Trusts, explained plainly.

A discretionary trust created during your lifetime, usually with family members as beneficiaries. It often holds shares of a family corporation, frequently as part of an estate freezeestate freezeA reorganization that locks the current value of a business into fixed-value shares held by the owner, so that future growth accrues to new shares held by the next generation or a family trust.. The trustees decide, within the trust’s terms, how income and capital are distributed.

Business owners who want future growth to benefit the next generation, while keeping decisions with trusted adults.

Income paid to family members can be caught by tax on split incometax on split incomeOften called TOSI. Rules that can tax certain income a family member receives from a family business, such as dividends, at the highest personal rate unless an exclusion applies.. Attribution rules can apply. The 21-year rule21-year ruleMost personal trusts are treated as having sold their capital property at fair market value every 21 years. Without planning, this can trigger tax on gains that have built up inside the trust. applies. Trusts carry annual filing and reporting obligations and ongoing legal and accounting costs.

Not a trust itself, but often paired with one. The owner exchanges common shares for fixed-value preferred shares. New common shares are issued to children or a family trust, so future growth accrues to them. Tax at the owner’s death is then based largely on the frozen value.

Owners of a growing corporation who want to cap tax at death and begin passing on growth, while keeping control through voting shares.

The frozen value must be supported, usually with a professional valuation and a price adjustment clause. TOSI and attribution rules can affect income paid to family. The freeze should be coordinated with insurance to fund the tax that remains on the frozen value.

A trust you create during your lifetime, of which you are the only beneficiary while you live. Once you meet the minimum age set by the tax rules, assets can generally be transferred in without triggering tax at that time. At your death, the assets pass to the beneficiaries named in the trust, not through your will.

Individuals who want to reduce Estate Administration Tax on certain assets, keep their affairs private, or plan for incapacity.

The trust is deemed to dispose of its property at your death, and the tax is paid by the trust, which is taxed at the highest rate. Setup and administration costs, and the loss of some post-mortem planning options, need to be weighed.

Both partners are beneficiaries during their lifetimes. The deemed disposition of the trust’s property generally happens at the later of the two deaths, and the assets then pass to the beneficiaries named in the trust.

Couples who want assets to pass outside their estates to children or other beneficiaries after both have died.

The same considerations as an alter ego trust, along with how the trust interacts with each partner’s will and what would happen if the relationship ended.

A trust that comes into existence at your death under your will. It can hold an inheritance until a child reaches a certain age, provide for a surviving spouse while protecting capital for the children, or manage assets for a beneficiary who needs support.

Parents of minor or young adult children, blended families, and anyone who wants a say in when and how an inheritance is received.

Most testamentary trusts are now taxed at the highest personal rate, with limited exceptions such as an estate that qualifies as a graduated rate estategraduated rate estateAn estate that meets certain conditions and can be taxed at graduated personal rates for a limited period after death, with access to some planning options that other trusts do not have. and a qualified disability trust. The will must name capable trustees, and the trust has ongoing filing obligations.

A fully discretionary trust for a beneficiary with a disability. Because the beneficiary has no fixed right to the trust’s income or capital, the assets are generally not counted when determining eligibility for Ontario Disability Support Program benefits.

Parents who want to leave an inheritance to a child with a disability without putting income support at risk.

The trustees need full discretion, and the wording is technical. It is often coordinated with a Registered Disability Savings Plan and, where available, a qualified disability trust. Trustees should be chosen with long-term care in mind.

A trust designated to receive life insurance proceeds, usually set out in your will or in a separate declaration. The proceeds are paid to the trustee rather than to the estate, then held and managed for the beneficiaries.

Parents of minor children, and families who want insurance proceeds managed over time rather than paid out as a lump sum.

Properly structured, the proceeds generally pass outside the estate and are not subject to Estate Administration Tax. The beneficiary designation and the trust wording must match exactly, and the trustee should be able to manage funds for years.