Death and Taxes—for widows and widowers
By Anne Chun, CPA CA CFP TEP
It was just before Christmas last year and I got an email that brought tears to my eyes.
I was invited to a visitation for a long-time friend of mine who passed away after a “routine”
surgery.
This was totally unexpected and given the time of the year, must be very sad for his whole
family.
I’ve been a family friend for over thirty years and I’m also their accountant.
A few months after Jackson’s funeral, I asked to meet with his widow Denise to discuss Death
and Taxes.
After discussing the tax filing and deadlines, we turned to Tax Planning for her.
My major concern is that Denise’s tax bill will be substantially higher than the year before and
her living expenses may not decrease that much. It’s very important to address Tax and Financial
Planning after your loved ones passed away—not the topic most wish to discuss but as an
accountant and financial planner, it’s my job to bring it up.
Denise’s income tax bill will go up for the following reasons:
- The investment income from their joint accounts will all be reported as income on her tax
return. - Denise has a teacher’s pension but she will not be able to “pension income split” with
Jackson so her tax bill will go up. - There were tax credits that Jackson transferred to Denise and these are no longer
available—disability tax credit and age amount are examples.
There’s a “double whammy” in that Denise’s living expenses may not decrease much as she will
still have to pay for accommodation, groceries and medical expenses. Hence a new budget
should be developed to see how much she would require for living expenses.
Other financial and estate planning issues should be revised and updated.
Examples include:
- Changing her beneficiary on RRSP or RRIFs.
- Update her Will
- Update her Power of Attorney (as spouses are often named as the POW).
- Review her investments with her financial advisor to make sure there is sufficient income
to cover additional taxes and living expenses. - Update life insurance policies.
Clients often asks me about tax filing deadlines for the deceased loved one. But they should also
focus on Tax and Financial Planning.