Widows and widowers can be shocked by the rise in tax bills as all income now is included on one tax return
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Whether a death is sudden or expected, grief – and not tax issues – should be the initial focus, says Matt Trotta, vice-president of tax, retirement and estate planning with CI Global Asset Management in Calgary. “It’s a big shock to the surviving spouse seeing how much additional tax they’re paying, and that’s just simply because we have a graduated tax rate system in Canada,” he explains. “As your income creeps up, you’re now paying taxes at significantly higher rates. And for many years, they’ve benefited from very low tax rates.”
If the deceased spouse was receiving OAS, that will stop as there are no survivor benefits. The amount of total pension income will also drop as the survivor pension benefits from a private plan or CPP are likely to be less than before. Then, “the surviving spouse takes back fixed value preferred shares equal to the value of the portfolio that went into the corporation,” Mr. Minicucci explains. “The future increase in value would accrue to other family members,” such as adult children, who would also be shareholders.
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