Getting Money and Assets out of a Trust Part 2

In my last blog we discussed some of the ways to get money and assets out a trust. As we can see the 2 main ways that people use are loans and income from investments or businesses. In the case of loans you must remember that loans need to be at the current prescribed interest rate or higher. It is very important that you look up the current rates when you are doing a loan to or from a trust, corporation or spouse to make it a compliant loan. Prescribed rates are typically much lower than prime. Recently we’ve seen the prescribed rates 1% and lower. As discussed prior, loan interest must always be paid one month after the year end of a trust, which is almost always December, except in the case of some testamentary trusts. Thus most loan interest is due January 31^st.

Getting money and assets out through income is the other main method people use. This can be extremely beneficial in income splitting, capital gains splitting, multiplying the capital gains exemption, utilizing dividends and more. Some income may even be able to be given to minors, however planning is key as special tax could apply.

The trust may own assets and these assets can be given to beneficiaries. For example if the trust owned a property the trust may choose to give that property to one or more beneficiaries. If the trust owns other assets or investments the trust may choose to distribute a portion or all of the assets to beneficiaries. It is again up to the trustees discretion if it is a discretionary trust. This can be done on a tax deferred basis if the beneficiary provides collateral or if a Rollout is used, however if a rollout is used, the trust may close and the beneficiary can no longer be a beneficiary.

It is key to plan with advisors when it comes to maximizing the use of your trust. Kustom Design, our associates and our advisors are all here to assist you in your planning. Please don’t hesitate to email us with any questions or contact us to book an appointment. Initial consultation is always free, and if you are on a Kustom Design package then you have lots of hours of included consulting. In my next blog we will be wrapping up our series on maximizing the use of trusts.

Getting Money and Assets out of a Trust part 1

Ultimately the Trustee is in control of what happens with the assets of a trust. We’ve already discussed assets and money going into a trust. A trust may retain the assets or the income or it may distribute the assets and income to beneficiaries at the trustee’s discretion. Many people use family trusts to flow through income to beneficiaries while holding assets such as shares or real estate.

A trust is very effective in flowing income through to beneficiaries. When income is distributed to beneficiaries it can typically retain the characteristics of the way it came in. For example if the trust receives dividend income, then the trust may flow dividends to the beneficiaries. If the trust receives capital gains income, it could also flow capital gains to the beneficiaries. Since this income is not retained by the trust the trust will not be taxed on the income. The income distribution is reported on a T3 Slip and the tax is calculated on the tax return of the beneficiary. This is of course very beneficial for tax planning!

A trust may also give loans. In many cases a trust would not loan to a trustee or beneficiary of the trust, as always consult with professionals when considering major transactions. Loaning funds to and from a trust can be an effective strategy. A trust that has capital may provide a mortgage to a corporation to buy a property. A trust that has capital may provide a loan to another entity to make an investment. There are many effective examples of trusts providing loans to build more Wealth.

If a trustee wanted money from the trust they may charge a Trustee’s Fee for overseeing the affairs of the trust. This, as with everything else the trustee does, should be in the best interest of the beneficiaries as the trustee has the fiduciary responsibility to the beneficiaries. A trust may also pay for tuition and education for the benefit of a beneficiary who is a minor and it will be considered a payment from the trust to the beneficiary.

In my next blog we will look at more ways to get money and assets out of a trust.