What is estate shrinkage?
Estate shrinkage is the reduction in an estate's value between death and distribution to heirs, caused by probate fees, the final income tax bill (including deemed-disposition capital gains), debts, funeral costs, executor compensation and professional fees. A well-planned estate minimizes this erosion.
What costs reduce a Canadian estate the most?
The largest items are usually the deemed-disposition capital gains tax on appreciated property (cottages, rentals, private shares) and outstanding debts and mortgages. Provincial probate fees, funeral costs, executor compensation and legal or accounting fees add further shrinkage.
How can I reduce estate shrinkage in Canada?
Common strategies include naming beneficiaries on registered plans and insurance so they bypass probate, using joint ownership or trusts, holding permanent life insurance to fund the tax bill, an estate freeze for business owners, and multiple wills in Ontario or BC for private company shares.
Does Canada have an estate tax?
No. Canada has no estate or inheritance tax. The main tax hit at death is the deemed disposition of capital property, which can create a large capital gains tax on the final return. Combined with probate fees and debts, this is what shrinks the estate before heirs inherit.