Using Trusts in Estate Planning

Statera Financial Planners |

There are two main types of trusts:

  • Testamentary trusts

A testamentary trust is created in your will and takes effect upon your death. The assets relating to a testamentary trust form part of your estate, so they are subject to any estate fees or taxes that apply. The trust can be changed at any time before your death by simply having a new will prepared.

  • Living trusts

When you establish a living trust (also known as an inter vivos trust), property ownership is passed immediately to your beneficiaries. You can add more property to the trust over time. Because the transfer of ownership is during your lifetime, the trust assets do not form part of your estate and are not subject to probate.

The decision on whether to set up a living trust or a testamentary trust depends on many factors, including your need for the assets during your lifetime. Statera Financial Planners, along you’re your lawyer and other professional advisors can help you with the best strategy for your specific estate planning needs and goals.



7 common uses for trusts

Whether it’s best to establish a trust during your lifetime or upon your death will depend on the intended use and your personal situation.


1. You have children from a previous marriage

If you remarry, a trust can provide support for your spouse during their lifetime, while ensuring that your children from a previous marriage eventually inherit any remaining assets.


2. Your spouse lacks financial expertise

If your spouse needs help with money management after you die, a testamentary trust allows a qualified trustee to manage the trust assets on behalf of your spouse.


3. Your spouse or child is disabled

A trust can be used to ensure a disabled spouse or child receives an appropriate level of care and has sufficient assets to maintain this care after you die.


4. You want to provide a gift to minors

You can use a trust to provide income to minor beneficiaries (for example, children or grandchildren) in their younger years and to pay out the capital when they reach a specified age.


5. Tax planning

Income earned in an inter vivos or living trust is taxed at the highest marginal tax rate, but any trust income that is distributed to adult beneficiaries is taxed in their hands. So, if your beneficiaries are in a lower tax bracket, the investment income can be taxed at their lower rate.

Beginning in the 2016 tax year, testamentary trusts will no longer enjoy graduated tax rates. Instead, income earned in a testamentary trust will be taxed at a flat rate of 29%, the top federal personal tax rate, plus the top provincial or territorial tax rate. As a result, there will no longer be an opportunity to pay less tax by retaining income in a testamentary trust before paying it out to beneficiaries in the top tax bracket.

However, an estate that arises upon death and is a testamentary trust will be able to use the graduated rates for 36 months from the date of death. Graduated rates will also continue to apply to a trust if the beneficiaries are eligible for the federal Disability Tax Credit.


6. You want to provide a future gift to charity

You can use a trust to provide trust income to your beneficiaries for their lifetime. Upon their death, the remaining money in the trust is donated to the charity you’ve specified.


7. You want to bypass probate

With a living trust (but not a testamentary trust), you bypass probate for any assets held in the trust, and gain the certainty of knowing that assets are transferred and distributed as you intended. This also offers greater privacy for trust assets, as probate is a public process and anyone can access these records.



Get professional advice in setting up a trust

Trusts are sophisticated arrangements that can involve a number of tax and estate planning issues. A trust must be properly structured to achieve your estate planning goals. Get professional advice before taking action.


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