not have anticipated:

1. ProbateProbate Fees to settle your estate after your death. The probate process includes reviewing your will to ensure it’s valid. Also includes paying any debts and giving your money and property to the beneficiaries you have named in your will.+ read full definition fees – The fees to settle your estate can be high depending on the province you live in. In Ontario, the fees equal almost 1.5% of your estate’s value.
2. TaxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on capital gains – You’re deemed to dispose of all capital propertyCapital property Property you own that could give you a capital gain if you sold it. Can include investments, a property other than your home and money from a trust account.+ read full definition at death. Your estate must cover the tax on any of these capital gains.
3. Tax on tax-sheltered savings plans – Registered plans such as RRSPs and RRIFs can be transferred tax free to your spouse’s plan, but if you don’t have a spouse, these savings become fully taxable at death.

How to use insurance to pay estate costs

Simply name your estate as the beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition. Your estate will pay probate fees on the insurance proceeds, but it gives your estate cash that can be used right away to help cover estate costs