Most people who worry about their estate are worried about the wrong bill. Two separate bills arrive after death, from two different governments and calculated on two different bases. Probate gets most of the attention, but it is often the smaller of the two. Clients, and plenty of executors, tend to blur them into one thing called "death taxes," and that blur is expensive.

This week I'm leaving the markets alone to untangle them, because the plan that fixes one bill often does nothing for the other, and most families are planning for the smaller one. Here is the cleaner way to hold it in your head. Canada has no estate tax and no inheritance tax. What it has is income tax, owed to the CRA on the final (terminal) return, and probate, owed to the province when the will is validated by a court. Different collector, different trigger, different assets, different planning tools. So, when someone says, "I've taken care of my estate tax," the first question is which one.

Tax #1: Income tax, courtesy of the CRA

The income tax bill is the bigger one for most families with real savings, and it is the one people understand least. At death, the tax system treats the deceased as having sold everything at fair market value the moment before. Non-registered investments, a cottage, a rental property: any accrued gain is realized and reported on the final return. The capital gains inclusion rate is still 50%, because the proposed increase to two-thirds was cancelled in March 2025. The principal residence is also deemed sold, though the principal residence exemption normally shelters that gain. At least, that is how it is treated in the current tax code.

Registered accounts are treated differently, and more harshly. The full value of an RRSP, LIRA, RRIF, or LIF generally lands on the final return as ordinary income, not as a capital gain, so there is no 50% inclusion discount. It is added on top of everything else that year and taxed at the marginal rate. Here is what that looks like in practice. Take an Ontario resident with a $500,000 RRIF who dies with no spouse to roll it to. At a top combined marginal rate of about 53.5%, the tax on that RRIF alone is roughly $267,000. That is an illustration (based on a flat rate and not a graduated rate), not a forecast, and a real return applies graduated brackets, but it shows the scale.

The main relief valve is the spousal rollover. Capital property and registered plans can pass to a spouse or common-law partner without triggering the tax. It is important to remember that this only defers the bill to the second death. It does not erase it.

Tax #2: Probate, courtesy of the province

Probate is a different animal. It is the court process that confirms the will and the executor's authority, and the province charges for it when the executor applies. The fee is paid up front, out of the estate, and it is based on the value of what passes through the will. That last phrase matters. Assets that pass outside the will, such as accounts with a named beneficiary or property held jointly with right of survivorship, generally do not count toward the fee. In Ontario, the Estate Administration Tax is calculated on the value of the probated estate, not on everything the person owned. Note, this is not a universal charge and some provinces barely charge anything. Manitoba abolished it altogether in 2020.

Probate across the provinces

Income tax is federal, with a provincial layer on top, so the rules are broadly the same coast to coast. Probate is where geography matters. On the same $1 million probated estate, the bill runs from nothing to more than $16,000.

A few things worth saying out loud. Nova Scotia has the highest marginal rate in the country, which matters for anyone with Maritime clients or family. Ontario and BC sit just behind it. Alberta's cap makes the size of the estate nearly irrelevant to the fee. And in Quebec, the will you sign matters as much as the estate you have, since a notarial will avoids the process entirely.

Where the two taxes get confused

The trouble starts because the tools that reduce one bill are often mistaken for tools that reduce the other.

• Beneficiary designations and joint ownership dodge probate, not income tax. Naming a beneficiary on an RRSP keeps it out of the probate base. The tax on it is still owed.
• The tax bill stays with the estate. If an RRSP goes directly to a named adult child, the child receives the money but the final return, and the tax on that RRSP, is still the estate's problem. If the estate holds illiquid assets, the executor can be left short.
• A spousal rollover defers income tax. It does not decide probate. Whether the assets pass through the will or outside it is a separate question with a separate answer.
• The bigger bill is usually the one people aren't planning for. Last year, CTV News ran a story* about a situation where a father passed away 11 months after his wife, with the children set up as beneficiaries on his RRSP account. There was also a cottage that triggered capital gains. The two siblings were forced to use most of the RRSP assets to cover a tax that was north of $660,000 as they did not want to liquidate the family cottage.  The bill was sizable, but again this could potentially have been mitigated with more careful planning.

What you can actually do about each

The planning tools split cleanly by which bill they touch.

For probate:

• Name beneficiaries on registered plans, TFSAs and insurance, so those assets pass outside the will.
• Consider joint ownership with a spouse where it makes sense, since it passes by survivorship.
• In Ontario, multiple wills can keep certain assets, such as private company shares, out of the probated will. The benefit is more limited in BC, where share registry updates for private companies typically still need probate documents.

For income tax:

• Use spousal rollovers where they fit, and plan for the second death, not just the first.
• Match liquidity to the tax bill, so the estate can pay without a fire sale.
• Make sure the principal residence exemption and available losses are used.

The trade-off is that probate avoidance is not free. Joint ownership with an adult child, for example, can create control, creditor and family-fairness problems that cost far more than the fee saved. Often it is better to pay the fee than to create a larger problem trying to avoid it.

The takeaway

Talking about matters pertaining to our estate is not the first thing people do when they wake up in the morning since no one likes thinking about death. Like Kenny Chesney says – everybody wanna go to heaven, but nobody wanna go now. After doing hundreds of wealth plans for individuals and families over the years, one line I often repeat is that “we can spend the next hour talking about how to save 1.5% or use that time to discuss strategies to save 53.5%”. Yes, there are two taxes, two collectors, and two sets of tools. Know which one you are planning for, and plan for the other on purpose.

This commentary is general information, not legal or tax advice. Estate rules and fees vary by province and change over time, so speak with your estate lawyer and tax professional before acting.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.

Andrew Pyle

*  https://www.ctvnews.ca/toronto/consumer-alert/article/daughter-hit-with-660000-tax-bill-when-both-parents-died-in-same-year/