CONTROL FROM THE GRAVE:
THE POWER OF A TESTAMENTORY TRUST
by Terry Fay

Robert, age 85 and his wife, Emma, age 80 have willed to their son John, age 59 $1,000,000 from their estate. They also have left John $500,000 from a RRIF and a $250,000 Life Insurance policy.

John is married to Kate, age 55. They have three children, Kate age 25, Steve age 22 and Carol age 19. John is established and works with the RCMP earning a relatively high salary.

Robert has two choices on leaving his son John the $1,000,000 estate.

1) A direct inheritance or
2) Through a testamentary trust

A testamentary trust is created at the time of Robert’s death. It is of particular interest because John does not need the additional income now, as he is already in a high tax bracket. Testamentary trusts are taxed on the graduated tax rates. For example, roughly the first $35,000 of income will be taxed in the first tax bracket at the lowest rates. The next $35,000 is taxed in the second tax bracket and so on. The chart below outlines John’s inheritance of $1,000,000.

There are several benefits for John.

1. He still controls the inheritance
2. He has $11,000 more after tax dollars to enjoy which is not taxable when he withdraws it from the trust.

Robert also needed to decide on his RRIF of $500,000. His two choices were to name John as the beneficiary or his favourite charity.

1. If he names John as the beneficiary, Canada Revenue Agency will tax half
($250,000) leaving John with the other half

- OR –

2. If he names a charity the $500,000 flows to the charity and his estate receives
A $250,000 charitable tax credit. The insurance of $250,000 is paid directly to John tax-free.

The winners are Robert, John and the charity and the loser is CRA.

Communication is critical when planning your estate. Parents, talk to your children, children, speak to your parents and its important for the children to talk to one another.

If you would like more information on how these ideas can be applied to your personal situation please call.

This article was prepared by Terry Fay who is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst*. The views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessary those of Dundee Securities.

The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed have not been approved by and are not those of DundeeWealth Inc., its subsidiaries, or its affiliates, including, but not limited to Dundee Securities Corporation, Dundee Private Investors Inc. / Ltd., Dundee Insurance Agency Ltd., Dundee Bank of Canada and Dundee Mortgage Services. This website is not deemed to be used as a solicitation in a jurisdiction where this Dundee representative is not registered.

Insurance products provided through Dundee Insurance Agency Ltd.
Only securities related products and services referenced are offered through Dundee Securities Corporation.

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