February 12, 2021
Estate planning is a customized process; the goal is to create a plan that’s best for a person’s unique situation. And while all estate plans share certain fundamental benefits and building blocks, there are special situations, such as owning a business, disabled beneficiaries, or blended families, that require more complex planning. But there are legal solutions to these special estate planning situations. One of the most useful: trusts. A “trust” is a legal tool that separates legal and beneficial ownership: a trustee holds assets for the benefit of one or more people, for a specific purpose (for example, for the benefit of your children, to be used for their education). Trusts can offer an estate planning solution for a wide variety of special estate planning situations, including:
Here’s how two kinds of trusts, testamentary trusts and inter vivos trusts, each offer a solution to special estate planning situations.
1. Testamentary Trusts
A testamentary trust is created in your Will and comes into effect only once you (the Testator) have died. Testamentary trusts can help you protect both your loved ones and your assets after your death.
Minors, Spendthrifts & Capacity Issues. It’s important to ensure that any inheritance you leave to minor children is left in a trust (often, a testamentary trust) so the assets are available for their benefit until they reach an age at which they can manage them on their own (often 25 or 30). A testamentary trust can also protect assets from beneficiaries who, though not minors, might need help managing money (spendthrifts), where beneficiaries are disabled or have capacity issues (often, a “Henson Trust”), or to protect the assets from an adult child’s relationship breakdown and creditors.
Blended Families. Spouses can create special testamentary trusts to benefit each other, allowing for deferral of capital gains tax for assets transferred into the trust until the surviving spouse’s death. This can be particularly useful in a second marriage or blended family situation, where it’s important to one spouse to maintain control over the ultimate disposition of assets after their own death. For example, you might leave your assets to your second spouse in trust, with the assets going to your children from your first marriage after your second spouse’s death.
Tax Benefits. In addition to important and valuable non-tax benefits, testamentary trusts can enable your beneficiaries to income-split with low or non-income-earning members of their own families, which can represent significant tax savings. For example, you leave assets to your adult child in a trust for their benefit and the benefit of their own children; your child can use income generated in the trust for their children’s benefit, which is then taxed in your grandchildrens’ hands – minimizing the tax payable on it. If you leave your adult child everything outright, without a testamentary trust, all the income the inheritance generates is added to your child’s income and taxed at their higher graduated rate.
2. Inter Vivos Trusts
An inter vivos trust is created during your lifetime. There are several forms of inter vivos, or “living”, trusts. Alter Ego and Joint Partner trusts are two of the most useful forms of inter vivos trusts to add flexibility to estate planning, and can help achieve personal planning objectives through any future incapacity and beyond. Only you (or your spouse or partner) are entitled to the trust assets and income they generate during your lifetime. On your death (or on the last to die in the case of a Joint Partner trust), the remaining capital is distributed to your chosen beneficiaries, which, with proper planning, could be coordinated with your Will. You can consider using an Alter Ego or Joint Partner trust as part of your estate plan if you satisfy certain conditions. While many benefits of testamentary trusts can generally be achieved using an Alter Ego or Joint Partner trust, there are a number of additional key benefits of using an Alter Ego or Joint Partner trust as part of an estate plan, including:
Tax Deferral. You can transfer the assets into the trust on a tax-deferred basis during your lifetime.
Probate Avoidance. Assets in an Alter Ego or Joint Partner trust won’t form part of the assets of your estate under your Will, so upon your death, the trustees won’t need to obtain probate to administer the trust assets or to transfer them to your beneficiaries. Avoiding probate avoids the associated probate taxes on the trust assets, its public nature, and the potential delays and costs of any court process.
Continuity of Asset Management. The trustees can continue to manage the trust assets in the event of your incapacity.
Please contact your McInnes Cooper lawyer or any member of our Estates & Trusts Law Team @ McInnes Cooper Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
© McInnes Cooper, 2021. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Email us at [email protected] to request our consent.
