Part One of this series covered what executors face when an estate opens. This article is the other half: the decisions that, made years before death, can change what that estate actually owes.
The tax bill that arises on death in Canada is not a fixed percentage of the estate’s total assets. Instead, it reflects what you owned, how those assets were structured, and whether effective estate planning was completed. For many business owners and families, that bill can be lower than it otherwise would be, but only if someone looks at it while there is still time to act.
This article covers five planning areas of Canadian estate planning: tax planning for your will, life insurance as an estate planning tool, estate freezes, planning for a graduated rate estate (GRE), and preventing double taxation on private company shares. Lawyers and insurance advisors are also important parts of the process. The CPA's role is to clarify the tax implications before those conversations take place and decisions are finalized.
Estate planning is the process of organizing your personal and financial affairs during your lifetime so that:
A complete personal estate plan typically brings together your will, powers of attorney, beneficiary designations, insurance, and broader financial and tax planning. Lawyers and tax professionals often work together to help you build a plan that fits your goals. Business succession is covered in Part Three.
Canada does not impose a separate estate tax at a fixed rate. Instead, one of the principal tax rules triggered by death is the deemed disposition of capital property. Subject to available exceptions and rollover provisions, subsection 70(5) of the Income Tax Act generally treats a deceased person as having disposed of their capital property at fair market value immediately before death. Any resulting taxable capital gains are reported on the deceased’s terminal T1 income tax return.
(Part One of this series covers how this works from the executor's perspective. See the estate and trust tax compliance obligations article for the full executor-facing discussion.
Private company shares are the most consequential asset class here for two reasons. First, they may carry substantial unrealized gains. Second, they can create a double taxation problem on death that does not arise with publicly traded shares or real estate. The deemed disposition may trigger a capital gain on the shares at death, while a later distribution of the corporation’s underlying assets may be taxed as a dividend. In practical terms, one dollar of corporate assets, taxed twice.
Proper estate planning can reduce or defer the initial capital gains take and help prevent double taxation on private company shares. However, the available options often narrow as asset values increase and time passes. Ideally, the planning that makes those post-mortem options available begins well before death, while there is still flexibility to put the right structure in place.
Drafting a will is a lawyer's job. Your will sets out who will receive your assets, who will act as your executor, and for parents of minor children, who will act as guardian. Without a will, provincial intestacy laws determine how your estate is divided, which may not reflect your wishes. Together with Powers of Attorney for health and property, a will is an important part of your estate planning.
The CPA's role is to make sure the tax picture is understood as part of the drafting process, because the structure of a will has real tax consequences that are difficult to change after the fact. Tactical considerations like using your will to create one or more testamentary trusts, and pre-death gifting and trust construction will also be considered.
Dual wills in Ontario (and other provinces): Ontario charges probate fees (Estate Administration Tax) on assets that pass through the will. A properly structured secondary will may cover private company shares and certain other assets that can be administered without probate, reducing the value subject to Estate Administration Tax and allows them to pass to your beneficiaries free of probate tax. The dual-will structure requires coordination between the CPA and the lawyer, and it needs to be in place before death.
Beneficiary designation alignment: RRSPs, RRIFs, TFSAs, and life insurance policies may have beneficiary designations that allow assets to pass directly to the named beneficiary rather than through the estate. A mismatch between what the will says and what the beneficiary designations say creates surprises at a moment when the family is least equipped to deal with them. Note that it is possible to name your estate as the beneficiary, but this will expose those assets to probate tax. RRSPs and RRIFs are fully taxable on death (unless allocated to your spouse), whereas TFSAs and life insurance do not attract tax.
Review your will when your assets or business interests change materially, when your family situation changes, including marriages, divorces, separation, the birth or adoption of a child, and when relevant tax laws change. A will designed for one stage of life often needs to be rebuilt at the next.
For individuals with significant tax exposures (especially large- and mid-market business owners who may have significant capital gains tax without the corresponding external assets to pay the tax), the estate planning use of life insurance that comes up most often is funding the tax bill that death creates, without forcing a sale of the business or other assets at the wrong moment.
Life insurance owned by your corporation or personally provides the liquidity to pay the terminal return tax bill without forcing a sale of the business or assets.
