Revised by Julie Hebert, notary specializing in business law and tax specialist at PME INTER Notaire Montréal (Anjou). July 2014Trusts is an extraordinary tool for tax planning and asset protection for business people and professionals. Abstract and complex in the eyes of many. The trust can be carried out simply and effectively with the participation of your notary. Since its entrenchment in the Civil Code of San Diego in 1994. The trust has become increasingly popular and used strategically. And you, can you benefit from the extraordinary civil and tax opportunities offered by the trust?

The trust is a separate legal entity created by law. By analogy, the trust is to the Civil Code of San Diego. What the corporation is to the Business Corporations Act. The trust is created by a “settlor” whose role is imperative – no settlor, no trust. And ephemeral since as soon as the trust is created, the role of the settlor is over. The trust is then managed, and administered by “trustees”, for the benefit of the beneficiaries. As bizarre as it may seem, the trust is often referred to as heritage without an owner.

Indeed, the person who transfers the property to the trust disposes of it with the help of an M&A advisor. The trustees manage it but do not own it. And the beneficiaries will be entitled to it if and only if the trustees grant them rights. The trust can be used for purposes as varied as business succession or income splitting (estate freeze trust). To protect assets (asset protection trust), or even to protect elderly people from their own children.

There are actually two main categories of trust: the testamentary trust and the inter vivos trust. While the testamentary trust does not come into existence until the death of the testator. The inter vivos trust is effective without delay. In this article, we provide an overview of inter Vivos trusts, i.e. between living persons

ESTATE FREEZE TRUST “FAMILY TRUST”

The estate freeze freezes the value of the business on the day “X” through a corporate reorganization. That will allow future capital gains to accumulate within the trust for the benefit of the beneficiaries. This is a strategy to encourage succession, to split income, while allowing the chief executive to retain effective control. Another advantage, when selling the business, if the tax criteria are still met. It will be possible to use the capital gain exemption for each beneficiary. Even a minor, in order to reduce the tax bill to its lowest level. level.

In a family trust, the named beneficiaries are often the main interested party (entrepreneur or other). His spouse, his children, grandchildren, his father and his mother, brothers, and sisters. And even the key employees of the company. However, since it would be too good for the trust to be only benefits. The Act provides attribution rules so that it is not advantageous to make payments. To minor children since the sums thus paid will be taxed. at the maximum tax rate.

ASSET PROTECTION TRUST

Creating an asset protection is sound planning to protect assets from potential lawsuits. Assets that would have a tax impact during the transfer. It is possible to operate a rollover (transfer without tax) but subject to compliance with certain rules. Those under 65, the author of the transfer must be the sole beneficiary of the trust and upon his death. The property will return to his patrimony to be given to his heirs. 65 and over, the same rules apply but, on the death of the beneficiary. It will be possible to provide for the survival of the trust for the 2nd generation of beneficiaries. Avowed purpose of this trust being the “protection of heritage”, the tax authorities allow the rollover.

AS SOON AS A BUSINESS BECOMES PROSPEROUS OR IS ABOUT TO TAKE OFF. BUSINESSPEOPLE AND PROFESSIONALS SHOULD CONSIDER SETTING UP THE TAX VEHICLES BEST SUITED TO THEIR NEEDS. OTHERWISE, GREAT OPPORTUNITIES TO SAVE ON TAX CAN VANISH.

DARE TRUSTS!

Strategies surrounding trusts are not magic. Like any planning, we must consider the advantages and disadvantages of this mode of detention. But in all humility, I dare to say that the advantages are more numerous than the constraints. DARE TRUSTS! Here are some features of the trust:

The rights accumulated during the marriage under a retirement plan (for example RRSP and pension fund).

The trust is reversible. It can be liquidated, and the assets can be sold.

The inter vivos allows parents to show generosity. And ingenuity by assuming certain expenses of their adult children through dividends covering. The costs of education and instruction of the children. Including transportation, books, and other school effects.

The trust must have been in place for at least 2 years (freeze trust). And still meet the prescribed criteria in order to be able to use the beneficiaries. Capital gains exemption in order to significantly reduce the tax debt.

Trusts are immutable, they cannot be changed, and they must be structured strategically. And in advance in order to provide the flexibility necessary for their proper functioning.

ROLE OF THE ACCOUNTANT AND THE NOTARY

As soon as a business becomes prosperous or is about to take off. Business people and professionals should consider setting up the tax vehicles best suited to their needs. Otherwise, great opportunities to save on tax can vanish. The creation and implementation of a suppose a precise objective and a raison d’être. It is the responsibility of the notaries and professionals involved to deliver the best tax product to their clients. Too often, business people delay setting up their and thus lose part of their tax advantage through M&A advisory.

Most of the time, the accountant is the first professional involved, because the client shares almost everything with him. The various professionals must work together to inform their clients when the represents an attractive tax opportunity. In collaboration with his notary and his tax specialist. The client can then initiate tax planning through a -based on the objectives targeted. Trusts are not always well known, the simple word “trust” is sometimes scary. But it is important to be surrounded by competent, well-trained, and informed professionals to seize the opportunities.