Sep 29, 2023
On September 21, 2023, Bill C-56, the Affordable Housing and Groceries Act, passed first reading. If passed, the Act will give developers of…
Sep 20, 2023
Can a business providing both exempt supplies and taxable supplies of goods and services claim Input Tax Credits (ITCs) under the Excise Tax Act…
Sep 11, 2023
Owning your own business offers many opportunities. But it also carries inherent risks, including exposure to personal liability. These three…
Apr 25, 2023
Most initially believed the Underused Housing Tax Act would impose reporting and tax obligations only on non-Canadian and non-permanent…
Apr 13, 2023
A Will is a key ingredient of any estate plan - and one of the most important documents a person ever signs. It allows a person to control how…
Jan 19, 2023
We updated this publication on March 29, 2023. Beginning April 30, 2023, both Canadian and non-Canadian trustees, partners of a partnership,…
Jul 12, 2022
Lawyers and accountants advise clients on options for organizing their personal and business affairs in a tax-efficient way. Clients enter into…
Jun 24, 2021
Many employers use equity compensation plans like employee stock option plans to attract, motivate, and retain talent. One reason stock options…
Mar 31, 2021
Close to five million Canadians who didn’t usually work from home, did so in 2020 because of the COVID-19 pandemic. Even as public health…
Feb 12, 2021
An ever increasing number of people originally from China now reside in Canada. It is more important than ever to recognize and understand the…
Dec 10, 2020
The current state of closed Canadian borders and stringent travel restrictions in efforts to contain the COVID-19 pandemic is likely to be the…
Dec 7, 2020
All trusts that continue to be in effect past December 31, 2020, will be subject to new reporting requirements and harsh non-compliance…
Oct 21, 2020
For business owners, estate planning is directed at protecting the business’s legacy as well as the financial security of both family members…
Oct 20, 2020
Estate planning is directed at protecting your assets and your loved ones from creditors and unnecessary income tax or probate fees, and your…
Jan 30, 2020
NOTE: The new tax rules for employee stock option plans take effect on July 1, 2021. Learn more at Limited Options: New Employee Stock Option…
May 21, 2019
We updated this publication on February 17, 2023. As of June 13, 2019, private companies incorporated under the Canada Business Corporations…
Jan 31, 2019
On January 25, 2019, the Supreme Court of Canada considered, for the first time, “Henson trusts” and the nature of a disabled…
Sep 10, 2018
As of January 2019, incorporating a limited company in N.S. will be more economical. On September 7, 2018, the N.S. government announced it’s…
Jun 12, 2018
This publication has been updated as at July 8, 2022. Changes to the Canada Business Corporations Act (CBCA) over the past several years have…
Apr 2, 2018
Equity compensation plans are a valuable and versatile tool for many corporations, from early-stage startups to established blue-chips.…
Jan 12, 2018
Whether a provincial court will grant police a “production order” under the Criminal Code of Canada requiring a non-Canadian company to…
Dec 23, 2017
Parents often threaten their children that if their behaviour did not improve they will get a lump of coal in their Christmas stockings. On…
Dec 22, 2017
Blockchain technology has already been a transformative force in a number of sectors. Its most prominent use to date has been as the…
Nov 20, 2017
October 2, 2017 marked the end of the consultation period relating to the taxation of private corporation proposals the Department of Finance…
Nov 2, 2017
On October 19, 2017, the Toronto Stock Exchange (TSX) announced it had adopted amendments to its Company Manual. Originally proposed in Spring…
Sep 22, 2017
Canada’s most important trading relationship is – in all likelihood – about to change: the current U.S. administration has put the future…
Aug 28, 2017
Recently, the Federal Court of Appeal confirmed that a tax debtor’s bankruptcy does not extinguish the federal Crown’s priority to proceeds…
Aug 16, 2017
In the not-so-distant past, Canadian enforcement of its anti-corruption and anti-bribery legal regime has been relatively laid-back. But the…
Aug 4, 2017