When the operating company goes to one child and financial assets to others, life insurance provides a cash benefit for the non-business-inheriting beneficiaries, equalizing the estate without disrupting the business.
Business owners with partners need a shareholders' agreement addressing death. Life insurance funds or partially funds the buyout of the deceased partner's interest in the business.
When a significant asset is donated on death, life insurance replaces that value for family beneficiaries. The charitable intention does not come at the family's expense.
When a corporation owns a life insurance policy and collects the death benefit, the proceeds less the policy's adjusted cost basis are credited to the CDA, allowing a tax-free capital dividend to the estate. This is one of the most tax-efficient ways to use corporate funds to pay the estate's tax obligations; you are using low-taxed corporate dollars to fund the policy.
The insurance structure, the ownership arrangement, and the CDA strategy need to be reviewed by the CPA, the insurance advisor, and legal counsel before the policy is purchased.
An estate freeze is a corporate reorganization that locks in the current owner's accrued capital gain in fixed-value shares, while future growth is allocated to new common shares held by family members or a family trust. After a freeze, the original owner's tax exposure on death is limited to the frozen value, not the full terminal value of the business.
Here is an example: if a business is worth $4M today and the owner expects it to grow to $10M, a freeze today locks in the gain on death at $4M. The $6M of future growth moves to the next generation. The original owner's estate still has a deemed disposition on the frozen preferred shares (ie $4M not $10M), which is a known amount that can be managed with planning.
The lifetime capital gains exemption (currently on $1.275 million of capital gains) applies to gains on qualified small business corporation (QSBC) shares or qualified farm or fishing property (QFFP). A freeze can be timed to trigger a gain equal to the client's remaining LCGE, if appropriate, sheltering that amount entirely. Once the shares no longer qualify as QSBC shares, the exemption is gone, so there is a planning opportunity in that scenario.
The new common shares issued in a freeze are often held by a family trust. While the federal government has reduced many of the income-splitting benefits of family trusts, they remain powerful vehicles for maintaining operating company purification without personal tax exposure, and accessing multiple LCGEs across family members. Trusts are also separate legal entities so there can also be an element of creditor-proofing involved in planning. Trusts are outside the estate but have their own deemed disposition rules.
Done when the business is growing captures the most benefit. Done too late, it protects little. Many clients set up a family trust concurrent with the business origination… the earlier it happens, the more planning flexibility there is later.
For business owners with a growing private company, this overlaps directly with corporate tax structure planning.
Part One covered the GRE election as a post-death filing decision. This section covers the pre-death decisions that determine how well that election works.
Will structure and GRE designation: the testator's will should create the testamentary trust that will be designated as the GRE. Dying without this structure leaves the executor with a suboptimal arrangement. When the will creates multiple testamentary trusts, only one can be the GRE. Planning before death allows the testator to structure the will so the right trust holds the right assets, or in the alternative the will should allow the executor to run the estate for up to three years before funding the testamentary trusts.
Income that falls inside the three-year GRE window benefits from graduated rates rather than being taxed at the top marginal rate.
When a business owner dies holding private company shares, the default Canadian tax treatment can create two separate tax events on the same underlying corporate value. First the deemed disposition at death under ITA s.70(5) triggers capital gains on the accrued value of the shares.
Second, when the corporation’s assets are later distributed to the estate or beneficiaries, those amounts may be taxed as dividends. In practical terms, the same corporate dollar is taxed twice.
This is not limited to large estates only. Any business owner who accumulated corporate value in excess of the tax cost of the shares may face double taxation at death.
After death, the estate can use a series of corporate transactions to convert what would otherwise be a second layer of tax into a tax-free return of capital. The capital gain has already been recognized on the terminal return. The pipeline strategy eliminates the second taxation event. Pipelines require careful construction and management, as there are numerous planning pitfalls around timing, corporate assets, and business operations to consider.
Another approach generally involves redeeming the private company shares held by the graduated rate estate (GRE). The redemption produces a deemed dividend and a corresponding capital loss in the estate. Under subsection 164(6), the estate may elect to carry that loss back to the deceased’s terminal return, reducing or eliminating the capital gain arising from the deemed disposition at death.
This approach replaces two potential levels of tax with a single level of dividend tax, which is often higher than the effective tax rate on a capital gain. For individuals who die on or after August 12, 2024, qualifying losses realized in any of the GRE's first three taxation years may be eligible for the subsection 164(6) carryback. The outcome will also depend on factors such as the corporation’s capital dividend account, refundable tax balances, share attributes, and available losses.
