Estate Planning & Taxation
 Diana Mau, C.A.
 205-8833 Odlin Crescent, Richmond,
B.C. V6X 3Z7
 Tel: 604-279-9270
 Fax: 604-279-8769
 www.dianamau.bc.ca
Estate Planningmisconceptions
 I have given away all my assets to my
children
 I have a will
Estate planning : Non-Tax
Considerations
 To ensure loved ones are taken care of
 Transfer of assets to intended
beneficiaries according to the
deceased’s wishes
 To ensure liquidity – cash to pay funeral
expenses & income taxes
 To avoid family disputes
 To expedite the settlement of estate
Estate Planning – Tax
Considerations
 Prior to Death – tax planning to
minimize taxes such as income splitting,
trusts & estate freeze and will planning
etc.
 Year of Death – to minimize income
taxes payable, probate fees in the year
of death
Tax Planning Ideas while Alive
 Income Splitting
 Estate Freeze
 Insurance
 Trust
Income Tax Rates 2012
Income range
$0 - $37,000
$37,000 - $42,7000
$42,000 - $74,000
$74,000 - $85,000
$85,000 - $85,400
$85,400 - $103,200
$103,200 - $132,400
Over $132,400
Tax rates
20.06%
22.70%
29.70%
32.50%
36.50%
38.29%
40.70%
43.7%
Purposes of Income Splitting
 Taxes payable on a given amount of income
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will be greater if that amount accrues to one
person, lower if that amount of income is split
between two or more people
Example: income of $490,000
Taxes payable one person- $196,000
Taxes payable four persons - $35,500 x4 or
$142,000
Tax savings of $54,000
Income Splitting - Problems
 Attribution Rule – applicable to where
an individual has transferred property to
spouse or common-law partner or
individuals under age 18 and who do
not deal at arm’s length, the income is
attributed back to the transferor
 For spouses & common-law partners,
attribution also applies to capital gains
Income Splitting
 Cash gifts to children 18 or over, no
attribution applies. Income earned is
taxed in the child’s hands. But parents
would be completely losing control over
the money
Income Splitting
 Free or low interest loans made to children 18
or over for producing property income, there
may be attribution if one of the main reasons
for making the loan is to reduce or avoid tax
 Free or low interest loans made to children 18
or over to purchase PR is OK
Income Splitting by gifting
property
 Parents gifting rental property to Children
 Parents are deemed to have the property
disposed at FMV, resulting in capital gains or
recapture of CCA to parents
 Parents would also lose control over the
property
 Property Transfer tax on transfer of title of
property other than PR
Income Splitting of Real
Property
 If the property is occupied by the
children as a PR, then parents can take
back a mortgage on the property as
security. No attribution would apply as
there is no rental income deriving from
the property
Principal Residence (PR)
 In general, capital gains arising on the
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disposition of a PR can be exempted from
taxation
The exempted gain =
Gain x (B + 1) / Y
B is the no. of years since 1971 designed as
PR
Y is the no. of years since 1971 the taxpayer
has owned the property
Principal Residence (Cont 2)
 Since 1982, a family unit can designate
one PR for a particular year
 A PR is an accommodation owned by
the taxpayer that was ordinarily
inhabited in the year by the taxpayer,
his spouse, a former spouse or a child
and is designated by the taxpayer as a
PR.
