CH 8 - Taxation Aspects of Personal Trusts

Question 1

In determining the residency of the trust, the courts often consider these factors: (4)

Answer 1

• residence of the majority of the trustees;
• property location;
• residence(s) of the beneficiaries;
• residence of the settlor.

Question 2

3 types of testamentary trusts

Answer 2

1- Graduated Rate Estate (GRE) (estate trust
2. Qualified Disability Trust (QDT)
3. Other Testamentary Trust

Question 3

Uses of Inter Vivos
Trusts (3)

Answer 3

Provide for incapable individuals.
Provide creditor-proofing and reduce probate fees.
Split income with family members.

Question 4

Tax treatment of revocable trust

Answer 4

income and capital gains derived on the trust property are attributed back to the settlor

Question 5

21 year deemed disposition rule does not apply to

Answer 5

spousal trusts

Question 6

The Income Tax Act defines a “preferred beneficiary” as a beneficiary who is a resident in Canada, mentally or physically impaired, entitled to the disability tax credit, and one of the following: (3)

Answer 6

• the settlor, spouse or former spouse (including a common-law spouse);
• the child, grandchild or great-grandchild of the settlor;
• the spouse of the child, grandchild or great-grandchild of the settlor.

Question 7

The preferred beneficiary election may be useful for physically or mentally impaired beneficiaries who have one or more of the following characteristics: (3)

Answer 7

• low or zero marginal tax rate
• no immediate need for income
• asset management skills that are inferior to those possessed by the trustee

Question 8

trust income that has not been paid to a minor beneficiary in the year is deemed payable to the minor if: (4)

Answer 8

• the trust is a resident in Canada throughout the year;
• the beneficiary is under 21 years of age at the end of the year;
• the beneficiary’s right to income is vested before the end of the year and did not become vested due to the
  exercise or non-exercise of a discretionary power;
• is not subject to any future condition other than the condition that the beneficiary survives to an age of not more than 40 years

Question 9

is a trust a legal entity?

Answer 9

NO

Question 10

Is at rust required to file separate tax returns?

Answer 10

YES