A Powerful Tool to Minimize Tax

The Crucial Role of a Trust in Estate Planning

2017-04-06

What is a trust?

Estate and trust planning is fundamental to the work we perform on behalf of the clients of Total Wealth Management Group.

Traditionally deployed as a way to minimize estate taxes, an astutely designed trust delivers several additional advantages in the context of a coherent estate plan.

Fundamentally, a trust is a fiduciary device enabling a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.

Although there is a wide range of trust solutions available – depending on the precise challenges an individual client needs to resolve – here is a description of three important ones. All offer powerful tax minimization deliverables.

Testamentary Trust

This trust arises upon the death of the testator (a person who has made a will) and incorporating such a trust in your will can provide significant asset protection and tax minimization for those who benefit from your estate.

Inter vivos Trust

This trust can be developed while the donor is alive to hold property for the benefit of others – usually family members – for income splitting purposes.

We need to introduce a word of caution here. The Federal Government is contemplating the revision (or even elimination) of income splitting; we will be watching the content of the forthcoming Federal budget at it affects this issue carefully and adjust our advice accordingly. Two common uses of an inter vivos trust are:

  1. To hold capital-growth investments for the benefit of children and grandchildren.
  2. To hold investments which earn interest, dividends and capital gains for the benefit of children and grandchildren who are 18 or older.

Alter ego Trust

This trust can be created when the settlor (the person who creates the trust) is the sole person who has a right to all the income of the trust each year. Alter ego trusts are unique because it’s possible to transfer assets to the trust without triggering tax on accrued gains on the assets.

Estate and trust planning plays a key role in the work we perform relating to client legacy creation and intergenerational wealth transfer. The thinking behind is both technical and delicate. Please ask us how we can help you in your estate and trust planning.