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TRUST TAX RETURN NOT NEEDED as part of The Full Monty

Date: 14 May, 2021

A common strategy that our firm has been recommending to our clients, is one we call the “Full Monty” which is a comprehensive approach to adding the names of trusted children to the assets of elderly testators.

In English, if one is closer to the end of their life, a facet of estate planning may involve the addition of your adult children’s names as an owner of your assets including your home or as the beneficiary of a liquid asset.

This is not as simple as simply adding the names of the children as it is fraught with many difficulties that are canvassed in other blogs.  I recommend one read our article A STRATEGY TO ELIMINATE OR REDUCE PROBATE TAX.

One example of the strategy is to add adult children as owners to the family home.  This must be accompanied by a comprehensive trust agreement, which confirms repeatedly that there is no change in beneficial ownership and that the owners remain so long as they are alive, the trust beneficiaries namely the parents.    Even upon the death of both parents, the asset, such as the home, is to be administered in accordance with the Secondary Will.

The question has arisen, is this a Trust under the Income Tax Act and as such does the Trust need to file income tax returns.

The answer lies in the Income Tax Act itself section 104(1).  So long as there is no change in beneficial ownership or disposition and the trust is simply an arrangement in which the trustees act solely as agents for all the beneficiaries, then there is no need for tax returns to be filed or income declared.

Simply put, if the formal change of ownership creates simple trustees with no rights whatsoever, in other words, mere placeholders and they are bound to act completely in accordance with the instructions of the beneficiaries then this is not a trust which is subject to income tax nor the necessity to file separate income tax returns.