Estate Planning 101

As a Physician, you've spent the better part of your life building up assets and providing for your family. All too often people don’t think about what happens when they pass away and how to plan. There are two parts of estate planning. First, you need a Will. Second, you need to understand what happens to your assets when you pass away and how can you can plan to reduce the tax burden.

Your Will is your final document and provides direction with respect to asset distribution, and your final wishes. It’s important that your Will be up to date and reviewed on a regular basis. Probate is the process whereby a Will is deemed valid and it gives your Executor the authority to act. If you are incorporated and want to reduce probate, you may consider preparing two wills; one for your probated assets (i.e. bank accounts and personal investments) and one for your non-probated assets (i.e. shares of your corporation).  The secondary will removes the non-probated assets out of your primary estate and helps avoid probate tax (1.5%) on these assets. 

What if you don’t have a will?
When a person dies without a valid will, called “intestate”, Ontario’s Succession Law Reform Act sets out how the estate is distributed. According to the Act as of 2018, unless someone who is financially dependent on the deceased person makes a claim, the first $200,000 is given to the deceased person’s spouse if he or she has decided to claim his/her entitlement. The other possibility is to claim half of the net family property. Anything over $200,000 is shared between the spouse and the descendants (e.g. children, grandchildren) according to specific rules.

  1. If there is no spouse, the deceased person’s children will inherit the estate. If any of them have died, that child’s descendants (e.g. the deceased person’s grandchildren) will inherit their share.
  2. If there is no spouse or children or grandchildren, the deceased person’s parents inherit the estate equally.
  3. If there are no surviving parents, the deceased person’s brothers and sisters inherit the estate. If any of the brothers and sisters have died, their children (the deceased person’s nieces and nephews) inherit their share.
  4. If there are no surviving brothers and sisters, the deceased person’s nieces and nephews inherit the estate equally. However, if a niece or nephew has died, their share does not pass to their children.
  5. When only more distant relatives survive (e.g. cousins, great nieces or nephews, great aunts and uncles), the rules are complex and you should speak to a lawyer.
  6. If any heir was alive when his or her relative died, but died before the estate was distributed, that person’s own heirs are entitled to their share.
  7. When a person dies without a will, only blood relatives, including children born outside of marriage, or legally adopted children can inherit. Half-blood relatives share equally with whole-blood relatives.

Implications: Everyone should have a will that lays out how and when assets are distributed.

Without proper planning, taxes may consume a substantial portion of your estate. At the time of death, you may owe tax on the income earned that year, capital gains tax on capital property (i.e. your investments and the value of the shares of your corporation). Registered assets (RSPs/RRIFs) are taxed as income and if you own US property, are a US citizen/resident or have a green card, you may owe tax in the United States. As an incorporated doctor, there are issues you may not be aware of with your medicine professional corporation.

Corporations do not die when a business owner dies. Corporate bylaws or a shareholders’ agreement dictate what happens with a deceased shareholder’s shares. If there is no shareholder agreement, the shares pass according to your estate plan. Generally, when the owner of the corporation dies (you) and is survived by their spouse, the shares can be transferred to a spouse or spousal trust tax-free. When you and your spouse both pass, there are several areas of taxation that apply.

  1. Capital gain on the disposition of shares of the corporation. Let's assume your corporation was setup with a share value of $1. The deemed value of the corporation at the time of death is at least the fair market value of the investments/assets in your corporation. This value will be taxed as a capital gain as the shares are deemed to have been disposed.
  2. Capital gains on the sale of investments owned by the corporation. In this case, the gains on the investments are taxed but only when the investments are sold and this is not triggered when you pass away. If the investments are not sold, there is no tax.
  3. Dividend tax on distribution of assets to the next generation. When the investments are sold and assets distributed, the distribution of these assets to the next generation may result in a taxable dividend.


Rick and his wife Janet are both Canadian and have three children. He is incorporated and has an investment portfolio of $3,000,000 in his corporation which includes the cash value of his life insurance. They have RSPs worth $2,000,000 and they own their home is debt free and worth $2,500,000. They have five grandchildren. Their Wills and Power of Attorney are up to date and Rick has a secondary Will for his corporation. Rick owns permanent whole life insurance on his and Janet’s life and at the time of death, the death benefit is $2,000,000. Assuming they live off income during retirement, they want to know how things will be taxed when they pass away. Below is a synopsis for discussion purposes:

Upon the second death, with all other things being equal, the assets are taxed as follows:

  1. House – Gains on the principle residences are not subject to tax.
  2. RSPs/RRIFs are taxed as income on the second death.
    • Income = $2,000,000, Tax $1,034,859 due, Net to Estate $965,141
  3. Corporate assets.
    • The corporation was setup with a share value of $1. The deemed value of the corporation at the time of death is at least the fair market value of these investments plus cash value of the life insurance as this is a corporate asset. In this case, $3M.
      • Capital gain = $3,000,000, Tax $803,700, Net to Estate $2,196,300
    • The life insurance is a corporate asset. Upon Rick and Janet’s death, the insurer provides $2,000,000 to the corporation. The corporation receives a capital dividend equal to the death benefit less the policy's adjusted cost base ($0) of $2,000,000. This allows the life insurance to flow through the corporation tax efficiently.

Additional issues for consideration are what the children do with the investments in the corporation.

    1. IF the children choose to liquidate the investments in the corporation, then there will be corporate tax on the growth of the investments. The tax rate on investment income earned by a corporation is currently 50.17%.

    2. IF the children then choose to distribute the proceeds of the investments to themselves, this will go through a dividend tax cycle at that time.

At the time the funds flow out to the children, up to 71% of the assets you worked to build up will be lost to tax!


Often Physicians do not realize that the shares of their corporation are taxable as the shares themselves are an asset.  The amount of tax ultimately payable based on the corporate assets will depend on the type of planning that is done - for example, loss carry back planning or pipeline planning or a combination of both.

Rick and Janet were good planners. Once they realized they had enough assets in their corporation to retire, they started to reallocate assets into a corporate owned permanent life insurance policy. A corporate owned permanent life insurance policy gave Rick and Janet a tax efficient investment vehicle with guaranteed growth, tax sheltered asset accumulation, retirement and estate planning capabilities. Most important, it allowed the proceeds at the time of death to flow through the corporation’s capital dividend account tax free to their heirs.

Let us help you plan.

Elliott Levine, MBA, CFP is the President of Levine Financial Group in Toronto
416-222-1311 I

The above is for conceptual purposes and is not to be relied upon for definitive legal, tax or financial advice. Those interested in exploring these topics should consult with the appropriate tax advisers to discuss their specific needs and circumstances. E&OE.