Testamentary Planning

Volume No. 09-24

“You should consider creating a testamentary trust as part of your overall estate plan.”

You should consider creating a testamentary trust as part of your overall estate plan, if income-splitting with your spouse (includes a common law partner) will result in significant tax savings. This is especially true, for instance, where spouses are currently income-splitting their investment income when filing their personal income tax returns.

On the first death, assuming that the investments are bequeathed to the surviving partner, all of the investment income, which previously was reported on a 50/50 basis by each spouse, would have to be included as income of the surviving partner. In many cases, this will mean that more tax will have to be paid on the same amount of investment income.

Implementing a qualifying testamentary spousal trust has the advantage of allowing such assets to pass to the trust on a tax deferred rollover basis, as well as permitting the testamentary trust separate taxpayer status. The income will then be taxed within the trust at progressive tax rates. Effectively, the income-splitting, enjoyed while the spouses were both alive, can continue after the death of the first partner, if the right to do so is in the testator’s will. This planning will ensure that the tax savings enjoyed through income-splitting continue until the second death.

You should consult your tax accountant and lawyer to advise you with respect to the particulars of this type of trust, and to assist with the overall structure of your estate plan.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.