Family Trust Ontario: How It Works and Who May Need One

A family trust in Ontario can be a useful estate, business succession, and asset-planning tool. Family trusts are sometimes used to hold private company shares, manage assets for children or future generations, or support a broader estate plan. However, a trust is not the right solution for every family. Establishing and maintaining one creates legal, tax, accounting, and administrative responsibilities, so its usefulness depends on the assets involved, the people involved, and the family's long-term objectives.

Table of Contents

• Key Takeaways

• What Is A Family Trust In Ontario?

• Why Would Someone Create A Family Trust?

• Family Trusts And Business Owners

• Do I Need A Family Trust?

• Frequently Asked Questions

Key Takeaways

A trust separates ownership from benefit

A family trust is a legal relationship in which the trustee holds legal ownership of property for beneficiaries, who may receive income or capital under the trust deed. This separation can provide structure and control, but it also means the trustee has real legal duties.

Planning must match the family's circumstances

Family trusts are often considered where a family owns private company shares, substantial investments, or assets intended for future generations. They may also help where a beneficiary is too young, financially vulnerable, or not ready to manage a large inheritance directly.

Administration is ongoing

A trust deed is only the starting point. Trustees need to make and record decisions, maintain financial records, consider tax reporting, and follow the terms of the trust. Retained trust income is generally taxed at high marginal rates, which is one reason a trust should never be treated as an automatic tax-saving tool.

What is a family trust in Ontario?

A family trust is usually an inter vivos trust, meaning it is created during a person's lifetime. It is commonly used to hold investments, private company shares, or other property for the benefit of family members. Ontario trust law governs the legal relationship and trustee duties, while federal income tax rules generally govern how trust income and capital gains are taxed.

How does a family trust work in Canada?

At its core, a trust separates legal ownership from beneficial ownership. The trustee legally owns and manages the trust property. The beneficiaries may benefit from that property, but they do not necessarily control it or have an immediate right to receive it.

A typical family trust has four parts:

Role Or Element

What It Does

Settlor

Establishes the trust and transfers a nominal amount or other property to begin the trust relationship.

Trustee

Holds, manages, invests, and distributes trust property under the trust deed.

Beneficiary

May receive income or capital if permitted by the trust deed and trustee decisions.

Trust Property

The assets held by the trust, such as cash, investments, real estate interests, or corporate shares.

The written trust deed is the operating document. It identifies the trustees and beneficiaries, describes trustee powers, and sets the rules for distributions. It may give trustees broad discretion, or it may require specific payments at specific times.

A discretionary family trust may give trustees flexibility to decide whether to distribute income or capital, when distributions should be made, and which eligible beneficiaries should receive them.

Trustees have fiduciary obligations and must exercise their powers honestly, in good faith, prudently, and in accordance with the terms of the trust and applicable law. They cannot treat trust property as their own. Readers looking for more detail on Trustee roles and responsibilities should understand that being named trustee is a working legal role, not simply an honorary title.

A simple Ontario family trust example

Consider an Ontario business owner who owns shares in a successful incorporated company. The owner wants to keep operational control today while creating a structure that may allow future business growth to benefit a spouse and children.

The arrangement might work like this:

1. A trusted person establishes the family trust as the settlor, usually using a nominal amount.

2. The business owner and another trusted adult are appointed as trustees. They must make decisions jointly or according to the trust deed.

3. The spouse and children are named among the possible family trust beneficiaries.

4. As part of a properly structured corporate reorganization, the existing owner's interest may be reorganized so that future growth can accrue to a new class of shares held by the family trust, while the owner retains other shares and potentially voting control. The exact structure varies considerably and requires coordinated corporate, tax, and accounting advice.

5. If dividends are later paid on the trust-held shares, trustees decide whether and how distributions should be made, subject to the trust deed and tax rules.

This example does not mean dividends can simply be directed to family members for tax savings. Attribution rules, tax on split income rules, beneficiary age, corporate ownership facts, and the source of funds all matter. Legal and accounting advice should be obtained before any share transfer or corporate restructuring.

Inter Vivos trusts and Testamentary trusts

A family trust and a will can work together, but they operate differently.