Executors who do not obtain tax advice early may miss these post-mortem planning opportunities and unnecessarily expose the estate to double taxation.
Estate planning done well often involves multiple advisors: lawyers, insurance brokers, financial advisors, and the CPA who models the tax picture and makes sure the other advisors are working toward the same goals. Most people do the lawyer part. Fewer do all of them.
The CPA's contribution is reviewing the whole picture during the drafting and planning process, and then usually again before the documents are signed. The cost of skipping this step shows up in the estate, not at the planning table. A will built without tax input often looks complete until the estate starts running. Then the executor finds out too late that the structure is suboptimal, locking the estate into taxation it could have avoided.
The Forbes Andersen team, led by Julian Lombardo of our Toronto office, works with business owners and families throughout the process: modelling the tax scenarios, reviewing the will structure and beneficiary designations, coordinating with legal counsel and insurance advisors, and making recommendations for tax minimization.
To discuss your specific situation, book a personalized discovery call with Julian Lombardo, or contact Forbes Andersen directly.
Most people know they should be doing this and have not started. The planning does not need to begin with a full restructuring: it begins with a conversation about your assets and liabilities, your family situation, and what you want to happen. The tax modelling follows from there.
If your estate administration is already underway and you need support with the executor's compliance obligations, Part One of this series covers the full process from the day of death through final distribution.
Yes. Estate planning is about making sure your wishes are clear, your loved ones are taken care of, and your affairs are easier to manage; it’s not just about minimizing tax on large estates. Almost everyone in Canada should have a will and a plan.
As soon as you finish this article is a good time to start… And it is not optional if you have dependants, a home, a business, or investments. Planning early gives you more options, more time to adjust your plan as life changes, and better opportunities to manage tax. It is often difficult to face your own mortality, which often leads to delayed (or no) planning.
Most people benefit from reviewing their plan every few years, or when there is a major life change such as marriage, divorce, a new child or grandchild, a business sale or acquisition, or a significant change in assets.
Provincial laws decide how your estate is divided, which may not reflect your wishes or your family’s needs. It can also make the administration process slower, more stressful, and more expensive for your loved ones.
Lawyers prepare the legal documents, but tax planning also plays a major role. Our tax and estate planning team at Forbes Andersen helps you understand the tax implications of your plan, models potential outcomes, and coordinates with your legal advisors so your estate plan is both practical and tax-informed. We are based in the GTA and have relationships with many Toronto-based law firms.
An estate freeze is a corporate reorganization that locks in your current accrued capital gain and transfers future growth to the next generation or a family trust. Whether it makes sense depends on the current business value, expected growth, and succession intentions. A tax-focused CPA models the scenarios before you decide.
Life insurance does not generally affect the estate’s tax situation. Life insurance can be used to fund the tax liability on death, often with corporate funded insurance via the Capital Dividend Account, or in the alternative it can be paid directly to your estate to fund the estate’s liabilities. Life insurance can also be made payable to your beneficiaries directly and does not attract taxation on the amount paid.
When a business owner dies holding private company shares, the deemed disposition at death triggers capital gains on the shares. Subsequently, as corporate assets are paid out of the company as dividends, they are taxed without relief from the capital gains taxes paid on death. Pipeline planning after death can eliminate this second tax hit.
No. Drafting a will, powers of attorney, and related estate documents is legal work done by a lawyer. The CPA advises on the tax implications of different structures before the will is drafted, and reviews the alignment between the will, beneficiary designations, and ownership structures. Forbes Andersen LLP does not provide legal advice.
This article provides general information about Canadian estate and trust taxation and is current as of September 2026. It is not intended as tax, legal, or accounting advice. Tax laws are complex and subject to change. Each situation is unique. Consult qualified professional advisors before making decisions based on this information. Forbes Andersen LLP does not provide legal advice.
Julian Lombardo, CPA, CA is a partner at Forbes Andersen LLP serving clients across Canada and beyond. If you would like additional information about efficient tax planning opportunities, estate planning or other tax issues, Julian can be reached at julian.lombardo@fa.ca or 416-947-0464 ext 230.
