Estate Planning, Part 3
Trusts during a lifetime
In the previous posts on this blog, we discussed the importance of having an estate plan and the tax implications that result from death. While these remain very important and should be front of mind for anyone looking to pass wealth down to the next generation, there are steps that can be taken during a lifetime that can reduce the administrative and tax costs associated with death.
One common method of reducing estate tax liability is to establish a trust. A trust is, at its most basic level, a relationship where a person, or group of persons (the “trustees”) manages a property (or properties) for the benefit of other persons (the “beneficiaries”). Trusts can hold a variety of properties, such as real estate, stocks, bonds, and private company shares.
Property can be transferred into a trust by an individual in several ways. Generally, this is considered the sale of a property for tax purposes, and the tax is paid immediately. Any future or growth in value of the property so transferred will attribute to the trust and will not generally form part of the estate of an individual. This can reduce the overall tax burden with respect to property upon the death of an individual.
Subject to certain limitations, trusts can also allocate income earned by properties (such as rent, dividends, and interest) to its beneficiaries. This can reduce the annual tax burden in respect of these properties in addition to the sheltering of value growth.
A trust can be an effective method of preserving assets for subsequent generations. The terms of the trust are established upon its creation and can include limitations on what beneficiaries may receive from, or do with, trust property. This can be useful in a family context where an individual wishes for property to benefit multiple generations.
The benefits of trusts established during a lifetime can be substantial. Trusts are complex instruments, and due care must be exercised in their formation and ongoing management. These trusts can work in conjunction with an individual’s Will and other estate plans to help maintain family wealth.
As with all estate plans, trusts are not a “one size fits all” solution. They carry significant additional administration, and a detailed review of facts and circumstances is required. If you would like to discuss whether a trust might fit your situation, please call
(403) 475-8033 or email info@ggtcpa.com to discuss with one of our professionals.
The information in this publication is current as of June 1, 2021.
This publication has been carefully prepared; however, it was written in general terms and should not be seen as legal or tax advice. This publication should not take the place of professional advice specific to your own family circumstance. GGT Chartered Professional Accountants, its partners and employees do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken based on a decision made in relation to the concepts discussed in this publication.
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