Should I provide for a testamentary trust in my Will?
Q. Should I provide for a testamentary trust in my Will?
A: Testamentary trusts, whether spousal or non-spousal, are an easy, flexible and effective way to minimize tax. A testamentary trust acts as a separate person, utilizing graduated tax rates.
With no other income, $100,000 of interest income received by the surviving spouse will attract tax of approximately $28,150. If this income was split equally, the combined tax would be approximately $20,100, for a savings of $8,050 annually. Splitting of income may also avoid a reduction in the surviving’s spouse’s OAS.
Without a provision in your Will to create the testamentary trust, your estate cannot reap the potential benefits. If it is determined at a later date that the trust may not be as beneficial, it may be wound up with the assets distributed to capital beneficiaries.
Additional planning considerations
Will provisions should be consistent with current tax and family law legislation.
Capital losses from the sale of securities may be applied to capital gains reported in the terminal return if these assets are not distributed by the estate to capital beneficiaries before the end of the first taxation year of the estate.
Other procedures to extract surplus from a private corporation on a tax-free basis or the ability to increase in the underlying tax cost of corporate-held land or portfolio investments, up to their fair market value at the time of death are also available.
You should consult with your professional advisor on all related matters.