The person who brings the original funds or property into the trust and creates the trust by establishing the terms of the trust, appointing trustees and appointing beneficiaries. Note that a loan through the settlor is not enough to create the trust. If the trustee pays or transfers non-cash assets to a trust, it is generally assumed that the trustee has disposed of the assets at fair value on the date of the transaction. As a result, the trustee may realize a capital gain from the transfer to the trust. It is also important to note that if the trust is irrevocable, the settlor is not allowed to repossess the donated property. Once the assets have been settled in the trust, they belong to the trust and must be used for the benefit of the beneficiary of the trust. This is not the case with a revocable trust. While each of these cases kept informal “fiduciary for” accounts, they highlight the need for formal fiduciary documentation and illustrate how difficult it is to demonstrate a clear intention to create a trust without a formal agreement. Eligible Personal Residence Trust: This trust removes a person`s home (or vacation home) from their estate. This could be useful if the properties are likely to be highly appreciated. 1 If an estate is considered an estate with a higher education rate (BRM) for income tax purposes and chooses to do so, it is taxed at staggered rates 36 months after the person`s death.

Testamentary trusts that benefit persons with disabilities who are eligible for the Disability Tax Credit will continue to be taxed at graduated rates. These trusts are called Qualifying Disability Trusts (QDTs). Trusts are also often used to hold assets on behalf of minors. Since minor children do not have the legal capacity to enter into a binding contract or the power to enter into a contract, even if ownership is transferred to them, trusts are used as a mechanism to retain property until the child has reached legal age. Generation Jump Trust: This trust allows a person to transfer assets tax-free to beneficiaries who are at least two generations younger, usually their grandchildren. Charitable Trust: This trust benefits a particular charity or non-profit organization. Typically, a not-for-profit trust is established as part of an estate plan and helps reduce or avoid inheritance and gift tax. A remaining not-for-profit trust funded over a person`s lifetime distributes income to designated beneficiaries (such as children or a spouse) for a specified period of time, and then donates the remaining assets to the charity. Insurance trust: This irrevocable trust protects a life insurance policy within a trust, thereby removing it from a taxable estate. Although a person can no longer take out loans against the policy or change beneficiaries, the proceeds can be used to pay estate expenses after a person`s death.

The trust certificate verifies the following information on a need-to-know basis: In the event that the trust that remains under this instrument is considered unjustified in terms of size, the trustee may terminate the trust agreement and distribute the amount to the designated beneficiary of the trust. The ITA contains complex income distribution rules that aim to combat income splitting situations that are considered abusive. In general, the rules apply when a person transfers or lends property, directly or indirectly, to a spouse or person who does not deal at arm`s length (including the person`s minor children) or to a niece or nephew under the age of 18, and the expected result is that the income from the property is taxed in the hands of the purchaser. The reason why the credit rating agency may find such situations abusive is that this type of scenario is usually used when the transferee is in a much lower tax bracket than the transferor. A formal trust agreement or indenture is usually drafted by a lawyer and identifies the settlor, trust assets, trustee(s) and beneficiaries. This article aims to provide a basic understanding of the most commonly used types of trusts in our industry. Note that due to the different legal structure in Quebec, the comments contained in these articles do not apply to trusts in Quebec. However, the article will give you a general guideline on the tax issues associated with trusts. .