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Tag: Beneficiaries

What Happens if You Die Without a Will in Ontario?

Confirmation of Registration Report They say nothing is certain in life but death and taxes. We pay taxes on a daily basis but often try to avoid the thought of death at all costs. Unfortunately, the cost to your loved ones if you do not plan for your estate in the event of your death can be abundant; and it […]

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TRUSTS & ESTATES: How your Beneficiaries are taxed

Taxation of BeneficiariesUnder subsection 104(13) of the Canadian Income Tax Act (“ITA”), the income of a trust or estate that is paid or payable to a beneficiary is taxed in the hands of that beneficiary. In order to avoid double taxation, the trust or estate is allowed a deduction for an equivalent amount. This amount is considered to be payable to a beneficiary when the beneficiary is entitled in that year to enforce payment thereof, ITA, subsection 104(24). One reason for not paying is that the beneficiary has not attained a specific age and where the trust is not a discretionary trust. In addition, subsection 104(18) states that the income is to be considered payable to the minor, thereby allowing a deduction to the trust and an income inclusion to the minor.In view of this, a beneficiary will be required to pay tax on trust income that is not actually received so long as he or she has a legally enforceable right to the income. Of course, no tax should be imposed when he or she actually receives income that has already been notionally included in his or her income in a prior year, since it was payable to him or her. To this effect, subsection 104(13) rules that this income can be subsequently paid to the beneficiary tax free.

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Establishing the Beneficiaries of a Trust

BeneficiariesShould the beneficiaries be not specifically referred to by name, they could be referred to by class, such as “children”. However, the description of the class has to be sufficiently precise so as to determine whether any particular person is or is not a member of the class. If, however, the trustee has discretion as to whom and in what proportions among a class he or she will distribute the trust property, a situation could arise when the trustee would not be able to determine who all the possible beneficiaries are, but need only determine whether any particular beneficiary is within the class. An exception to this rule is that the objects of a charitable trust should always be certain.Therefore, when establishing a trust, the settlor has to make it clear that he or she intends to establish a trust, specifically describe the property which is to be the subject matter of the trust, and identify the beneficiaries beyond any doubt.

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Trusts, Trustees and Estate Planning

What is a Trust?The word “trust” has not been defined in the Income Tax Act (ITA), nor is there any definitive guideline to establish whether or not a trust exists. The concept of trust is derived from the English common law and has been defined in various ways by different authors. Generally, a trust is an equitable obligation binding a person (who is called a trustee) to deal with property over which he or she has control (the trust property) for the benefit of persons, who are called the beneficiaries (also known as “cestuis que trust”). The creator of the trust is usually known as the settlor. Unlike a corporation, a trust is not a legal entity, it is a relationship between the trustees and the beneficiaries. A trust is the separation of legal and beneficial ownership of property. Thus an individual could act in more than one capacity, that is, as a settlor, a trustee and/or a beneficiary of the trust.

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