Milk Producer - March 2010 - (Page 22)

FARMFINANCE By Kurt Oelschlagel Managing your assets Used in the right circumstances, a family trust can yield many benefits for your family W hat are family trusts? How are they used? Would I benefit from having a family trust? These are just some of the questions my clients ask when they are considering estate planning. A trust lets you separate the control and management of an asset from its ownership. It is a legal relationship between three parties: the settlor, the trustee and the beneficiary. The person who creates or settles a trust is called the settlor. They contribute property to the trust for the intended beneficiaries. They also set out instructions, known as a trust agreement, on how the assets are to be used or managed and who will benefit from them. The settlor appoints trustees to manage and control assets according to the settlor’s instructions. Once the trust has been settled, the trustee will hold the trust property in trust for the beneficiary. The trust agreement will either specifically name the beneficiaries or state they will come from a certain group, such as the settlor’s children or grandchildren. They can include individuals not yet born. The same individual can represent the settlor, the trustee and the beneficiary in the same trust. However, there can be adverse tax consequences if the settlor is also the trustee or beneficiary. There are several tax advantages when using a trust in estate planning, including income splitting and completing an estate freeze. A family trust also offers farmers flexibility when planning for business succession. Inter vivos trusts A living trust, or inter vivos trust, is created during a person’s lifetime. Trusts created upon death, through the use of wills for example, are called testamentary trusts. Income earned by an inter vivos trust and not paid or allocated to a beneficiary is taxed at the highest tax rate. You can use an inter vivos trust to split income. Income splitting involves the transfer of assets, such as cash, from someone in a high tax bracket to someone in a lower tax bracket. Income earned on those assets is taxed at a lower rate. As well, income on assets owned in a trust allocated to the beneficiaries may be subject to lower income taxes. Certain rules, however, can negate income-splitting benefits. For example, dividends earned by a trust from shares in a family corporation allocated to minor family members are subject to the income-splitting tax, or kiddie tax as it is well known, at the highest personal tax rate. When the minors are no longer subject to the kiddie tax, the dividends can be paid to the trust and then allocated to the minors. A child with little or no income can receive a fairly substantial dividend with very little income tax. This can be quite beneficial, especially if the child has significant tax credits for post-secondary education and little income. A family trust offers farmers flexibility when planning for business succession. 22 | March 2010 | MilkPRODUCER

Table of Contents for the Digital Edition of Milk Producer - March 2010

Milk Producer - March 2010
Contents
Editor's Notes
DFO Chair's Message
Provincial Perspectives
Dairy Update
DFC Policy
Farm Finance
DFC Promotion
Heating With Cow Power
Processor Spotlight
Issues Update
Research
Applied Science
Ruminations
Markets
New 'N' Noted
Back Forty

Milk Producer - March 2010