In 2013, the Department of Finance proposed to eliminate most
tax benefits that have traditionally been available to certain
trusts formed on the death of an individual (in this article
referred to as "Testamentary Trusts") so that
Testamentary Trusts, which include an individual's estate, as
well as trusts created under the terms of an individual's will
for his or her spouse and/or other persons, would be taxed in a
manner similar to trusts that are not Testamentary Trusts.
Notwithstanding much critical commentary, the 2014 budget
announced plans to implement the proposals. By December 16, 2014,
Bill C-43, Economic Action Plan 2014 Act, No. 2, was enacted as the
law of the land, though its application in connection with
Testamentary Trusts will be delayed until 2016.
As bad as the original proposals were thought to be, the final
legislation not only implemented the proposals but went far beyond
their original scope in ways that will broadly and generally
negatively impact traditional will planning as well as planning
involving so-called "life time trusts" (these are
self-benefit trusts, alter ego trusts and joint partner trusts, but
are not ordinary discretionary family trusts typically set-up for
an estate freeze or other planning).
Although there is no way to adequately address the legislative
changes in this article, some of the more critical changes
impacting Testamentary Trusts are highlighted below:
the income of a Testamentary Trust
that is a spousal trust in the year of death of the beneficiary
spouse will be deemed to be the income of the deceased beneficiary
spouse and not the spousal trust. This rule may result in
significant inequitable consequences in situations where the
deceased beneficiary spouse's heirs (who effectively end up
paying the tax) are different from the residuary beneficiaries of
the spousal trust (who will receive the assets of the spousal
access to many traditional tax saving
testamentary tax planning practices will only be available to a
"graduated rate estate" ("GRE"). Only estates
of deceased persons that meet certain criteria can qualify as GREs
and GREs can only last to the first 36 months of a qualifying
estate. Other Testamentary Trusts, such as spousal, family or
insurance trusts formed under a decedent's will will not
qualify as GREs, though certain trusts formed under a will for the
benefit of disabled persons will, with limitations, be able to
qualify as GREs; and
the ability of a Testamentary Trust
to enjoy the annual savings that come from being taxed at graduated
tax rates (about $23,000 on the first $135,000 of income earned in
Ontario in 2014) will only be available to GREs, which ,as noted
above, can only exist for the first 36 months of a qualifying
Another significant problem with Bill C-43 is that it was
enacted without provisions that would "grandfather"
situations where wills can no longer be changed, for example,
because the maker of the will is dead or incapacitated.
Consequently, in these situations it may not be possible to take
any steps to address the legislative changes, which could give rise
to adverse tax results and, in some situations, potentially lead to
We are here to help. To identify how this
legislation may impact your estate and succession plans, you should
consider reviewing your wills (particularly if they contain spousal
trusts) with your tax and/or estate advisors before Bill C-43 comes
into effect on January 1, 2016. Also, since the changes enacted in
Bill C-43 will impact lifetime trust planning, if you have employed
such trusts in your planning you should meet with your advisors to
review whether those trusts will continue to meet your planning
This article was previously published in the January 2015
edition of The Estate Planner by Wolters Kluwer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).