Testamentary Trusts

Trusts are useful for a wide variety of estate planning purposes such as:

• holding assets for minor children until they reach the age of majority
• managing assets for beneficiaries who lack the interest or ability to do so
• protecting assets from spendthrift beneficiaries
• protecting assets from the claims of disgruntled family members
• maintaining privacy
• centralizing management of assets and ensuring continuity
• ensuring that children from a previous marriage are provided for.

Testamentary trusts are established upon death, usually by express directions set out in a will. Many people use testamentary trusts to provide for their loved ones after their death.

In some cases, testamentary trusts are used to minimize taxes by splitting income between the trust and the beneficiary. A testamentary trust has the advantage of paying tax at the usual marginal rates applicable to individuals. Other tax advantages of a trust are:

• reducing exposure to probate tax
• inter-provincial tax planning
• sheltering investment income of immigrants to Canada during their first five years in Canada
• deferral of capital gains
• multiplying family access to the qualified small business deduction.

A trust that is not a testamentary trust is an inter vivos trust. Inter vivos trusts are not treated as individuals for tax purposes and therefore do not enjoy the same favourable treatment as testamentary trusts.

Testamentary Trusts

Trusts are useful for a wide variety of estate planning purposes such as:

• holding assets for minor children until they reach the age of majority
• managing assets for beneficiaries who lack the interest or ability to do so
• protecting assets from spendthrift beneficiaries
• protecting assets from the claims of disgruntled family members
• maintaining privacy
• centralizing management of assets and ensuring continuity
• ensuring that children from a previous marriage are provided for.

Testamentary trusts are established upon death, usually by express directions set out in a will. Many people use testamentary trusts to provide for their loved ones after their death.

In some cases, testamentary trusts are used to minimize taxes by splitting income between the trust and the beneficiary. A testamentary trust has the advantage of paying tax at the usual marginal rates applicable to individuals. Other tax advantages of a trust are:

• reducing exposure to probate tax
• inter-provincial tax planning
• sheltering investment income of immigrants to Canada during their first five years in Canada
• deferral of capital gains
• multiplying family access to the qualified small business deduction.

A trust that is not a testamentary trust is an inter vivos trust. Inter vivos trusts are not treated as individuals for tax purposes and therefore do not enjoy the same favourable treatment as testamentary trusts.