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FAMILY TRUSTS [307]

 This is a generic term encompassing a variety of trusts created by persons for the benefit of their family members. In fact, most trusts used in estate planning are family trusts, including spousal trusts. A typical family trust may hold property in trust for a parent and his/her spouse during their lifetimes, with the remainder of trust capital going to the children. During the parent’s lifetime, the trust might provide for the trust’s income to be distributed to the beneficiaries in a predetermined manner, or as determined in the discretion if the trustees. The trustees would normally include the parent, perhaps the spouse, and an independent third party (e.g., aunt, uncle, and lawyer). Family trusts also include testamentary trusts, those created on a person’s death for the benefit of his/her family members.

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While the income attribution rules and trust tax rules have curtailed the usefulness of family trusts in “sprinkling” investment income to family members, it remains possible to use family trusts to achieve income splitting with children 18 or over or over or parents, provided no interest – free or low – interest loans are used. Moreover, with children under 18, capital gains splitting is possible. In addition, trusts can be used to hold shares of a “small business corporation” and to achieve income – splitting with a spouse or common – law partner if structured properly.

Trusts are often used to own new shares of a corporation issued upon an estate freeze for the benefit of the freezor’s children. The estate freeze may substantially reduce the freezor’s capital gains tax incurred on his/her death. In addition, because capital gains may be allocated to beneficiaries or partners, in most circumstances, such gains may be allocated to parents or children (both adult and minor). Since there is no attribution of capital gains realized by such family members.

SPOUSAL TRUSTS

 spousal trust is a trust under the terms of which (1) the settlor’s spouse will receive all income of the trust during his/her lifetime, and (2) no one other than the spouse can obtain any income or capital of the trust during the spouse’s lifetime.Spousal trusts are discussed further at pages 113, 116 and 122, above.

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