Payment of Tax
In many cases, the deemed disposition rules cause significant tax liabilities in the year of death. In this case, some relief is available in the sense that income taxes owing for the year of death may be paid in annual instalments (not exceeding ten) with non deductible interest charged at the prescribed rate from the day taxes should have been paid.
If taxes on death are to be paid by instalment then the estate must provide security to the Canada Revenue Agency. The security may be in the form of a charge on the deceased’s property or a guarantee provided by another person.
As an estate planner, it is critical that there is sufficient liquidity for the payment of death taxes and other debts of the deceased so as to avoid the forced sale of property as a means of acquiring cash to pay debts.
For these reasons, you may consider life insurance to funding income tax and other liabilities that may surface on death. Depending on your circumstances it may be the most effective means of ensuring the required amount of cash will be available exactly when needed.
All the best to your and yours in the holiday season and I will be back in the New Year.
Derek de Gannes