When an Inheritance Becomes a Tax Bill

Earlier this month, CTV News reported on a Toronto woman who was blindsided by a $660,000 tax bill after both of her parents passed away in the same year. It’s a jarring headline — but it’s also a reality check for many Canadian families. The shock wasn’t about what her parents owned. It was about how the tax system works.

How Canada Treats Death

Canada doesn’t have an estate tax in the U.S. sense. But it does have something that often feels just as heavy: deemed disposition. When you die, the government assumes you sold all your taxable assets that day at fair market value. RRSPs, RRIFs, non-registered investment accounts, and rental properties — all treated as if liquidated. The resulting capital gains, plus the full value of registered accounts, are taxed in your final return. Normally, there’s one safety valve: if you have a surviving spouse, most of those assets can roll over tax-deferred. But if both spouses pass in the same year, or if one dies without a spouse, that deferral disappears. The tax comes due immediately. That’s exactly what happened in this case. Two estates, compressed into one tax year, with no rollover available. The result: a staggering liability that had to be paid before the heirs could move on.

Why Families Get Caught Off Guard

It’s easy to see why this happens.

• We’re told Canada doesn’t have an “estate tax.”
• We assume life insurance or a will alone covers the bases.
• We don’t run the math on what a portfolio or RRSP liquidation actually looks like in one calendar year.

Add in rising asset values, longer life expectancies, and the concentration of wealth in registered accounts, and the risk grows larger every decade.

Planning Tools That Actually Help

This isn’t a problem solved by theory — it’s solved by preparation. A few of the more effective tools we use with families:

• Spousal Rollovers – RRSPs and RRIFs can transfer tax-deferred to a spouse, but only if the paperwork and beneficiary designations are correct. Too often, they aren’t.
• Trust Structures – While complex, trusts can spread income and offer flexibility, particularly where children or multiple generations are involved.
• Permanent Life Insurance – One of the most direct ways to fund the eventual tax bill. It doesn’t avoid tax; it provides liquidity so assets don’t need to be sold at the wrong time.
• Charitable Giving – Well-structured donations of securities can offset large final tax liabilities while supporting causes that matter.
• Professional Coordination – Estate planning requires the accountant, lawyer, and advisor at the same table. It’s not just about investing; it’s about ensuring the strategy works under Canada’s tax code.

The Lesson

The woman in the CTV story wasn’t unlucky. She was unprepared. The real risk in estate planning isn’t legal — it’s financial. Families spend lifetimes building wealth, but without planning, a significant portion can disappear in taxes within months. If you take one thing away, let it be this: estate planning is about liquidity as much as legacy. Taxes are certain. The only uncertainty is whether you prepare for them in advance or leave your family to handle the bill.

Most of us schedule an annual physical with our doctor. It’s preventative. It’s responsible. And it gives us peace of mind knowing our health is being monitored before small issues become big problems. At Seven Hills, we believe your finances deserve the same discipline. Call it your Annual Financial. Just as your doctor checks your vitals, we review the key measures of your financial health: estate structure, tax exposure, liquidity, and legacy planning. Sometimes the “prescription” is as simple as adjusting a beneficiary form. Other times it means adding tools like insurance or trusts to strengthen your long-term plan.

For families who value foresight, we offer the opportunity to sit with a leading estate lawyer and an experienced accountant — together with us — in a complimentary Annual Financial review. It’s a private, thoughtful process designed to give you clarity and confidence. Because when it comes to protecting your family’s wealth and legacy, prevention isn’t just prudent. It’s essential.

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