This week, the New York Times reported on a $10.8 billion inheritance tax to be paid by a family in Seoul.
In fact, the article was referring to the Samsung family in South Korea. Following the death of Samsung’s chairman last year, his family is being required to pay $10.8 billion in inheritance taxes, due to the fact that South Korea has one of the highest inheritance taxes in the world, which can impose up to a 50% tax on an inheritance.
An inheritance tax is a levy on assets inherited from the estate of a deceased person. There are only a few jurisdictions in the world that still impose such taxes, including Japan, France, certain states in the U.S., the United Kingdom, Turkey and Germany, among others.
No Inheritance Tax in Canada
There is no inheritance tax in Canada.
However, there can be significant income tax implications following a person’s death, so it is important to consult with a knowledgeable lawyer on this issue.
For instance, the executor of an estate in Canada must file a deceased tax return with the Canada Revenue Agency (“CRA”) following the death. This means that the estate itself pays the tax owed by the deceased to the government. The amount must be taken from the estate before it is distributed.
Following the payment of such taxes, the executor is required to obtain a clearance certificate from the CRA that will confirm payment of all income tax owed. The personal representative of an estate must obtain this clearance certificate before the distribution of an estate. Importantly, pursuant to s. 159 of the Income Tax Act an executor may be subject to personal liability for the tax liability of the estate on those who do not do so.
As seen in the following case, it should be noted that failure to pay income tax and obtain a clearance certificate can result in the executor being held personally liable for any amounts owed by the deceased.
Estate Executors May be Liable for Unpaid Taxes
A recent Alberta decision illustrates what can happen when an executor fails to hold back the appropriate amount for an estate’s income tax liability. In that case, the court found the estate executor personally liable for the deceased’s income tax debt.
Following her husband’s death, the wife was responsible for the estate’s probate as executor. She retained an accountant to prepare the final income tax return from the estate and to estimate its tax liability. The accountant advised her that a $25,000 holdback was sufficient. As such, the wife held back that amount and distributed the balance of the estate to its other beneficiaries and herself.
The first accountant, however, did not file the required income tax return. A second accountant was then retained, who determined that the holdback had been inadequate and the income tax due from the deceased’s estate was actually $57,333, in addition to his accounting fees. As a result, the wife owed $60,772 and paid the difference of $35,772 herself.
After paying the amount personally, the wife went to court seeking repayment of some of the amounts from the other beneficiaries.
However, after reviewing the obligations imposed under the Income Tax Act, the court held that the estate’s other beneficiaries were under no obligation to indemnify the executor for income tax or penalties imposed. It held that it had been the wife’s responsibility alone to obtain a clearance certificate before distributing the estate.
As a result, the court held that, as executor, the wife was personally liable for the tax liability.
Protecting your assets and ensuring your family and other loved ones are provided for in the future is not something most people want to think about. However, effectively managing your wealth and protecting your spouse, children, and your estate is something that everyone should do at some point to ensure that your express wishes are carried out.
An effective estate plan goes far beyond just creating a will. You should also consider securing other important legal tools including powers of attorney (for personal care and for property), trusts (including Hansen trusts if you have disabled children or other dependants), as well as the designation of beneficiaries on life insurance policies, pensions, and other key documents.
The best way to guarantee that your wishes will be carried out exactly as you would like them to is to consult with an experienced estate lawyer. At Campbells LLP in Oakville, our wills lawyers have been helping clients with Wills and estates matter since 1999. We will meet with you to help you clarify your long-term objectives and will create a personalized, effective estate plan designed to meet those goals. As your family grows or changes, we will ensure your estate plan is amended as required to ensure it continues to protect your ultimate objective.
At Campbells LLP, we are proud of the strong, long-lasting relationships we build with the clients for whom we craft Wills and estate plans. With our help, you can ensure that your family and loved ones are taken care of, that your wealth is distributed as you wish, and that the risk of any potential litigation is minimized. Our overall mission is to provide the right solution for each and every one of our clients. Contact us online or at (905) 828-2247 to learn more about our services.