Selecting the right kind of Will & Trust to minimize your tax liability

When discussing available options with your lawyer prior to the preparation of a Will, there are numerous options to consider.  This is a brief summary of the main options available to you:

• Multiple Wills: Multiple Wills may be used to reduce Estate Administration Tax, where assets may be administered without first obtaining a Certificate of Appointment of Estate Trustee.
• Family Trusts: These are trusts established to spread wealth amongst family members, for tax planning purposes. These trusts can be created while you are alive or in your Will.
• Testamentary Trusts: These trusts are created within a testamentary document such as a Will.  They take effect only upon death of the settlor (the settlor is the person who creates the trust).
• Charitable Remainder Trusts: These are trusts established to provide lifetime income for one beneficiary, with the balance of the trust (the “residue”) paid to a designated charity.
• Insurance Trusts: This type of trust deals with the proceeds of a life insurance policy.
• Special Purpose Trusts: These are trusts set up for a specific purpose, such as to protect a fund from a spendthrift beneficiary.
• Alter Ego Trusts: These are available only to persons over 65 years of age.  The trust provides for only a settlor being the beneficiary during his or her lifetime.  These trusts are an effective tax planning measure for some individuals.
• Joint Partner Trusts: These are available only to spouses where one of the spouses is over 65 years of age.  The trust provides for only the spouses being the beneficiaries during their lifetime.  These trusts are an effective tax planning measure for some spouses.
• Cottage Trusts: These trusts are established to maintain a recreational property across generations and amongst members of a potentially extended family.
• Inter Vivos Trusts: These are created during the lifetime of the settlor.  Inter vivos trusts are far different from testamentary trusts (see above), the latter of which only take effect upon the death of the settlor.
• Henson Trust: These are fully discretionary trusts, established to prevent a disabled beneficiary from losing entitlement to provincial disability benefits as a result of inheritance.
• Spousal Trust: This is a type of trust where the surviving spouses is the beneficiary.  This trust allows for the tax-deferred transfer of certain types of assets upon the death of the first of the two spouses.

When should a testamentary trust be used?

Unlike outright distribution of an Estate, a testamentary trust provides that all or part of your Estate shall be held in trust, and administered for the benefit of one or more beneficiaries. A trust can remain in force for a beneficiary’s entire lifetime, or until that person reaches a certain age. A trust is often chosen when:

• The interests and assets of minor children are involved.
• The beneficiaries include children from a previous marriage.
• The beneficiaries include a young adult, and the grantor of the trust wishes to ensure that the beneficiary will not spend his or her inheritance improvidently and without guidance.
• Control over your assets is important.

Our Wills, Trusts and Estates team is ready to help you. To consult with a member of our firm confidentially, please email us or call 613-563-7544.