Estate Planning and Testamentary Trust

Posted on November 20, 2020 | Written by Mohammed Mecklai, CPA, CMA

Planning for the end of life is uncomfortable for many people. However, it is important to have a clear plan of the distribution of one’s assets during life or upon death.

Estate Planning

A plan designed specifically to help you manage your assets while you are alive so that you can control their distribution after your death.

Estate planning does not just concern the wealthy. In fact, it can and should be used by anyone that may have financial concerns about the management of their wealth upon death.

The purposes of estate planning are:

  1. To decide how a person’s assets are to be distributed at death;
  2. To minimize tax owing at death;
  3. To have a way of funding taxes at death.

Under Special Circumstances

A family owned business being passed down to the next generation can be an important and stressful decision. Questions to consider include:

Who is going to control the business? Who will carry on its growth? Who will receive the income?

Testamentary Trust

A testamentary trust is created upon a person’s death and found in the will. Testamentary trusts are taxed at graduated tax rates rather than at the highest marginal rate. As of January 1, 2016, testamentary trusts are only eligible for graduated tax rates up to 36 months after the individual dies where certain conditions are met. For income tax purposes these testamentary trusts are called “graduated rate estates.” There is also an exception to be taxed at graduated tax rates for testamentary trusts that are qualified disability trusts as long as prescribed conditions are met.

Remember, you may rest in peace but your loved ones won’t if you do not plan for your estate!

Need assistance with Estate Planning?  Got any questions regarding Testamentary Trust?

We can help! We offer tax advice and planning, preparation and filing services. Contact us today!