Change in Use – PR to Rental
 Deemed disposition at FMV on change in use
 Elect deemed not to have commenced rental
provided no CCA is claimed
 The property can continue to be designated
as a PR for up to 4 years
 The 4 year limit can be extended without limit
if you are being relocated for employment
reason to a location where your original
residence is at least 40 km further away from
your new place of employment
Change in use – Rental to PR
 In general, deemed disposition at FMV
on change of use
 You can elect out of the deemed
disposition as long as no CCA is
claimed
 The election also allows to designate
the property as a PR for up to 4 years
How to make the best use of
PR gain exemption
 Children age 19 or over
 Loan to children to acquire a property
 Register a mortgage to parent for
security
 Designate the property as PR for 4
years
Overcoming attribution
 Income attribution on loans or transfer
made to children 18 or over can be
avoided if one can substantiate the
main reason for making the loan is NOT
to reduce or avoid tax
 Example: children use the property
income for education and not returning
the property income to parents
Other Tax Planning Ideas
 Splitting pension income- Commencing 2007,
it is possible to transfer up to 50% of qualified
pension to a lower income spouse
 RESP – Registered Educational Savings
Plans
 TFSA – $5,000 Tax Free Savings Accounts
per year
 Spousal RRSP
Estate Freeze
 Objective: To freeze the value the of
estate for tax purposes at a particular
time
 Arrangements are made for all future
appreciation to accrue to related parties
such as a spouse, children or
grandchildren
Estate Freeze Example
Mr. Chan
Chan Inc
Net Assets
10M
Common shares 2 M
R/E
8M
Estate Freeze Example
Mr.
Chan
Chan son 1
Common
Chan son 2
Common
Preferred
ACB 2 M
Redeem 10M
Chan Inc
Using Section 86 rollover , Mr. Chan’s old common
Shares are exchanged for preferred shares, while
Sons subscribed for new nominal common shares
Benefits of Estate Freeze
 To transfer future growth of a corporation into
the hands of intended beneficiaries with no
immediate tax effects on the transferor
 The beneficiaries will be taxed in income
earned subsequent to the estate freeze
 Multiple use of $750,000 of lifetime capital
gains deduction for qualified small business
corporation
Insurance - Benefits
 Will bypass probate if a beneficiary is
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designated
Creditor protection- exempt from seizure if
the designation is in favour of a life insured’s
spouse, child grandchild or parent
Tax preferred treatment for Whole or
Universal life policies
Privacy- insurance does not flow into the
estate and the probate registry
Insurance declaration- testamentary trust
Insurance Declaration
 To desire to establish an insurance trust
outside the will, the concern was it would be
an inter-vivos trust
 CRA’s position is trusts funded from the
proceeds of life insurance on death of an
individual will be viewed as a testamentary
trust
 A powerful & inexpensive tool to set up a
testamentary trust
Trust- what is a trust?
Settlor
Trustee
Beneficiaries
A trust is a relationship that arises when a settlor
transfer property to a trustee to hold for the benefit of
the beneficiaries.
Trusts
 Settlor is the person who sets up the
trust and make the initial transfer of
property to the Trustee
 Trustee is the person who holds the
formal legal title to the property
 Beneficiaries are persons who will
benefit from the property that is held by
the Trustee
Income splitting of a trust
 A high income individual transfer
investments property to a family trust
 The father is the settlors
 The father & 2 other investment
advisors are trustees to avoid
reversionary trust. The trustees hold title
to the investment property
 The adult children are the beneficiaries
Income splitting of a trust-Cont
 Assuming the father is at the top tax
bracket, the father can save $5,000
every year on $50,000 eligible dividends
if the dividends would be earned by an
adult child if the child has no other
income
 The same tax savings can be achieved
with or without the family trust, but a
discretionary trust can provide the father
more control over the capital & the
End of family trust for minors
 In 2000, the federal Govt ended the tax
benefit of income spitting of private
corporations by introducing the “KIDDIE
TAX”, taxing the dividends from private
corporations to children under age 18
received directly or through a trust at
the top tax rate and restricting personal
credit
Understanding taxation on
death
 What are the CPP & OAS benefits on
death?
 What are the tax consequences on
death?
Termination of CPP on death
 If the deceased has commenced
receiving CPP, CPP benefits to a
contributor will cease upon death
 There are CPP benefits for surviving
spouse or common-law partners &
children
CPP benefits for survivors
 CPP provide benefits for the surviving
family members of a deceased
contributor. Benefits based on
contributions made by contributors.
 Benefits provided in 3 categories
 1. Death benefit
 2. Survivor’s pension
 3. Children’s benefit
You have to apply for get CPP
Benefits (not automatic)
 Retroactive benefits are available for up
to 12 months
CPP Death Benefit
 Is a one-time lump sum payment upon
the death of a qualifying contributor to
the deceased estate.
