All About Estates

Multiply the tax saving with multiple trusts

Ever notice how everything seems to come in pairs – Jack and Jill, sun and moon, death and taxes. By now you may have read about the latter and ways to reduce same for the deceased in the earlier blogs. What if there was a way to reduce the tax payable by a beneficiary on the income from an inherited asset?

Let’s say, a wealthy widow leaves an investment portfolio to her adult grandchild who is employed and earns sufficient income to be in the highest tax bracket. The income from the bequeathed portfolio which will be added to the grandchild’s employment income for income tax purposes, will be taxed at the highest marginal tax rate.

A trust created in a person’s will is called a testamentary trust. A testamentary trust is a separate taxpayer and, like you and I, incurs tax at marginal tax rates. Therefore, the wealthy widow could will the investment portfolio to a testamentary trust for her grandchild. The portfolio income retained in the trust will be taxed like a separate taxpayer at marginal tax rates. The after-tax retained income may be distributed tax free to the beneficiary later on. The annual tax savings can be as much as $16,000 depending on where you live.

Multiply the tax savings by creating another taxpayer with reference to a testamentary trust in your will.

Derek de Gannes

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About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: