Taxation Trust Changes Not To Affect Hensons

Recent changes to the taxation of testamentary trusts have caused some concern on the part of my clients. I have reassured them that the changes will have no effect on the protective power of Henson trusts. There will be no change to the use of Henson trusts and protection of ODSP benefits.

The changes will however require certain new procedures after they have passed on, and for trusts that now exist and will have to comply with the new requirements when 2016 tax returns are filed.

The forms to be used to comply will not be available until February 2017, around tax filing time.

Commencing in 2016 the graduated taxation rate of testamentary trusts is replaced, with certain exceptions, with a top marginal tax rate taxation of all trust income reported in the hands of the trust. With an exception for certain beneficiaries with special needs, testamentary trusts will be taxed on the same basis as inter vivos trusts. This means that trust income must find a way to be taxed in the hands of lower tax bracket beneficiaries.

This change will affect much common estate planning that used testamentary trusts to have income from inheritances taxed a beginning marginal rates in the hands of the trust rather than at the higher marginal rate of the heir in their own hands.

This tactic has not been a primary part of the planning by my client families.

The changes have a special exception which will protect a large number of my clients' children as beneficiaries of their trust, I estimate at least a third of them. For more information on this, the Disability Tax Credit, Registered Disability Savings Plan and the Qualifying Disability Trust, click here.

Tags: advocacy