16 - Estate Planning Strategies Flashcards
4 primary duties of trustee
Conflict of interest
Standard of care
Delegation of duties
Impartiality
3 certainties must exist for a trust
Certainty of intention
Certainty of subject - trust property delivered to trustee
Certainty of objects - beneficiaries clearly described
testamentary trust
Written in will and comes into effect after testator death
Inter vivos trusts are set up
During settlors lifetime
Is a trust default to be revocable or irrevocable
If not clearly stated, assumption is irrevocable
4 disadvantages of inter vivos trust
Complicated set up
Legal and accounting fees
Annual taxes
Settler may take money back
What are express trusts
Ones written like in a will
What are resulting trusts
May not be written
A persons financial or labour contribution presumes a trust
I.e. 2 friends putting $100k in to buy property
What is a constructive trust
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
Life insurance trusts
Proceeds of one or more insurance policies
Charitable remainder trust
Settlor can receive income from the trusts but when they die remainder goes to charity
Spousal trusts
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
21 year rule for trusts
Taxed every 21 years, as if disposed and re-acquired
4 reasons for setting up an inter vivos trust
Taxes
Asset management, I.e. estate freeze using a discretionary trust
Asset protection, from creditors and beneficiaries
Avoid deemed disposition and probate fees
For a trust do beneficiaries have to be named
No they can be class I.e. grandchildren
Provisions in a trust agreement
Settlor and trustees identified
Define property to be given and accepted by trustees
Income and capital beneficiaries specified
Purpose clearly defined
Indemnification of trustees
Purely discretionary trust
Trustee has absolute discretion to distribute income and capital to any beneficiaries
Non discretionary trust
Distribution of income and capital by strict terms set out by settlor
How to avoid the 21 year rule
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
When does 21 year deemed disposition rule not apply
Spousal trusts
How is income from a Trust taxed when distributed to beneficiaries
Taxed in hands of beneficiaries
Deducting versus designating trust income
If income is paid to beneficiaries, deduction is claimed and beneficiary pays tax
Designating trust income, is when trust is taxed.
3 conditions required for designating trust income
Trust is Canadian
Not exempt from tax
Not a specified trust
Income tax date for trust, year end and tax payments
December 31 year end
Income tax due 90 days after year end
Must make quarterly instalment
Multiple trusts, for example each child
Income can be added and taxed as one
How do trusts for minors work
Even though income not paid, it is deemed payable. Deducted from trust and added to minors income
Stay in trust until of age
Capital gains in trust
Can not be paid as income to beneficiaries unless specified because it is not considered income
Paid in end to capital beneficiaries
Foreign income in a trust
If Canadian, income can be paid as foreign income. Beneficiaries can claim foreign tax credit
Qualified disability trusts
If eligible for tax credit, QDT get graduated tax rates
Qualified disability trust must meet following conditions 4
Testamentary trust
Resident of Canada
Joint election on T3 with trust beneficiary
Income for year not exceeding dependent tax credit
4 situations where a disposition of capital property does not occur at MV
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
Clients can transfer their capital property tax free and at ACB to the following recipients
Spouse
Spousal trust
Former spouse in divorce settlement
*** both must be Canadian
** spousal rollover
If spousal rollover occurs before transferors death (spousal trust) and spouse sells assets. What happens
Gain/ loss attributed back to transferor
** also any income earned is attributed back
