Parliament recently enacted significant changes to the taxation
of estates and trusts and charitable giving on death beginning in
2016. These changes include beneficial income tax treatment
for qualified disability trusts or "QDTs". The
purpose of this publication is to briefly summarize these important
changes and the impact they may have on your estate plan.
Income Taxed at Graduated Rates
At the present time, the income of a trust established by a will
(a "testamentary trust") is subject to tax at graduated
rates, that is, the rate of tax increases as the amount of the
trust's income increases until the trust's income exceeds
$150,000. Income greater than that amount is taxed at the top
marginal rate of 45.8% (in British Columbia, to be reduced in 2016
to 43.7%). Beginning in 2016, the income of most testamentary
trusts will be subject to tax at the top marginal rate.
However, the income of QDTs will continue to be taxed at graduated
Qualified Disability Trusts
A QDT is a testamentary trust resident in Canada which has a
beneficiary who is eligible for the disability tax credit under the
Income Tax Act (Canada). In order to qualify as a
QDT, the testamentary trust must make a joint election with that
beneficiary. A beneficiary may make only one such election
with respect to a single trust. The election must be made
annually, and may be made for as many years as the trust
A QDT is eligible to have its income subject to tax at graduated
rates. In circumstances where any of the capital of a QDT is
distributed to someone other than a beneficiary who is eligible for
the disability tax credit (e.g. where the trust document names
contingent beneficiaries after the death of the disabled
beneficiary), there are complex rules that provide for the claw
-back of any tax savings resulting from the income of the QDT being
taxed at graduated rates.
QDTs may be a valuable estate planning tool for families of
disabled persons. Bull, Housser & Tupper LLP's Wealth
Preservation Group will be pleased to assist in planning for and
implementing QDT structures. Please contact any member of the
Wealth Preservation Group.
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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