 The max amount is $2,500.
 Amount included as income of the
estate.
Survivor’s Pension
 Survivor’s pension is a monthly benefit paid
to the legal spouse or common-law partner of
the deceased contributor
 Survivor’s benefit depends upon the
deceased’s contributions to CPP, age of the
surviving spouse, whether the surviving
spouse is supporting dependents and
whether or not the surviving spouse is
receiving any CPP benefits
 Max CPP for surviving spouse age 65 & over,
60% of the contributors’ CPP
Children’s Benefit
 A dependent child is a natural or
adopted child of the contributor and who
is:
 Under the age of 18 or
 Is between 18 to 24 and is in school fulltime
 The children’s benefit is a flat amount,
$225 per month in 2013
CPP Payment Rates - 2013
Type
Avg Amount Max Amount
Survivors < Age 65
378
557
Survivors > Age 65
307
608
Combined survivors 722
& retirement
Children
225
1,013
Death benefit –
one-time payment
2,500
2,275
229
Old Age Security (OAS)
 Federally funded from general revenue
 A social security program designed for
lower & middle income Canadians who
have resided in Canada for a minimum
of 10 years after age 18
OAS Benefit Payment Rates
Type
Average
Monthly
Amount
514
Max
Monthly
benefit
546
Max
annual
income
See
note
GIS, age 65 &
over -single
500
740
16,560
Allowance for
survivors
619
1,161
22,320
OAS for single
Note: 15% clawback from $70,000, no OAS if
Taxation on Death
 No Gift Tax
 No Inheritance Tax
 Probate - probate is a court process that
proves the validity of a will
 Income Tax on Deemed Disposition on
Death
Probate Tax
 Probate tax is proportional to the value
of the estate, so that lower the value of
the estate, the lower the probate tax.
 Probate planning is aimed at reducing
the value of the estate.
Probate Tax in B.C.
 Assets < $25,000
 $0
 $25,000 - $50,000
 0.6%
 Over $50,000
 1.4%
 Filing fees of $208
No Probate Tax
 No probate tax on joint assets &
designated assets as they pass outside
your will and they do not form part of
your estate
Probate Planning
 By having estate assets passing outside wills
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(wills substitutes)
Inter vivos gifts
Inter vivos trusts
Registering assets in joint tenancy with right
of survivorship
Beneficiary designations such as RRSP,
RRIF and insurance
Multiple wills –will discuss in the Will Section
When is probate necessary
 Intestacy – where the deceased died
intestate & there are assets in the
estate
 When an estate is involved in litigation
 Real estate other than joint tenancy with
right of survivorship
 Bank account over $10,000
Income Tax on Death
 Final or Terminal personal income tax
return from January 1 to the date of
death of that year
 Death causes a deemed disposition at
fair market value (FMV) relative to
capital property owned by the deceased
taxpayer (except for those properties
qualifying for spousal rollover)
Income Tax on Death (Cont 2)
 Deemed disposition at FMV may result
in capital gains on capital property or
recapture of capital cost allowance
(CCA) on depreciable property
 50% of the capital gain is taxable
Spousal Rollover
 Exception to deemed disposition on
death at FMV – Spousal Rollover
 No deemed disposition at FMV when
the property is left to a spouse or
common-law partner or to a trust for the
benefit of the spouse or common-law
partner
Tax Consequences of a
Spousal Rollover
 The deceased taxpayer’s capital property is
deemed disposed at adjusted cost base
(ACB) or undepreciated capital cost (UCC) of
depreciable property, resulting in no capital
gain or recapture to the deceased’s terminal
tax return
 The receiving spouse assumes the
deceased’s old ACB or UCC cost for the
property, or simply inheriting the old cost
base of the deceased
Electing out of the Spousal
rollover
 If it is beneficial to have deemed
disposition at FMV, then make an
election to opt out of the rollover
 Election is to be made in respect of
each property
 A partial rollover is available by electing
out of the rollover on some pieces of
property and not others
General Treatment of capital
gain or capital loss
 50% of capital gain is taxable
 50% of capital loss is allowable
 Generally, allowable capital loss can
only be applied against taxable capital
