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New tax rules to apply to Canadian trusts

When planning your estate, you undoubtedly want to take steps to minimize probate fees, avoid unnecessary taxes and protect assets for heirs and beneficiaries. Creating a trust can be an excellent way of ensuring those outcomes.

Certain kinds of trusts benefit from paying taxes at a lower graduated rate. However, if your trust has been paying tax at a lower rate, then you may need to update your estate plan to account for changes that are expected to take effect two years from now.

Recently, the Canadian government announced that certain trusts that have benefited from graduated taxation will have to pay at the top federal rate -- 29 per cent -- starting in 2016.  While some estates may meet special conditions that allow for the graduated tax rate to continue for an additional three years, other trusts may see a tax increase of more than $15,000 a year.

Additionally, the accrued gains of qualifying trusts will be taxed not in the trust, but in the hands of the trust beneficiary upon death.

If you are uncertain of how, if at all, these changes will affect your estate, then you should speak with an estate planning lawyer.

The government also announced that more flexibility will be allowed regarding the donation tax credit. Depending on the specific situation, an estate may claim the credit in the year the deceased dies or in the year preceding the death. The estate may also use the credit in the taxation year when the donation was made, carry the credit back to a previous year, or carry the credit forward for a period of up to five years.

A recent article in the Financial Post discusses a few other new tax rules that may be relevant to your situation as you plan your estate for 2015.

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