Individuals living in Ontario who are looking into planning their estate may wish to learn about the different types of trusts in existence. One type is a personal trust known as a testamentary trusty.
A testamentary trust is one that is created by an individual before they pass away, and the terms of the trust are established by either a court order or the individual’s will. On the day that the individual dies, the trust goes into effect. These trusts do not include those that were contributed to by anyone other than the deceased individual.
In early 2014, it was announced that the taxation of testamentary trusts would be changing in Canada. The graduated rate taxation on these trusts is set to be eliminated on Jan. 1, 2016. There will, however, still be income tax benefits to using a testamentary trust. For example, these trusts can still be used to leave enough income to a beneficiary by making the income payable to them as an addition to other taxable income. Additionally, the use of ‘estate fund” trusts can allow for income splitting or income sprinkling, allowing a trustee to distribute income in a group.
Someone who is considering planning out their estate could choose to seek assistance from an experienced lawyer. A lawyer could help a client to determine what type of trust is the most beneficial for their situation and could help a client to understand new changes regarding certain trusts. Additionally, a lawyer could help a client file the necessary documentation.
Source: Canada Revenue Agency, “Types of trusts“, September 30, 2014