TESTAMENTARY TRUSTS

Overview

• While it is common to leave assets to beneficiaries outright, a trust is a tool that allows you to control the timing of distribution of assets to certain beneficiaries.

  A testamentary trust is a trust that takes effect upon your death. The terms of the trust are usually established in the deceased person’s Will, but can also be established by a separate trust document (such as an insurance declaration). It is created by the deceased person, and is funded by that person’s assets (either those from the deceased’s estate, or those that pass because of the person’s death, such as insurance proceeds). The trustee of a testamentary trust is often the executor of the Will, but this is not always the case. The Will will provide this detail as well as the other terms of the trust.

  A trust can be very flexible and allow for completely discretionary payments from the trustee and then a payment of the remainder when the beneficiary attains the age of majority or an older age of the testator’s choice; or you can provide for milestone payments from the trust to be made at particular times (for instance, discretionary payments of income and capital, but 50% of the capital is to be paid at one time and the rest at a later time). Testamentary Trusts can be made for a variety of purposes, including:

  • Protection of minor children;
  • Protection of disabled beneficiaries;
  • Protection of a surviving spouse while ensuring your children from a previous relationship receive the remainder upon the spouse’s death;
  • Protection of a “spendthrift” beneficiary;
  • To provide for the education of a group of grandchildren
  • Holding a cottage property for use by various beneficiaries for a period of time

  As of January 1, 2016, most testamentary trusts are subject to the highest marginal rate of tax. Prior to that time, testamentary trusts were taxed at graduated rates (like an individual would be). There are some exceptions to this, but it is important to consider your goals and create trusts where they are of benefit despite the new taxation rules.

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