gain, an cannot be claimed against any
other type of income
Treatment of Allowable
Capital loss in the year of
death
 Where an allowable capital loss is
realized in the year of death or a net
capital loss is carried forward into the
year of death, the allowable portion is
deductible against any income in that
year
Death of an RRSP Annuitant
 Assets of unmatured RRSP pass to
someone other than a spouse/commonlaw partner or a qualified child or
grandchild, the FMV of the plan assets
must be included in the annuitant’s
income in the year of death
Death of an RRSP Annuitant –
Refund of Premiums
 A refund of premiums is used to define
assets from an unmatured RRSP on the
death of a RRSP annuitant and which
are paid to a qualified beneficiary
 There are 3 categories of qualified
beneficiaries
3 Categories of Qualified
Beneficiaries
 1. The deceased annuitant’s spouse or
common-law spouse
 2. The deceased annuitant’s financially
dependent child or grandchild
 3. The deceased annuitant’s financially
dependent child or grandchild who is
mentally or physically disabled
Taxation of Refund of
Premiums
 Generally refund of premiums are taxable in
the hands of the recipients unless the funds
are applied to into an RRSP, RRIP or a
qualifying annuity by the spouse/ commonlaw partner or disabled child
 Financially dependent child has an option to
transfer the fund into a term certain to age 18
annuity
RRSP Contributions after
Death
 A taxpayer’s legal representative can
make contributions to a spousal RRSP
on behalf of a deceased taxpayer in the
year of death
 The contribution can be claimed as a
deduction in the deceased tax return
Death of the RRIF Annuitant
 Tax treatment similar to RRSP
 A term “Designated Benefit” replaces
that of refund of premiums in RRSP
No roll-over of RRSP/RRIF to
spousal trust
 Where the terms of a will specify the
transfer to an RRSP/RRIF spousal trust,
the FMV value will be added to the
deceased income
Tax plan for RRSP/RRIF
 Generally, designate spouse or disabled
children as the beneficiary directly on
the RRSP/RRIF contracts
 Doing so enjoy the spousal roll-over and
avoid probate tax
Employee Death Benefit
 $10,000 exemption on death benefit in
recognition of service
 Amount included in the income of the
recipients
 See if part of an employment income be
called death benefit or retiring
allowance
Charitable Giving
 A deceased taxpayer can claim
charitable donations up to 100% of the
taxpayer’s net income in the year of
death
 Excess can be carried back one year up
to 100% of net income
Elective Returns
 Other than the final return, there is an
opportunity to elect 3 additional returns
 Benefits to opt for filing additional tax
returns include lowering the marginal
tax rate, full personal exemptions
claimed in the elective returns
3 Elective tax Returns
 Rights or Things – most common
 Proprietor or Partnership Income
 A Testamentary Trust
Rights or Things
 Include items of income which have
been earned and are receivable at the
time of death
 Examples of Rights or Things are:
 Matured but unclipped coupons
 Dividends declared but unpaid
 Salaries, commission & vacation pay
owing but unpaid
Proprietor or partnership
Income (Fiscal year other than
calendar year)
 Business income for the stub period from the
end of the fiscal year to the date of death
 Example: John dies on May 1, business has
Jan 31 Y/E. Income for the year ended Jan
31 must be included in the terminal return.
Income fro the stub period from Feb 1 to May
1 can be included in a separate return
Testamentary Trust Income
(fiscal year other than
calendar year)
 Income for the stub period from the end of the
fiscal year to the date of death can be
included in a separate return
 Example: Sam was beneficiary of a
Testamentary Trust of May 31. Trust
allocated $15,000 interest income on May 31.
Trust further allocated $10,000 income on
July 1. Sam died Sept 1.
 $15,000 has to be included in the terminal
return and $10,000 in a separate return
Beware of filing final returns
 There are as many as 4 tax returns and
full personal exemptions can be claimed
in each return
 There would be BIG tax savings!
Will Planning - Understanding
your Assets
Wills are generally thought as
means by which individuals
dispose their property at death.
