Living Trusts and Estate Planning

What is a trust?

An obligation or an agreement legally-binding a trustee to care for and control specific property for specific people.

The beneficiaries of the trust are those that will benefit from the capital of the trust and / or the income earned on trust properties. A “settlor” transfers legal ownership of property to a trustee or trustees and provides direction to the trustee, as to the handling of the trust property, through a legal document such as:

• a trust indenture or agreement

• a will or codicil

Capital Gains

A deceased person is deemed to have disposed of all capital property immediately before death, and has to pay capital gains tax on accrued gains.

A taxpayer may wish to consider transferring property during his/her lifetime, while still retaining control over the property, to:

• A family trust

• A spousal trust

• An alter ego trust

Benefits of Transferring Property to a Trust

Transferring property to a trust can provide the following benefits:

• Defer capital gains tax on death

• Reduce or eliminate probate fees

• Hold and use income and capital of trust property for specified persons

• Avoid income tax arising on certain transfers

• Establish financial security of surviving spouse during the spouse’s lifetime

• Establish the ability of residual beneficiaries to receive trust capital after surviving spouse’s death

• Protect your wealth from transfer outside your family after your death

• Preserve wealth for “spendthrift” beneficiaries

• Provide lifetime resources for disabled children or other beneficiaries

Aylett Grant Tax have helped countless clients:

• File the necessary T1 Final and optional returns

• File any estate tax return that may be required

• Apply for a clearance certificate

• Devise a practical estate and retirement plan

More on Trusts:

Intervivos  Trusts or Living Trusts

• created while the “settlor” is alive

Testamentary Trusts

• created through the insertion of specific wording in a will or codicil to a will, only becoming  effective on the death of the individual (deceased / testator)

Scope of Trusts

• broad trusts for all of a family

• child trusts for certain children

• as a group independently

• for spouse or spouses

Benefits of Testamentary Trusts

• Minimize tax on future  trust income from inherited property

• Ensure that beneficiaries do not exhaust or spend assets too quickly

• Reduce exposures to claims on trust assets from creditors and family law claims on property (a  lawyer can determine the appropriate legal wording included in the trust, confirming what level of protection is available in your scenario)

T3 Testamentary Trust

• If assets of the estate are liquidated following the death of the taxpayer or are continuing to earn income, a T3 Testamentary Trust return – reporting income earned on the estate assets from the time of death to the time the assets are distributed will have to be filed annually