16 - Estate Planning Strategies

Question 1

4 primary duties of trustee

Answer 1

Conflict of interest

Standard of care

Delegation of duties

Impartiality

Question 2

3 certainties must exist for a trust

Answer 2

Certainty of intention

Certainty of subject - trust property delivered to trustee

Certainty of objects - beneficiaries clearly described

Question 3

testamentary trust

Answer 3

Written in will and comes into effect after testator death

Question 4

Inter vivos trusts are set up

Answer 4

During settlors lifetime

Question 5

Is a trust default to be revocable or irrevocable

Answer 5

If not clearly stated, assumption is irrevocable

Question 6

4 disadvantages of inter vivos trust

Answer 6

Complicated set up

Legal and accounting fees

Annual taxes

Settler may take money back

Question 7

What are express trusts

Answer 7

Ones written like in a will

Question 8

What are resulting trusts

Answer 8

May not be written

A persons financial or labour contribution presumes a trust

I.e. 2 friends putting $100k in to buy property

Question 9

What is a constructive trust

Answer 9

When one party is unjustly enriched at the expense of another, court imposes

I.e. daughter looks after father but the son gets most of inheritance

Question 10

Life insurance trusts

Answer 10

Proceeds of one or more insurance policies

Question 11

Charitable remainder trust

Answer 11

Settlor can receive income from the trusts but when they die remainder goes to charity

Question 12

Spousal trusts

Answer 12

Can be testamentary or inter vivos

Must meet conditions
- trust must provide that spouse gets all income before death
- only spouse can get income or capital

Question 13

21 year rule for trusts

Answer 13

Taxed every 21 years, as if disposed and re-acquired

Question 14

4 reasons for setting up an inter vivos trust

Answer 14

Taxes

Asset management, I.e. estate freeze using a discretionary trust

Asset protection, from creditors and beneficiaries

Avoid deemed disposition and probate fees

Question 15

For a trust do beneficiaries have to be named

Answer 15

No they can be class I.e. grandchildren

Question 16

Provisions in a trust agreement

Answer 16

Settlor and trustees identified

Define property to be given and accepted by trustees

Income and capital beneficiaries specified

Purpose clearly defined

Indemnification of trustees

Question 17

Purely discretionary trust

Answer 17

Trustee has absolute discretion to distribute income and capital to any beneficiaries

Question 18

Non discretionary trust

Answer 18

Distribution of income and capital by strict terms set out by settlor

Question 19

How to avoid the 21 year rule

Answer 19

Prior to 21st anniversary, Canadian resident capital beneficiaries of a Canadian resident trust can receive capital distribution on a tax deferred basis,

When capital beneficiary sells stock or dies, capital gains will be taxed in his hands, or his estate

Question 20

When does 21 year deemed disposition rule not apply

Answer 20

Spousal trusts

Question 21

How is income from a Trust taxed when distributed to beneficiaries

Answer 21

Taxed in hands of beneficiaries

Question 22

Deducting versus designating trust income

Answer 22

If income is paid to beneficiaries, deduction is claimed and beneficiary pays tax

Designating trust income, is when trust is taxed.

Question 23

3 conditions required for designating trust income

Answer 23

Trust is Canadian

Not exempt from tax

Not a specified trust

Question 24

Income tax date for trust, year end and tax payments

Answer 24

December 31 year end

Income tax due 90 days after year end

Must make quarterly instalment

Question 25

Multiple trusts, for example each child

Answer 25

Income can be added and taxed as one

Question 26

How do trusts for minors work

Answer 26

Even though income not paid, it is deemed payable. Deducted from trust and added to minors income

Stay in trust until of age

Question 27

Capital gains in trust

Answer 27

Can not be paid as income to beneficiaries unless specified because it is not considered income

Paid in end to capital beneficiaries

Question 28

Foreign income in a trust

Answer 28

If Canadian, income can be paid as foreign income. Beneficiaries can claim foreign tax credit

Question 29

Qualified disability trusts

Answer 29

If eligible for tax credit, QDT get graduated tax rates

Question 30

Qualified disability trust must meet following conditions 4

Answer 30

Testamentary trust

Resident of Canada

Joint election on T3 with trust beneficiary

Income for year not exceeding dependent tax credit

Question 31

4 situations where a disposition of capital property does not occur at MV

Answer 31

Transfer of capital property to spouse or spousal trust

Transfer of qualified fishing property to child

Transfer of qualified farm property to child

Transfer of personal from individual to corp

Question 32

Clients can transfer their capital property tax free and at ACB to the following recipients

Answer 32

Spouse

Spousal trust

Former spouse in divorce settlement

*** both must be Canadian

** spousal rollover

Question 33

If spousal rollover occurs before transferors death (spousal trust) and spouse sells assets. What happens

Answer 33

Gain/ loss attributed back to transferor

** also any income earned is attributed back