Feature

Inter Vivos Family Trust

Testamentary Trust

When It Begins

During the settlor's lifetime

Following death under a will

Typical Use

Asset management, business shares, succession, and lifetime planning

Holding or managing inherited property after death

Control During Life

Trustees manage property while the trust exists

The will maker generally controls property until death

Estate Planning Role

May help structure assets outside the estate in some situations

Forms part of the estate administration process

A will still matters even if a family trust exists. A will addresses assets that remain personally owned at death, names an executor, and can include a testamentary trust. The more useful question is often not whether someone needs a family trust instead of a Will, but how the two might work together as part of a broader estate plan.

Why Would Someone Create A Family Trust?

A family trust can provide control, flexibility, and succession planning benefits where there is a clear purpose for it. It can also add expense and complexity where the asset base or family circumstances do not justify the structure.

Common reasons families consider a trust

A family trust may be considered for several connected reasons:

• Holding investments intended to benefit children or grandchildren over time.

• Managing property for a beneficiary who is young, financially inexperienced, vulnerable, or dealing with circumstances that make direct ownership unsuitable.

• Creating a structured ownership framework for private company shares.

• Supporting family business succession planning in Ontario.

• Coordinating estate planning, control, and future asset distributions.

• In appropriate circumstances, structuring ownership of certain assets in a way that may affect how those assets are dealt with on death and whether they form part of the estate administered under a Will.

Asset protection requires careful expectations

A trust is sometimes described as a creditor-protection tool. That description needs caution. A properly established trust may separate trust property from a beneficiary's personal ownership in some circumstances, but it is not a safe way to defeat existing creditors, avoid legal obligations, or move assets after a claim has arisen.

The result depends on the timing of transfers, the trust terms, control over the assets, applicable insolvency law, and the facts of the claim. If a person remains able to treat the property as though it is personally owned, the intended protection may be weaker than expected. Asset-protection planning is generally most effective when undertaken proactively, rather than after a creditor claim or other legal problem has arisen.

Taxes, income decisions, and the 21-year rule

Trust taxation is a central part of the decision. Trustees generally decide whether income remains in the trust or is made payable to beneficiaries under the trust deed. As a general principle, income retained in a trust may be taxable to the trust, while certain amounts that are properly paid or made payable to beneficiaries may instead be included in the beneficiaries' income. The actual treatment depends on the nature of the income, the trust structure, applicable provisions of the Income Tax Act, and the circumstances of the beneficiaries.

Income splitting is not automatic. For example, attribution rules may apply when property is transferred to a trust for a spouse or minor child in certain circumstances. Tax on split income rules may also restrict the tax benefits of distributing certain private corporation income to adult family members. The tax result depends on who contributed property, the beneficiary's age and role, the type of income, and the wider corporate structure.

Many trusts are subject to what is commonly called the 21-year deemed disposition rule. Under the Income Tax Act, certain capital property held by a trust may generally be deemed to have been disposed of and reacquired at fair market value every 21 years, subject to important exceptions. This can trigger accrued capital gains even though the trust has not actually sold the property.

The practical lesson is simple: do not wait until year 20. Trustees and advisers should review the trust well in advance to assess whether property should be distributed, reorganized, sold, or otherwise addressed under a compliant plan.

Family Trusts And Business Owners

For business owners, a family trust may form part of a succession or corporate planning strategy, particularly where private company shares are expected to increase in value or ownership may eventually transition to the next generation.

Holding private company shares

A common use of a family trust is to hold shares in a family corporation. This can be part of an estate freeze, where the current owner fixes the value of their existing interest and allows future growth to accrue on shares held by the trust.

For example, a business owner may exchange existing common shares for preferred shares with a fixed value. The family trust may then subscribe for new common shares that capture future growth. This does not transfer day-to-day control automatically. Voting rights, shareholder agreements, and share classes need to be designed carefully.

George E. Dube, CPA, CA, Partner, Canadian Tax at BDO Canada, has written extensively about family trusts and their tax and reporting considerations. His commentary emphasizes the importance of coordinating legal and accounting advice when determining how a trust should be structured, who should act as trustee, who should be included as beneficiaries, and how the trust will be administered over time.

