Client Update: Taxation of Trusts, Estates and Charitable Donation Rules Changing January 1, 2016
This client update is an attempt to summarize the more significant aspects of the rules. However, there is a great degree of complexity caused by these changes, and it is important for individuals to seek advice specific to their circumstances. The primary aspects of these changes are set out below:
- Testamentary trusts (trusts that are established in a will and arise as a consequence of death of an individual) will now be taxed at the high marginal tax rates for income retained in the trust (currently testamentary trusts are taxed at the graduated tax rates) – this significantly curtails the opportunities to use testamentary trusts for pure tax planning (although many non-tax estate planning reasons for such trusts remain).
- One exception to this is the “graduated rate estate” (“GRE”) which will continue to obtain the benefit of graduated rates for 36 months after the date of death.
- Testamentary trusts established for the benefit of a disabled individual (a qualified disability trust) will also continue to obtain graduated rate taxation.
- Existing testamentary trusts will have a deemed year end on December 31, 2015, and all testamentary trusts (except GREs) will have to have a calendar year end going forward.
- Only GREs are eligible for certain tax planning provisions related to loss carry backs (which are particularly relevant with private company shares) or utilize the new estate donation rules (including the continued elimination of taxable capital gains on donations of marketable securities to public charities).
- Life interest trusts will now have a deemed year end at the end of the day of death of the life beneficiary and all income (including realized capital gains on that deemed disposition) will be deemed payable to the life interest beneficiary and taxable by his or her estate – this shifts the tax burden from the life interest trust to the estate of the life interest beneficiary which is a significant change, and particularly problematic for second relationship, blended family and family-controlled business situations.
- Strategies do exist to avoid this mismatch, but revisions to existing trusts are required for those to be implemented.
- A court ordered variation of irrevocable trusts might be required.
- The new estate donation rules give greater flexibility for those persons who wish to make charitable donations on death – as long as the donation is made by a GRE within 36 months of the date of death, the charitable tax receipt can be carried back to reduce 100% of taxes in the year of death and the year immediately preceding, or 75% of the taxes in the three years of the estate itself or a five year carry forward in the estate, but the donor must be a GRE.
- The new donation rules do not apply to gifts by life interest trusts, so the possibility of charitable giving through life interest trusts has been fully eliminated.
- For more specific information about the new charitable donation rules, please see our separate update “New Tax Rules For Charitable Gifts”.
These rules are extremely significant and affect a great many different estate planning scenarios. We would encourage everyone to review their wills, testamentary trusts and life interest trusts with their professional advisors to determine what changes may need to be made at this time to address these new rules.
Archive
Grant Machum, ICD.D and Mark Tector 2020 was a challenging year for many people and businesses. And while we are all happy to have 2020 in the rearview mirror, we anticipate that there will continue to…
Read MoreKevin Landry and William Wojcik On December 11, 2020, the federal government announced Canada’s strengthened climate plan in a document titled A Healthy Environment and a Healthy Economy (“Plan”). The Plan proposes to increase the carbon…
Read MoreKenneth McCullogh, QC and Conor O’Neil, P.Eng. On December 18, 2020, the Legislative Assembly of New Brunswick passed the Construction Remedies Act. The new legislation will not take effect until a date to be named…
Read MoreMark Tector In a recent decision, an adjudicator upheld the dismissal of an employee/complainant who made inappropriate and offensive remarks on a call with a customer (Crawford v Canadian Imperial Bank of Commerce). The complainant…
Read More2020 brought us all challenges that have been unprecedented in our time. The COVID-19 global pandemic has impacted us in ways that were unimaginable. As Atlantic Canada navigated the challenges of changing worlds, and workplaces,…
Read MoreKathleen Leighton On December 31, 2020, the Honourable Marc Garneau, Minister of Transport, announced new pre-boarding COVID-19 testing requirements that would be coming into effect in short order. In particular, as of January 6, 2021…
Read MoreDaniela Bassan, QC, has published an article in volume 36 of the Canadian Intellectual Property Review. She comments on an Italian case granting copyright protection for a retail store in the cosmetics industry, and considers…
Read MoreRob Aske In late December 2020, the Supreme Court of Canada (“SCC”) issued a key decision elaborating on the duty of honesty in relation to termination of a commercial contract. This duty was primarily established…
Read MoreIncluded in Discovery: Atlantic Education & the Law – Issue 07 Kathleen Leighton Educational institutions and their students continue to face challenges as a result of the COVID-19 pandemic, and international students are particularly impacted…
Read MoreIncluded in Discovery: Atlantic Education & the Law – Issue 07 Kate Jurgens Since returning to class in September amidst the uncertainty of the COVID-19 global pandemic, students and faculty alike in classrooms, on campus,…
Read More