Page 164 - A Canuck's Guide to Financial Literacy 2020
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• Alter Ego Trust
Alter Ego Trust have an age requirement of 65. It’s created for the benefit of the
settlor who is the only individual able to be entitled to the trusts income.
• Charitable Trust
Charitable trusts are set up for the benefit of a charity who would be the beneficiary.
• Bare Trust
In this case, the beneficiary would have sole interest in the property or assets inside
the trust and may take over possession at any time.
Testamentary Trust
Testamentary Trusts are created on the day a person dies with instructions written out in
the will ahead of time. They’re a popular estate planning tool as it allows the trustee to
effectively distribute income to minor children or spouse in a tax efficient manner.
Testamentary trusts are taxed at the highest marginal tax rate with two exceptions
mentioned below. Before 2016, testamentary trusts were taxed favorably at the same rates
as personal income tax but that has since changed.
• Graduated Rate Estate (GRE)
These trusts are registered as a GRE in the first year of trust’s taxation. They arise
as a consequence of the person’s death and are taxable at marginal rates for the
first 36 months. Only one GRE is allowed per deceased testator.
• Qualified Disability Trust
The beneficiary of this type of trusts would qualify for the Disability Tax Credit. These
trusts are taxed at the marginal tax rate.
21 Year-Deemed Disposition Rule
A deemed disposition would occur every 21 years for most personal trusts. For Alter Ego
Trusts, Joint Trust and Spousal Trusts, a deemed disposition would occur as well on death
of settlor or spouse and every 21 years thereafter. The trustee would be responsible to file a
trust’s tax return on the property in the trust as if they had sold it at fair market value. This
tax return would trigger capital gains which could result in a huge tax bill. However, you may
transfer assets to a Canadian resident beneficiary on a tax deferred basis prior to the 21-
year anniversary.