On July 18, 2017, Canada’s Minister of Finance released proposed changes to the Income Tax Act (Canada) that, if implemented, will mark one of…
Jul 17, 2017
A corporation does not always sail in calm or safe waters. Cash shortages, unattainable or unmet goals, Board disagreements over the best course…
Jun 23, 2017
On June 23, 2017, the Supreme Court of Canada decided that in a contest between the choice of forum clause in Facebook’s online terms of use…
Apr 21, 2017
In three years (lightning speed in the law), medically assisted dying went from being illegal to being legal. A great deal has changed, a great…
Apr 20, 2017
On April 13, 2017, Canada’s federal government introduced legislation that, if passed into law, will legalize recreational cannabis in Canada.…
Apr 17, 2017
Recreational cannabis isn’t legal yet - but much of the associated stigma is already gone, usage is up and employers are feeling the workplace…
Jan 20, 2017
Connections between Canadians and the U.S. have never been as numerous or transparent as they are now: many Canadians own U.S. property, have…
Dec 22, 2016
Effective January 1, 2017, the kinds of trusts that can claim the Principal Residence Exemption (PRE) will be limited. Now, the PRE allows…
Dec 14, 2016
On December 9, 2016, the Supreme Court of Canada clarified when a court can rectify a transaction that has had unintended tax consequences for…
Nov 22, 2016
Canada’s most important trading relationship might undergo some change with the results of the 2016 U.S. election. Facilitating cross-border…
Sep 12, 2016
On September 9, 2016, the Supreme Court of Canada decided in Musqueam Indian Band v. Musqueam Indian Band (Board of Review) that an Indian band…
Aug 15, 2016
The standards expected of market participants are steadily increasing in response to demand to address white collar crime – including…
Jun 30, 2016
As of June 25, 2016, provincially regulated workers and employers in Nova Scotia, Quebec, BC and Saskatchewan can participate in Pooled…
Jun 6, 2016
On June 3, 2016, the Supreme Court of Canada, in two related decisions, strengthened the legal protection of solicitor-client privilege in…
Jun 6, 2016
On June 30, 2016, amendments to National Instrument 45-106 Prospectus Exemptions and related changes to Companion Policy 45-106 Prospectus…
May 31, 2016
You’re on a tight timeline to issue a press release. You finish your draft and ‘cut & paste’ your standard “forward-looking…
Apr 15, 2016
On April 14, 2016, Canada’s federal Justice Minister proposed legislation setting out the conditions that a person wishing to undergo…
Apr 12, 2016
Federal Budget 2016 proposed to significantly reduce the benefit of and access to the Small Business Deduction. The Small Business Deduction…
Oct 23, 2015
Subsection 55(2) of the Income Tax Act (Canada) is an anti-avoidance provision intended to prevent capital gains stripping by deeming an…
Oct 23, 2015
Incorporation offers legal advantages to sole proprietors of small businesses, including certain tax advantages. However, when a corporation…
Oct 19, 2015
Access to sufficient capital to fund operations, research and development, and other costs is a key challenge for start-ups and for some small…
Jul 30, 2015
Note: On June 9, 2016, the Supreme Court of Canada dismissed the National Alliance’s application for leave to appeal the New Brunswick Court…
Feb 9, 2015
NOTE: On April 14, 2016, the federal government proposed legislation setting out the conditions that a person wishing to undergo…
Sep 16, 2014
This publication has been updated as at August 25, 2022. Many believe that only public companies or large, established companies with many…
Sep 11, 2014
The Canadian federal government has been concerned for some time about “treaty shopping” by non-residents – the practice of non-residents…
May 22, 2014
This publication has been updated as at February 17, 2021. Trusts offer a very useful estate planning solution for a wide variety of special…
Dec 16, 2011
In a unanimous decision rendered by Justice Rothstein, the Supreme Court of Canada today dismissed the appeal of Copthorne Holdings Limited,…
Mar 7, 2011
Effective April 1, 2011, the fishing licensing policy for the Atlantic Canada and Quebec inshore fishery will change to allow inshore fishing…
Subscribe to McInnes Cooper to stay current with our leading insights on legal updates, trends, news, events, and services.