Now, more frequently, the bulk of
one’s estate passes outside his/
her will- Will Substitutes
Will Substitutes
 Making inter vivos gifts
 Transferring property into joint ownership with
right of survivorship such as joint tenancy or
joint bank account
 Transferring assets to an inter vivos trust
 Making RRSPs, RRIFs, and life insurance
payable to a named beneficiary
Will Substitutes - benefits
 A reduction of probate fees
 Protection from wills variation claimants,
transfers via will substitutes may be less open
to being overturned due to transferor lack of
mental capacity or undue influence
 No delay in the distribution of assets
 Privacy – probate is a public process,
allowing anyone to see who gets what
Income tax consequences of
Inter Vivos Transfers
 Although for Probate purposes, assets
disposed prior to death will not be included in
the estate and will not be subject to probate
tax
 Generally, except for roll-over to spouse or
spousal trust, alter ego trust etc, transfers of
properties are deemed to be disposed at
FMV, & will be subject to taxation.
Deemed Disposition will not
be a problem where
 The gifted property consists of cash or
near-cash assets
 The gifted property is a capital property
but has not yet increased in value
 The gifted property was the transferor’s
principal residence
 The transfer is to a spouse or commonlaw partner
Transfer of a Joint Interest
 A simple way to avoid probate tax is to
transfer property into joint tenancy with say a
child. On death, the property passes
automatically to the transferee without any
need for probate
 For tax purposes, CRA’s position is that the
parent has disposed 50% of the parent’s
interest in the property at the time of transfer
Document your gifts
 Inter vivos transfers may be intended gifts or
for other reasons such as to avoid probate
tax or to allow a child to more easily aid a
parent manage the financial affairs as joint
bank accounts
 Family disputes often arise whether the
transfer was really intended as gifts or for
other reasons
 Costly litigations among family members
when the donor is already dead
Risks of transfer of a joint
interest to a spouse
 If the surviving spouse has the bulk of
the assets, the assets ultimately be
distributed according to his/her will,
children may be cut out, particularly in
the 2nd marriage.
Risks of transfer of joint
interest to a child
 Properties are deemed disposed at
FMV, resulting in taxation
 Property Transfer Tax on real property
 Child’s consent will be necessary to
mortgage or sell
 Exposure to child’s creditor
 Loss of tax benefit from testamentary
trust
Risks of transfer of a joint
interest to a child (Con’t)
 If the property is a RP, and the child
(transferee does not live there, ½ of the PR
exemption will be lost for years following the
transfer
 If the property is occupied by the child and his
spouse as their matrimonial home, and if the
child predeceases the parent, the deceased
child’s interest may then pass to his/her
spouse
Transferring assets to an inter
vivos trust
 Property that an individual has transferred to
a trust during his or her lifetime will not form
part of his/her estate at death, and therefore
will not be subject to probate tax
 Is less vulnerable to attack on the grounds of
the settlor’s lack of mental capacity
 Shelter assets from claims of creditors &
dependents
Understanding Trusts
 Settlor is the person who sets up the
trust and make the initial transfer of
property to the Trustee
 Trustee is the person who holds the
formal legal title to the property
 Beneficiaries are persons who will
benefit from the property that is held by
the Trustee
Legal perspective- Trust is not
a separate entity
 Trust is not a separate entity from the
legal perspective
 A trust cannot own property, nor enter
into any legal contract
 Trustee holds the legal title to the
property for the benefit of the
beneficiaries
Tax perspective of trusts
 Tax perspective, a trust is deemed to be
an individual
 A trust has to file a separate tax return
Types of trust
 Testamentary Trust - a trust that arose
as a consequence of death of an
individual
 Inter Vivos Trust – a trust that is
established by a living individual
Testamentary Vs. Inter Vivos
 Testamentary
 Inter Vivos
 Spousal or
 Spousal, common-law
common-law
, Alter Ego (Age 65 &
(rollover of
rollover of properties
properties to trust at
to trust at cost)
cost)
 Other beneficiaries
 Other beneficiaries
(deemed disposition
(deemed disposition
of properties at FMV)
of properties at
FMV)
Taxation of Inter Vivos Trusts
 Inter Vivos trusts are subject to the
highest top tax rate, 43% in B.C.
