There are many benefits to be gained from the creation and administration of a family trust, both from a tax and non-tax perspective. Talk to us if you have any questions about whether the creation of a trust is right for your family. Once your trust has been established, it is very important that the trust is properly maintained, or the benefits of having a trust could be at risk.
We recommend that the trustees do the following during the year:
• Meet on a regular basis (at least annually) to review the trust investments and the needs of the beneficiaries. Record such meetings in annual trustee minutes.
• Keep appropriate records of the trust’s disbursements. Retain bank statements for the trust, along with returned cheques.
• Make sure all payment of banking, accounting, legal and management fees, etc. are paid directly from the trust account rather than any of the trustees’ or beneficiaries’ personal accounts. This includes ensuring that the trust bank account is not guaranteed by any of the trustees’ or beneficiaries’ personal funds.
• Do not deposit money in the trust account discretionally.
• Make sure that the coin or money that was used to set up the trust stays stapled to the trust document for safe keeping.
We recommend that the trustees do the following in December:
• Pay all interest on any loans from family members. The interest must be paid by January 30th of the following year to avoid adverse tax results.
• Pay out income of the trust to the beneficiaries by December 31 of each year to avoid income being taxed in the trust at top personal rate. Record payments in a trust resolution.
• If income is not paid to the beneficiaries by December 31:
i. Ensure that a decision to pay out income to the beneficiaries is recorded in a trust resolution. The resolution has to be signed by December 31 of each year.
ii. Deliver a demand promissory note to the beneficiary, or, in the case of a minor, to the guardian of the beneficiary.
• Provide trust information to us at your earliest convenience to prepare the annual trust tax return. A trust return is due 90 days after the trust’s year end.
• Beneficiaries who have taxable income will be required to file tax returns. In the case of minors, the parent or guardian of that child must file a tax return.
Tax law is complicated and every situation is unique with its own set of circumstances.
If you wish to discuss any income tax or estate planning strategies please contact us, and visit us on the web: http://www.rmtcpa.ca
Rosenswig McRae Thorpe LLP