Coordinate the legal, tax, and valuation work

Corporate trust planning can fail when documents are signed in the wrong order or when the share value is not properly considered. Before transferring or issuing shares, the planning team may need to review:

1. The corporation's articles, share structure, minute book, and shareholder agreement.

2. The owner's will, powers of attorney, insurance, and broader estate plan.

3. The trust deed, trustee powers, beneficiary classes, and distribution rules.

4. The company's current value and the value of the shares being exchanged or issued.

5. Tax consequences, including attribution, tax on split income, capital gains, and reporting obligations.

The legal documents need to match the commercial plan. A trust deed that permits broad distributions may be suitable for one family and unhelpful for another where parents want clearer limits around education, housing, or future business participation.

The administrative work does not end at setup

Trustees should maintain a practical annual file. This reduces confusion years later, especially when beneficiaries become adults, trustees change, or a corporate sale is being considered.

A sound recordkeeping process usually includes:

• The signed trust deed and records of property transferred into the trust.

• Trustee resolutions documenting income allocations, capital distributions, investments, and major decisions.

• Financial statements, bank records, investment records, and corporate dividend documentation.

• A record of each beneficiary's address, tax information where needed, and distributions received.

• Copies of T3 returns and related tax slips, where required.

Trustees should also establish a clear process for paying professional, accounting, investment-management, and administrative expenses associated with the trust. Those expenses should be properly recorded and reviewed with the trust's legal and accounting advisers.

Do I Need A Family Trust?

A family trust may be worth exploring if it solves a specific ownership, succession, or beneficiary-management issue that simpler planning cannot solve. If the only objective is a perceived tax saving, without a broader estate, succession, asset-management, or corporate-planning purpose, a trust may add more complexity and expense than value.

Questions to discuss before creating a trust

We recommend discussing the following questions with legal and accounting advisers before setting up or restructuring a family trust:

• Do I own shares in a private corporation or expect my investments to grow significantly?

• Do I expect children or other family members to participate in the business later?

• Am I planning for the transfer of a family business to the next generation?

• Are there beneficiaries for whom direct ownership of a substantial asset may not be appropriate?

• How would a trust fit with my will, powers of attorney, shareholder agreement, insurance, and corporate structure?

• Who is willing and suitable to act as trustee for many years?

• What tax filings, accounting costs, and recordkeeping would the trust create?

• Is there a realistic plan for the 21-year deemed disposition rule?

When a family trust may not be the right tool

A trust may be unnecessary where an estate is simple, assets are modest, and a will with appropriate beneficiary designations already meets the family's objectives. It can also be a poor fit when proposed trustees do not understand their duties, family members are likely to dispute control, or the ongoing compliance cost outweighs the expected planning benefit.

For instance, a parent with a straightforward investment account and adult children who can manage their own inheritance may gain little from establishing and maintaining a discretionary trust. A carefully drafted will may be more direct. By contrast, a corporation with meaningful future growth and several potential next-generation owners may justify a more detailed review.

For broader context, Trusts can be part of estate, business, and family planning, but the right choice depends on the facts rather than the label.

How a trust fits into estate planning

A trust should be reviewed alongside the entire estate plan. That includes wills, powers of attorney, beneficiary designations, corporate documents, and tax planning. A trust does not replace those documents.

In some cases, a trust can hold assets outside the estate and reduce the property requiring probate. In other cases, the main benefit is not probate reduction at all. It may be control over business shares, protection for a young beneficiary, or a smoother transition of ownership. Using a trust in your estate planning strategy may help frame the questions that should be considered with the rest of an estate plan.

If you are considering a family trust, the first step is identifying what the trust is intended to accomplish. Carson Law, working collaboratively through the CRS Law Collective, can help Ontario individuals, families, and business owners consider how a trust may fit within a broader estate, corporate, or business-succession plan and coordinate the legal planning with your accounting and tax advisers.

This article provides general legal information only and is not legal, tax, or accounting advice. The appropriate structure and tax treatment depend on individual circumstances.

Frequently Asked Questions

What is a family trust in Ontario?

A family trust is a legal relationship in which trustees hold and manage property for beneficiaries under a trust deed. It is often used for private company shares, investments, estate planning, or managing assets for family members over time.

Who owns the assets in a family trust?

The trustees hold legal title to trust assets. Beneficiaries hold beneficial interests, meaning they may benefit from income or capital as permitted by the trust deed. Trustees cannot use trust property for personal purposes unless the deed and law clearly allow it.

Who controls a family trust?

The trustees control the trust property and make decisions under the trust deed. In a discretionary trust, trustees may have flexibility about distributions, but they must act within their fiduciary duties and consider the interests of beneficiaries.

Who can be a family trust beneficiary?

Depending on the terms of the trust, beneficiaries may include a spouse, children, grandchildren, other relatives, or defined classes of family members. The appropriate beneficiary group depends on the purpose of the trust and the applicable legal and tax considerations.

Can a family trust own shares of a corporation?

Yes. A family trust can hold shares of a private corporation and may be used in corporate reorganizations, estate freezes, and business succession planning. The share rights, corporate records, valuation, and tax consequences should be reviewed before the trust receives shares.

Is a family trust the same as a Will?

No. A family trust created during life can operate while the person is alive. A will generally controls how assets are dealt with after death. The two can be complementary parts of an estate plan.

Does a family trust have to file a tax return?

Many Canadian trusts are required to file an annual T3 Trust Income Tax and Information Return, and some trusts are also subject to additional beneficial-ownership reporting requirements. Exceptions can apply, and the rules have changed in recent years, so filing obligations should be reviewed annually. Where a T3 return is required, the filing deadline is generally 90 days after the trust's tax year-end. Trustees should obtain accounting advice each year rather than assume no filing is needed because the trust had limited activity.

When should someone speak with a lawyer about creating a family trust?

Speak with a lawyer before transferring investments, real estate interests, or corporate shares to a trust; before an estate freeze or corporate reorganization; or when planning for a beneficiary who may need long-term asset management. Early advice is especially useful because timing and documentation can affect the result.

Sources And References

• George E. Dube, CPA, CA — Family Trust articles and tax commentary

• Canada Revenue Agency — T3 Trust Income Tax and Information Return guidance: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t3ret.html

• Income Tax Act — Trusts and their Beneficiaries: https://laws-lois.justice.gc.ca/eng/acts/i-3.3/fulltext.html#h-295288

Registered Retirement Savings Plan (RRSP) - A pillar of retirement income planning

This blog submission is provided by our friends from the Sonoda Team at TD Wealth to help with your retirement and estate planning education.

What is an RRSP? When and how much can you contribute to your RRSP?

One of the pillars of retirement income planning in Canada is the Registered Retirement Savings Plan (RRSP). Introduced by the federal government as an alternative retirement saving vehicle for Canadians who did not have the benefit of an employer-sponsored pension plan, RRSPs have become a mainstay of saving for retirement.

RRSPs enable effective savings for two main reasons:

1. Contributions to a plan are not taxed until they are withdrawn, which reduces your present taxable-income.
2. Investment income or capital gains arising from any investments held inside your RRSP grow on a tax-deferred basis until you withdraw them, or until the plan is de-registered.

You can contribute to your RRSP up to and during the year you turn 71 and you can make contributions at any time during the calendar year.

By the end of the year you turn 71, you are required to close your RRSP by either withdrawing the funds; transferring the funds to a Registered Retirement Income Fund (RRIF); or using the funds to buy an annuity. One of these choices must be made by December 31st of that year.

There is a limit on the amount that you can contribute annually to your RRSP. The annual limit is known as the RRSP deduction limit—or, more commonly, your RRSP contribution room.

The amount you can contribute each year depends on: Your earned income from the previous year The maximum contribution limit set annually by the federal Income Tax Act (ITA) Any unused contribution room from previous years (which can be carried forward indefinitely) Any adjustments based on employer pension plan contributions or spousal RRSPs

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What income counts toward your RRSP contribution room?

RRSP contribution room is based on certain types of earned income as defined in the federal ITA, including:

• Employment income
• Net rental income
• Net business income
• CPP/QPP disability pension income
• Spousal/child support received
• Research grants

Earned income does not include:

• RRSP/RRIF income
• Interest and Dividend Income
• Capital gains
• CPP/QPP income, other than disability benefits
• Old Age Security
• Workers’ Compensation

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How does your earned income and the ITA affect this year’s RRSP contribution room?

You can contribute 18% of your previous year’s earned income up to an annual allowable maximum, which changes every year as set by the ITA. Quite simply, if you have worked and created contribution room, you can contribute.

The quickest way to find out the amount you can contribute is to refer to the RRSP deduction limit on your Notice of Assessment (or Reassessment) from the Canada Revenue Agency (CRA), which you receive after filing your tax return, either in the mail or in your CRA online account:

http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html

Your Notice of Assessment will show the contribution limit for the present tax year, as well as any contributions you made but haven’t deducted in previous years.

The federal ITA also influences your contribution room through its rules to prohibit tax avoidance. For RRSPs, the Anti-avoidance Rules will enable the CRA to impose tax if investments made within them are not qualified. Qualified investments include money, guaranteed investment certificates, government and corporate bonds, mutual funds and securities listed on a designated stock exchange.

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How does your unused contribution room from previous years affect this year’s RRSP contribution room?

Perhaps you made a contribution but didn’t have enough room to deduct it in a past year. You can carry forward the contribution room you build up and deduct any undeducted contributions then.

You are allowed to make a cumulative over-contribution of $2,000 above your annual contribution room without incurring a penalty from the CRA. That $2,000 over-contribution may be made in one tax year, or over a number of tax years. Note, however, that you cannot deduct that extra $2,000.

By contrast, if you contribute more than this year’s amount, including making up for your unused contribution room, you will be in an over-contribution position. The CRA may then impose a penalty of 1% per month on the excess amount, until you withdraw it. You will not be taxed on the withdrawal if you make it during the year the unused contribution was made, or the year following, provided that you reasonably expected you could fully deduct the excess.

Alternately, you can leave the excess contribution in your RRSP if you know you will be generating sufficient new contribution room in the following year. However, in the meantime you will still pay the monthly penalty for an excess contribution.

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How do adjustments based on employer contributions affect this year’s RRSP contribution room?

The amount you can contribute in a given year will be affected by any pension adjustments or past service pension adjustments you may have.

The amount of pension benefits you earn in a year from an employer pension plan will comprise your pension adjustment, which reduces your RRSP deduction limit for the following tax year. The greater the amount put aside for you in your employer pension plan, the less you will be able to contribute to your RRSP. This reduction occurs because, if you benefit from an employer pension plan or deferred profit sharing plan, you are seen to be receiving benefits similar to an RRSP. Following from the original intent behind creating RRSPs, this limitation is designed to level the retirement savings playing field.

Meanwhile, if you receive additional pension benefits because your employer has upgraded the company pension plan on a retroactive basis, or you have purchased pension credit for past service, that will result in a past service pension adjustment (PSPA). It will also reduce your RRSP contribution room.

The impact of an employer pension plan enhancement may sometimes be sufficient to reduce that year’s contribution limit, and any unused carry-forward room. You will have “negative contribution room”, which will not be decreased until you generate earned income and new contribution room.

If you leave your employment before retirement, you may be entitled to a pension adjustment reversal (PAR), which will restore some of the RRSP contribution room that was lost due to pension adjustments. In that case, the amount of the PAR would be calculated by your pension administrator. It will differ depending on whether your employer plan was a defined benefit (DB) or defined contribution (DC) plan. DC plans involve contributions from the employee, and are viewed by the CRA to be similar to an RRSP. DB plans, on the other hand, generally involve contributions from the employer as well. Therefore, they are viewed as providing an added benefit on top of an RRSP. If you had a DB plan, you will only get a PAR if you give up the right to receive payments from the plan, or if the commuted value of benefits earned under the plan to a locked-in RRSP (generally known as a Locked-in Retirement Account) are less the amounts considered to be a pension adjustment or PSPA.

