Using Mortgages to Reduce the Shock of Inheritance Taxes

The Myth That Keeps Coming Back

Canada does not have a “death tax.” Yet every few months, a scary headline makes it feel like one. A recent news story about a daughter facing a $650,000 tax bill has reignited the panic. Once you unpacked the numbers, the reality was far less dramatic.

As an example, if your client’s daughter inherited roughly $700,000 in RRSP assets and a cottage valued at at least $1 million. Taxes were triggered not by death itself, but by two well-established rules: registered assets are fully taxable at death if there is no rollover, and non-principal residences are subject to capital gains. After paying taxes, she still had more than $1 million in assets. The tax bill was real but not confiscatory.

Where the Real Risk Lies

For financial advisors, the takeaway is straightforward. The risk is not an inheritance tax. The risk is concentration. Large RRSP or RRIF balances combined with highly appreciated secondary properties can create a liquidity crunch at death. Estates often need cash quickly, which can lead to rushed asset sales at the worst possible time.

How Mortgages Fit Into Smarter Estate Planning

Smarter estate planning is where mortgage strategy becomes a planning tool, not just a borrowing decision. Thoughtful use of debt and cash flow can materially reduce the tax shock for heirs.

• Gradual RRIF drawdowns can lower the size of the final taxable balance. Your clients can redirect excess cash into a TFSA, which passes to beneficiaries tax-free.

• Maintaining or refinancing a mortgage in retirement can preserve liquidity. Instead of liquidating registered assets aggressively and triggering higher marginal tax, homeowners can smooth withdrawals over time.

• Strategic leverage can help fund insurance or investment solutions designed to cover future capital gains on cottages or rental properties, keeping those assets in the family.

Why This Matters for Advisor Conversations

Clients often see mortgages as something to eliminate before retirement. That mindset can backfire. In many cases, being debt-free but asset-heavy simply shifts the tax problem to the estate. Financial advisors who integrate mortgage planning into estate discussions can help clients trade a visible monthly payment for a far smaller invisible tax bill later.

There may be no inheritance tax in Canada, but there is still a larger tax bill due to inadequate estate planning. Mortgages, used intentionally, can be part of the solution. Financial advisors who frame borrowing as a strategic estate planning tool rather than a necessary evil will deliver greater value and far fewer unpleasant surprises for their clients’ families.

Estate planning does not end with the investment portfolio. When a financial advisor treats their client’s mortgage strategy as a tool rather than a liability, they can materially reduce tax pressure, preserve liquidity, and protect what clients pass on. Partner with nesto mortgage experts to integrate mortgage strategies into your estate and retirement planning conversations, so you don’t force your clients’ inheritors into rushed asset sales or unnecessary tax bills later. Together, we can help families keep more of what they have built, with fewer surprises when it matters most.

---

Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and the quality of their advice. nesto aims to transform the mortgage industry by providing honest advice and competitive rates through a 100% digital, transparent, and seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

---