"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."

~ Niccolo Machiavelli, historian and writer

Monday, July 10, 2017

An Estate Planning Tool For All

We've talked a lot  about the Henson Trust in the past - it's importance, it's validity in Nova Scotia and how crucial it is to ensure that one is drafted correctly.

You might want to go back and review some of that. It's okay; I will wait.

One of the things we haven't discussed, though, is the fact that the use of the Henson Trust doesn't have to be limited to families that have a member with special needs or who is in receipt of provincial disability benefits. Although originally designed to protect the inheritance of children with special needs, it can also be an effective estate planning tool for other reasons and even for other families.

For families that do have a child with special needs, in addition to it's ability to protect the beneficiary's provincial disability benefits, a Henson Trust can be a tax-efficient way of taking care of that challenged child's siblings or other relatives. In many cases, the amount of money in the trust is more than the child will require, and whatever remains after the child’s death can be redistributed among his or her siblings.

I will let Ken Pope explain the other beneficial tax implication for families who have a member with special needs:
Under Canadian tax law, there are three types of testamentary trusts: a Graduated Rate Estate (GRE), Qualified Disability Trust (QDT), and all other testamentary trusts (OTTs). 
It used to be that all testamentary trusts were generally taxed in the same way — at the same graduated tax rates as any individual, but as of Jan. 1, 2016, OTTs are taxed at the highest federal tax rate while GREs and QDTs are not ...
"The taxation of testamentary trusts has changed, but as long as income is declared or attributed in the hands of beneficiaries who are in lower tax brackets, there’s no real change,” Pope says. “Now all income in the hands of the trust is taxed at the top marginal rate of 44 per cent, but if the income is declared in the hands of a beneficiary, it’s taxed at a substantially lower rate.”Finally, a reason for any family to consider using a Henson Trust is to allow parents to sprinkle income among their children or to protect assets in the event of a divorce.
As I said, however, this isn't just an estate planning device for families with a member with special needs. A very good reason for all families to consider whether or not a Henson Trust might be useful in their circumstances is the fact that it gives parents the ability to sprinkle income among their children and protect assets in the event of a divorce.
If you receive $100,000 inheritance from your father, and you and your husband use it pay down your mortgage, you won’t ever get $50,000 back in the event you divorce,” he explains. “But if you receive this inheritance as a Henson Trust, that trust in not divisible in the event you get divorced.”
Henson Trusts ... crucial for families with a member in receipt of provincial disability benefits, but so much more.