Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m O C T O B E R 2 0 1 5 43 ooming changes to the Income Tax Act introduce a "whole new world" to the future of estate planning in Canada, calling into question the value of the use of trusts as a tool to achieve tax savings on investments. There are also concerns that one of the changes is misdirected and could have unintended consequences. "They will change how in the future you will plan client situations," declares Richard Niedermayer, a Halifax, N.S., estates lawyer with Stewart McKelvy. While trusts may well continue to be used for estate planning, they are no longer so effective as a tax-savings tool for the wealthy when the changes come into effect Jan. 1. "The question becomes what could you do or should do differently than before," says Nie- dermayer. Jordan Atin points out that trusts generally serve three purposes: the con- trol of money; the protection of the beneficiary; and tax savings. They serve as a classic form of will planning for those with investment savings. While inter vivos trusts created during an indi- vidual's lifetime have always been taxed at the highest rate, testamentary or will trusts have benefited from a tax advan- tage. Testamentary trusts are treated as a separate tax person and any earn- ings from investment have been taxed on marginal rates. So some of those earnings would be taxed at lower rates while, as in an individual's income, higher earnings are subject to the maxi- mum tax rate. Beginning in January, the marginal rates will no longer be available. "The opportunities are much more limited to take advantage of lower marginal rates for testamentary trusts," says Atin, an estate lawyer who is counsel to Hull and Hull LLP and an adjunct professor at Osgoode Hall Law School. There are exceptions to the new highest-rate rule. A new GRE (gradu- ated rate estate) can be established. It allows up to three years for the assets of the will to be distributed to the ben- eficiaries after the individual's death. During this time, the old graduated rates can be applied. So, although there remains some tax benefit, it pales in comparison to what is now an allow- ance fo r a lifetime of access to the lower rates through will trusts. Also, there's no flexibility on that time allowance, so even if there is a prolonged dispute, the higher tax rate automatically kicks in after 36 months. Another continuing benefit within the trusts themselves is the sprinkling or splitting of income among a group of beneficiaries, meaning the trust's income can be paid out to low-income beneficiaries subject to lower tax rates. Also, a qualified disability trust can be established for the lifetime of a disabled person (an individual who has qualified for the disability tax cer- tificate) through a trustee. The old L E G A L R E P O RT \ T R U S T S & E S TAT E S JEANNIE PHAN Taxing changes New income tax rules will make the value of using trusts to achieve tax savings in estate planning much more questionable. By Marg. Bruineman L

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