19%20Trusts%20and%20Estate%20Planning

19%20Trusts%20and%20Estate%20Planning - Chapter 19 Trusts...

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Chapter 19 – Trusts and Estate Planning
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Introduction • Trusts are an entity under the ITA, and subject to taxation • Trusts are also a powerful tool used in tax planning, as they can: – Allow for the splitting of large amounts of property income between family members; – Be used to access the deferral and income splitting opportunities available through estate freeze transactions – Can play an important role in many other tax planning and business arrangements.
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Introduction • While trusts have been an important tax planning tool, the government has been taking steps to make them more difficult to use, such as: – Introduction of kiddie tax – Elimination of preferred beneficiary election – Trust migration rules – Proposals that affect offshore trusts • Trusts have been discussed previously: RRSP’s, RPP’s, RESP’s, etc all involve assets that are held in trust. • This chapter focuses on personal trusts that individuals may form in a tax or estate planning situation.
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Basic Concepts • What is a personal trust? – Legal perspective • A personal trust is a relationship that arises when a settlor (person with assets) transfers property to a trustee to hold e property and administer it for the exclusive benefit of the the property and administer it for the exclusive benefit of the beneficiaries of the trust. – Beneficiaries can have an interest in just the income from the property, just the capital value of the property, or both. – Each role has a separate legal function, but one person can fulfill multiple roles – for example, the settlor could also be the trustee. • A trust is not a separate entity from a legal perspective, it cannot hold property, enter into contracts, or be involved in a legal action. These rights and obligations belong to the trustee.
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Basic Concepts • What is a personal trust? – Tax perspective • A trust is a separate entity from a tax perspective. • It is deemed to be an individual for tax purposes, and a trust will have to determine Taxable Income, Tax Payable, and file an income tax return called a T3 return. – Trusts and estates • In the ITA, the term estate means the property of a deceased person, and the Act uses the terms Trust and Estate to mean the same thing. • As far as the estate goes, the Act is referring to the income earned on property of a deceased person between the date of death, and the date of distribution to the beneficiaries. This income is considered to be income of a trust, and a trust tax return (T3 return) is filed to report it and pay the taxes on it.
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Establishing a Trust • Trusts are established by developing a trust agreement, normally in writing. • In order to determine whether or not a trust has been created, there are three certainties that the courts will look at: ertainty of intention: The person creating the trust intended to – Certainty of intention: The person creating the trust intended to do so – a written document will establish this. – Certainty of property: The property that is to be held in the trust
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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19%20Trusts%20and%20Estate%20Planning - Chapter 19 Trusts...

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