 No progressive tax rates benefit
 Forego the possibilities of having the
testamentary trusts
 One can mitigate the top rate taxed in a
trust by paying out the income from the
trust to the beneficiaries.
21 year deemed disposition
 Without the deemed disposition rule,
trusts may allow capital gains to
accumulate without tax consequences
 In order to place limits on the deferral
process, a trust is deemed to its capital
property disposed at FMV every 21
years
Deemed disposition
 Spousal & common-law partner trusts –
the deemed disposition occurs on the
death of the spouse or the partner
 Alter ego trusts – the death of the settlor
 Joint partner trusts – at the later of the
the death of the settlor or the
spouse/partner
Why setting up Inter Vivos
trusts if taxed at top tax rate
 Control! Control! Control!
 Avoid the possibility of disgruntled
dependents litigating under Wills Variation
Act (likely in blended families) & leave assets
to your desired beneficiaries
 Protection from creditors
 Privacy – if assets are bequested in a will,
they will be subject to probate which can be
made public
 Minimize the value of the assets in the
probate
Use of Inter Vivos Trust (1)
H1 & W1 both had a standard mirror will, one
is the beneficiary of the other, and if both
died, the estate would go to their children.
W1 died. H1 inherited the whole estate.
H1 remarried W2. W2 has her children.
H1 & W2 prepared s standard mirror will.
H1 died. W2 inherited everything.
Now, guess who would be left out of the
inheritance ?
Use of Inter Vivos Trusts (1)
Answer
 If H1 & W1 would have set up an Inter vivos
Joint Spousal Trust that upon the death of the
last spouse, the assets of the Trust would
have gone to their children.
 Or H1 & W1 would state upon his/her death,
the estate would be rolled over to a spousal
trust. The surviving spouse is entitled to all
income of the trust in his/her life-time, and
upon the surviving spouse’s death, the trust
assets would go to the children.
Use of Inter Vivos Trust (2)
 Mr. X dies, and leaves her with an old
house that Mr. X sold for $2 M.
 Mrs. X annual income is in excess fo
$40,000 that would disqualify her from
GIS & other benefits
 Mrs. X plans to give away her money to
her children so that she would qualify
for GIS. But she is concerned that her
children may not look after her.
Use of Inter Vivos Trust (2)
 If Mrs. X sets up a discretionary Inter
Vivos trust with her and the children as
beneficiaries of the trust
 Mrs. X and two other people are
trustees of the trust
 The trustees can determine the amount
of income distributed to beneficiaries
 In fact, Mrs. X can control the amount of
her income and continue getting her
GIS
Principal Residence
Exemption to Trusts
 A residence held in a trust will qualify for
the PR exemption of the residence was
ordinarily inhabited in the year by a
specified beneficiary.
 The full gain on a PR will qualify for the
PR exemption where the trust has more
than one beneficiary, but only one of the
beneficiaries occupies the residence.
Use of the PR exemption to
trusts
 1: If a trust is establish to hold a residence
exclusively for the benefit of 2 children. Child
A lives in the residence while Child B has her
own PR. The whole residence would qualify
for PR even though Child B does not live in
the residence.
 2: Separate trusts can be used for each
residence
 3. A PR is transferred to a trust to protect
from creditors
Beware of Property Transfer
Tax on transfer of property
 There are special PPT exemptions for
the transfer of a PR among related
individuals, such as spouses, children,
parents, grandfathers, but not brothers
or sisters.
Property Transfer Tax – PR
Exemption
 The transferee (purchaser) and the transferor
(vendor) must be lineal related, either direct
ascendants or direct descendants
 The property must have been occupied by
either the transferee or transferor as their PR
, for a period of at least 6 months prior to the
transfer
 The building accommodate no more than 3
families
Inter-Provincial Tax Planning
using Trusts
 Trusts can be located in a low-tax
province (e.g. Alberta) by having
individual trustees living in Alberta, bank
& investment accounts in Alberta,
meetings of trustees in Alberta etc.
