Beginning in 2016, all trusts (whether created during an
individual's lifetime, or in their will) will be subject to tax
at the highest marginal rate unless the trust meets one of two
exceptions. The first exception applies if the trust qualifies as a
"graduated rate estate" (GRE). This exception, which has
been discussed in previous posts, will allow most estates to have
access to graduated rates of taxation for up to 36 months, if
certain requirements are met. The second exception applies where
the trust qualifies as a "qualified disability trust"
(QDT). This exception will allow certain trusts that are created
for the benefit of a person with a disability to have access to
graduated rates of taxation.
The requirements that must be met in order for a trust to
qualify as a QDT are as follows:
The trust must be a testamentary trust that arose on
and as a consequence of death. This means that a trust
created during the lifetime of the taxpayer for the benefit of a
disabled child will not qualify.
The trust must be resident in Canada. This
requirement should be easy to meet where the trustees all reside in
Canada and manage the trust from Canada.
The trust must elect jointly with the eligible
beneficiary to be a QDT. This may be difficult in cases
where the beneficiary does not have capacity to make the election.
In this case, a court appointed committee may be required to make
the election on behalf of the beneficiary.
The beneficiary must qualify for a disability tax
credit under the Income Tax Act. Only individuals with a
severe mental or physical impairment that impacts their basic
activities of daily living, and that has lasted for over a year,
will qualify for the disability tax credit.
The beneficiary cannot make a QDT election in respect
of any other trust. This means that if the parents of a
disabled child each created a testamentary trust for the benefit of
their child, and died at the same time, only one of the trusts
would qualify as a QDT. The second trust would get taxed at the
highest marginal rate.
It may be worth revisiting estate plans that involve a disabled
beneficiary to make use of this new planning opportunity, where
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.
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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.
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