When we do estate planning for clients with significant value in their estates, we often created spousal trusts for their spouse and separate trusts for each child. This used to be advantageous from a tax standpoint, as each trust was taxed as a separate taxpayer, so each trust had the benefit of graduated marginal rates on income earned and left in the trust. This benefit ended a few years ago when tax laws were changed to make income earned in most trusts taxed at the highest marginal rate.
If the sole purpose of the separate trusts in your will was the income splitting that was available from the former tax laws, the need for the separate trusts is now gone. Simplifying your will to remove the separate trusts can be an advantage for ease of administration and reduced professional costs when you pass.
However, there can be other uses for separate trusts in your will, such as protection from creditors or partners, or for protection of the assets for a child who cannot handle money well.
If the trustee of the trust is a person or entity other than your child, and the beneficiaries of the trust include your child and their children or other beneficiaries, there can still be protective benefits from such a trust.
Speak to your estate planning lawyer to get advice on what makes sense in your situation.
Theresa Arsenault, Q.C. helps clients with estate planning and business and real estate matters.