 Alberta individual top tax bracket @
10% vs. B.C. rate of 14.7%
Will Assets
 These are all assets in your wills after
will substitutes
 They are to be distributed according to
the will
 Will assets are the deceased estate
assets and may be subject to probate
tax
Purposes of a Will
 How the testator’s assets are to be
divided
 Appointment of an executor
 Recommendation for the preferred
guardian of any minor children
 Specific powers entrusted to the
executor or any trustee
Purposes of a Will (con’t)
 A will is fundamental to estate planning
as it minimizes expense and delay in
the transfer of assets upon testator’s
death
 While a will communicates the testator’s
intentions, other legislations such as the
Family Law Act must be considered as
wills can be contested
Multiple Wills
 You can have more than one will
 Multiple wills to deal with different property in
different jurisdictions so as to expedite the
administration of such assets
 Can reduce probate tax
 Example; a will in H.K. for H.K. property
Multiple Wills - Example
 B.C. resident with rental properties in H.K.,
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Vancouver and shares of a private corp.
It might be possible to execute multiple wills,
2 in B.C. and one in H.K.
In B.C., one would govern assets which
probate is necessary, e.g. rental property
The other one would govern the non-probate
assets such as shares of a private
corporation that probate is not necessary
One will in H.K.
Taxation of Testamentary
trusts
 Testamentary trusts are taxed using the
same progressive rates that apply to
individuals, rates range from 21% to
43% in B.C.
 Personal credits are not available
 Multiple testamentary trusts would
provide multiple applications of the low
rates to individuals
Taxation of Testamentary
trusts (con’t)
 Multiple trusts can be created if the will
establishes a separate trust for each child (
Mitchell v. MNR 56 DTC 521) and each trust
would have its independent investment
objectives suitable to the needs of the
respective beneficiaries.
 Each trust should be created with separate
terms and condition. To prevent multiple
trusts, CRA may designate the multiple trusts
as a single trust if income from the trusts will
ultimately accrue to the same or group of
beneficiaries
Example of a testamentary
trusts
 In Joe Smith, in his will he states a spousal
trust be set up and that his entire estate be
rolled over to a spousal trust. His spouse is
entitled to all income in her life-time, but upon
her death, the trust assets would go to his
children. This may ensure that if she
remarries, the children are surely looked
after.
Sample of testamentary
spousal trust (Cont)
 The testamentary spousal trust benefits
from progressive tax rates. If the spouse
has too high an income that may affect
her old age security (OAS), i.e. income
in excess of $67,000, the trust can
designate amounts to be deemed not
paid when they are in fact paid to the
beneficiary. The trust will include the
amount as trust’s income.
Testamentary trusts (cont)
 If Joe Smith is wealthy enough, he may
consider to set-up multiple trusts, one
for each of his children so that there
would be multiple use of progressive tax
rates & have experienced trustees to
look after the trust
 Assets willed to testamentary trusts will
not reduce value of the estate and
hence will not reduce probate fees
Incapacitating Issues
 A will is effective only upon death
 Individuals does not automatically have the
right to handle spouse’s legal & financial
affairs in the event that the spouse is not able
to because of illness or unavailable
 Without proper legal documents, the healthy
spouse has to apply to the court for
permission to act on behalf of the
incapacitated spouse
Two types of Power of
Attorney
 Person’s property- Enduring Power of
Attorney
 Person’s health – Power of Attorney for
Personal care or a Living Will
Action Plan
 My experience with my parents estates
 Power of Attorney / Representation
Agreement & will for everyone
 Trusts are not just for the rich. Trusts
can be used for individuals to access
GIS & other benefits and PR trusts
 Rich can consider multiple wills & trusts
 You will benefit from a good accountant.
Estate Planning & Taxation
 Diana Mau, C.A.
 205-8833 Odlin Crescent, Richmond,
B.C. V6X 3Z7
 Tel: 604-279-9270
 Fax: 604-279-8769
 www.dianamau.bc.ca