Help your kids use their inheritance wisely and other benefits of a trust

TORONTO, Sept. 19, 2012 /CNW/ - While a recent CIBC poll found 55 per cent of Canadians have a will in place, few have included trusts as part of their estate plan - vehicles that could potentially save them tens of thousands in taxes and speed up the transfer of assets.

Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth Management notes that a trust is essentially a vehicle that allows a person to give assets to someone else (known as a "beneficiary"), but under certain terms and conditions, such as when funds can be spent and on what. The added benefit of a trust is that, for tax purposes, it is treated as a separate individual which may reduce taxes paid.

"Trusts are a valuable part of an estate plan to direct your money to the person intended, when intended, and for the purpose intended," he says. "For example, you can indicate in the trust document that the money in trust should be used to pay for school tuition and not to buy a sports car."

Two new reports on the benefits of including trusts in estate plans provide a number of reasons why people should consider trusts as part of an overall financial plan. Among those reasons are:

  • Pay less tax - a trust can save an individual up to $18,000 in tax annually compared to the individual personally owning the property held in a trust.
  • Decide how inheritance is spent - a trust can set out that an inheritance is to be spent wisely, such as for university tuition and not on something else.
  • Help loved ones get their money sooner - certain types of trusts can provide for a quicker transfer of assets on death since, unlike wills, trusts are not subject to the public probate process.

"While the rules for trusts can be complex, they can save you thousands of dollars every year while you are alive and ease the tax burden on your estate after your death. The single largest mistake in estate planning is failing to implement plans early enough," says Mr. Golombek. "Even among those who have included trusts in their estate plans, people assume it is most beneficial to transfer assets into a trust upon death. But in fact, it doesn't always make sense to wait until the end of life to transfer all of your assets. It can be a big mistake to overlook the benefits certain trusts can offer when assets are transferred during individual's lifetime."

Mr. Golombek says incorporating trusts into an estate plan offers several key benefits:

  1. Help your heirs pay less tax
    Mr. Golombek explains that, "A trust is considered to be a separate individual for tax purposes. For a testamentary trust, which is a trust created as a consequence of death, any income earned on trust assets is taxed at the same graduated tax rates as an individual. This can yield tax savings that compound year after year." For example, suppose Mark were to leave assets earning $100,000 in taxable income each year in a trust naming his wife as beneficiary. Annual tax on the trust income could be between $14,000 to $18,000 lower (depending on the province) than if Mark left the assets directly to his wife and she were taxable at the top marginal tax bracket.

  2. Control distribution of inheritance over time
    Would you prefer your child use their inheritance to fund post-secondary education or buy a sports car? Mr. Golombek states, "Rather than having your inheritance distributed in one lump sum, you can specify in the trust document when distributions can be made to your child and for what purposes, such as post-secondary education or living expenses."

  3. Reduce probate fees and transfer assets more quickly
    Some types of trusts can provide a quicker and private transfer of your assets to your heirs since the assets are no longer subject to the time-consuming public probate process.

  4. Protect inheritances from legal claims
    "A trust can sometimes help protect inheritances from legal claims," says Mr. Golombek. If an individual inherits assets directly, the assets may be subject to certain legal claims, such as creditor claims in the event of the bankruptcy or claims by a former spouse in the event of divorce.  Leaving assets in trust for your beneficiaries can sometimes protect the beneficiaries' inherited assets from these claims.

  5. Benefit from income splitting
    If you wait until after death to benefit from trusts, you may miss many years of potential tax savings from income-splitting during your lifetime. Mr. Golombek states, "If you are in a high tax bracket, you could loan assets to a family trust for the benefit of your children (or grandchildren) who are in lower tax brackets. Income paid to the children, or payable on their behalf for expenses such as for private education or summer camps, may be taxed in the children's hands at their lower tax rates." This may mean annual family tax savings up to approximately $18,000 (depending upon the province where you reside) every year for each trust beneficiary. Since attribution rules may result in trust income being taxed in your own hands, a tax advisor should be consulted.

  6. Take advantage of immigration trusts
    "An immigration trust may allow new Canadian immigrants to avoid paying tax on assets held in a foreign trust," Mr. Golombek points out. For example, if you recently moved to Canada and transferred assets to a foreign trust, income on the assets may not be subject to Canadian tax during your first 60 months of residence in Canada. However, it is most beneficial to place assets into the trust before immigrating or as soon as possible afterwards since the 60-month tax-free period begins at the time you establish Canadian residence. Since the trust income will not be taxed during the 60-month exemption period, immigration trusts can result in tax savings up to 50% of the trust income.

  7. Maximize inheritance of foreign assets
    An "inheritance" trust is beneficial if a foreign family member wishes to leave a gift or inheritance to a Canadian resident. Mr. Golombek uses an example to make his point, "Suppose you live in Canada and expect to receive substantial funds from a parent who has always resided outside Canada. If your parent transfers the assets into a foreign trust, no Canadian tax will be levied on the trust assets' future income or gains. The transfer must be made directly from your parent to the trust; if you receive the funds first and then transfer them into an inheritance trust, the tax-free benefits will not apply."

Due to the complexity of trusts, Mr. Golombek recommends individuals obtain advice for their specific situation from a competent expert in the trust and estate planning field. More details and the benefits of trusts are outlined in CIBC Private Wealth Management's latest reports, Planning from the Grave: Testamentary Trusts and In Trusts We Trust: Tax and Estate Planning Using Inter Vivos Trusts  which are part of a five-part series of reports on estate planning.

CIBC Private Wealth Management meets the unique needs of high net worth clients through a full range of integrated advisory capabilities and solutions, including exclusive private banking services, customized financial planning and investment advice, trust and estate solutions.  CIBC Trust can act as Corporate Trustee for Trusts that are part of your estate plan.

CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at


For further information:

Sean Hamilton, Director, External Communications, 416-304-8456, 


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