Generally speaking, transfers to trusts by a Canadian taxpayer, regardless of whether the trust is resident in Canada or otherwise, result in any income from the trust being attributed back to the contributor of the assets. However, there can be circumstances when this is not the case, or circumstances were there are outstanding non-tax benefits to making such transfers in any event. Of course, if assets are contributed to the trust, and the trust is taxable in Canada, and the contributor is not a beneficiary of the trust in any way, then there is the potential for some tax savings. Trusts can also be established during the lifetime of the settlor and beneficiary (who may be the sole or one of many beneficiaries) for the purposes of asset protection. Provided that the trust is not settled, and the assets are not transferred, in anticipation of bankruptcy or to evade current creditors, and the trust has been established long enough prior to any adverse events to no amount to a fraudulent conveyance or a violation of the Bankruptcy Act of Canada, depending on the rules of the province of residency, assets in a trust may not be seized by creditors of the settlor, contributor or beneficiaries. There are also alter-ego and spousal trusts that can be created in compliance with the Income Tax Act for the purposes of dealing with the issues that arise when family members get older and eventually begin to have problems managing their own affairs. Rather than making ad hoc arrangements with their children or other caregivers which can prove problematic or may be ignored once the individual or couple are no longer competent or capable of objecting, in some cases it is advisable for individuals and couples over 65 to settle their assets into a trust for their benefit. By doing so, the individual or couple in question can ensure that their wishes may be clearly set out, and the assets managed going forward in the manner they deem appropriate while still competent to make such decisions. The use of such trusts can also be an important estate planning tool.
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