Testamentary Trusts

Testamentary trusts are created as a consequence of the death of the testator in accordance with the testator's Will that is part of the testator's Estate Planning. The terms are set out in the will and determine the timing and quantity of distributions to each beneficiary.

Unlike Inter Vivos Trusts and Life Interest Trusts that are subject to a flat highest marginal rate of tax applicable to individuals, testamentary trusts are subject to marginal rates applicable to the individuals. After 2015, availability of this graduated tax rate is restricted to the first 3 years of the existence of the estate (Graduated Rate Estate or GRE), other than an estate for a disabled beneficiary. After 3 years the trust is subject to the highest marginal rate of tax.

Lawyers At Granville Law Group Will Make Sure You Take Advantage of Graduated Rate Estate

The GRE designation of a testamentary trust brings key benefits such as:

  • Access to the lower marginal tax rates;
  • Simpler and more flexible donation rules;
  • In the context of ownership of private company shares - the ability to reduce the potential for double (deemed disposition on death, winding up and payment of dividends) or even triple (deemed disposition on death, sale of assets, winding up and payment of dividends) tax on death. With proper planning, when the corporation is wound up, the estate could end up with a capital loss and pay a tax-free dividend to the beneficiaries of the estate. That type of tax planning is not allowed for non-GRE estates under what are known as stop-loss rules. Stop-loss rules do not apply to GREs. Proper estate planning can lead to large income tax savings, particularly for shareholders of private company shares.

Lawyers at Granville Law Group Will Make Sure You Do Not Lose the GRE Status

If a GRE loses its status as a testamentary trust, the GRE status will be lost along with the benefits. Without proper planning, a testamentary trust can be tainted by actions such as another person contributing to the estate which could happen if a beneficiary borrows money from and then re-contributes to the trust or the trust borrows money from related persons to pay the deceased's debts.

Protect Your Interests. Get Legal Advice Today

Contact Granville Law Group. Call us at 604-757-9385 or arrange a meeting using our online contact form.