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

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

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

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

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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