New Trust Legislation Enacted

Advisors should inform their high net worth clients of recently enacted changes to tax benefits arising from the use of trusts. 

These changes will require the review of their wills prior to the new rules taking effect on January 1, 2016. 

Despite widespread criticism of the federal budget proposals, on December 16, 2014 Bill C-43, Economic Action Plan 2014 Act, No. 2 was enacted. When all of the provisions of the new legislation come into force it will affect traditional estate planning in two primary ways:

a) Graduate Rate Estates (GRE).  Many traditional tax saving practices will only be available to a Graduated Rate Estate (GRE). Only certain estates of deceased persons qualify as GREs, and GREs can only last for up to 36 months.

b) Spousal Testamentary Trusts:  The income of a spousal testamentary 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.

It’s important to discuss the ramifications with your clients, as the effect of the legislation may be objectively inequitable in certain circumstances. For example, envision a case where the heirs of the deceased beneficiary spouse (those who will end up paying the tax) are different from the residuary beneficiaries of the spousal trust. In situations such as these, the heirs of the deceased beneficiary spouse will pay the tax but will not receive the assets. Currently, there is no remedy for this situation after the fact and therefore estate planners would be prudent to advise their clients of this.

Some legal advisors may wish to argue that there should be certain grandfathering provisions in the new legislation for wills that can no longer be changed; for example, because the maker now lacks capacity or is already deceased (and the will has not been probated).

These could be devastating oversights that may lead to adverse tax results and/or expensive litigation. Knowledge Bureau Report will be follow this story and discussing it in detail at the Knowledge Bureau’s June Distinguished Advisor Workshop  TRANSITION PLANNING: TRUSTS & ESTATES being held June 17 in Winnipeg, June 18 in Calgary, June 19 Vancouver, and June 22 Toronto.

Early Registration ends May 31. Click here for more details.