You may be able to buy back benefits from your employer pension for a time period when you were not participating in your employer pension plan, perhaps due to a leave of absence such as maternity leave.

Funding a buyback can be done as:

• A lump sum payment
• Installments
• Direct transfer from a registered plan such as your RRSP

If you, as an individual (rather as part of a group), decide to undertake a buyback, please note that the CRA must certify the PSPA calculated by the employer or pension administrator. It is the employer or pension administrator’s responsibility to submit a buyback for certification.

A PSPA cannot be certified if it creates more than $8,000 of negative RRSP contribution room. If so, you will have to weigh the value of the future income generated by adding to your employer pension plan versus the income that could be generated by the funds you transfer from your RRSP.

Let's look at an example: In this scenario, Sam decides to buyback $30,000 in past service. It will result in a PSPA of $30,000. If she is funding the buyback by transferring $15,000 from her RRSP, this creates $15,000 negative contribution room (more than the allowable maximum of $8,000), so she will be required to make further RRSP withdrawal of $7,000 to fund the buyback. PSPA of $30,000 - RRSP transfer of $15,000 = PSPA reduced to $15,000 Allowable negative RRSP room of $8,000 = Requires an RRSP withdrawal of $7,000

A pension buyback and its impact on your RRSP involve some tricky calculations, possibly a transfer from your RRSP to fund the buyback, and a withdrawal so you won’t end up penalized by the CRA. Review your buyback plan with your TD advisor to ensure you will benefit from doing it in the first place. If you will benefit, your advisor can assist with facilitating the buyback, and if necessary a withdrawal from your RRSP.

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How do spousal RRSPs affect each spouse’s contribution room?

A spousal RRSP can be set up by one spouse or common-law partner for the other. Generally, it is established by the higher income-earner for the lower income-earner. Some couples have both individual and spousal RRSPs. Some individuals eventually combine both types of their RRSPs into one spousal RRSP to make managing their investments easier or to cut down on administration costs.

Let's look at an example: If Rahim sets up a spousal RRSP for Kala, when he contributes to the spousal RRSP, his own contribution room will be decreased. He may deduct a contribution based on his contribution room, even though Kala is the annuitant and has full control of the plan. When income is withdrawn from the plan, it will taxable to Kala. The exception would be if she makes a withdrawal within three years from when Rahim makes a contribution. The attribution rules in the federal ITA will be applicable and Rahim will be taxed on the withdrawal.

The attribution will apply on withdrawals up to the total amount of contributions made to all spousal RRSPs in the same year as the withdrawal, and the two previous years. The attribution rule will not apply if the partners are not living together due to relationship breakdown or the annuitant’s partner has died.

While the contributions made to a spousal RRSP are based on the contributor’s contribution room, ultimately, a spousal RRSP will enable the couple to split income when withdrawals are eventually made.

Possible Spousal RRSP Issues: Dominic and Fabriana When Dominic turns 71, his spouse Fabriana is 63. He can still contribute to her spousal RRSP, while collapsing his individual RRSP, as long as he has contribution room. If Dominic and Fabriana separate, under certain conditions, they could ask the CRA to remove the spousal designation of any spousal RRSPs, if they provide written proof that their marriage has broken down (e.g., a legal separation agreement or divorce order). If they get divorced, a tax-free transfer of RRSP funds can be made from one spouse to the other as part of the legal proceedings to settle the division of property or fund spousal support.

Is a spousal RRSP right for you and your partner? Talk it over with your partner and TD advisor to ensure you know the benefits and rules.

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What taxes are imposed on RRSP withdrawals?

If, at any time, you withdraw funds from your RRSP, a federal withholding tax will be imposed (except in special cases such as the RSP Home Buyers’ Plan or Lifelong Learning Plan). If you live in Quebec a combined federal/provincial withholding tax will be imposed.

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When can you claim RRSP contributions?

When making tax claims on RRSP contributions, you can claim contributions made in the first 60 days of the later calendar year for either the preceding tax year or the present tax year. For example, Audley didn’t make an RRSP contribution before the end of 2015, but he needed the tax deduction for the 2015 tax year. Therefore, he decided to make a large contribution to his RRSP in early January, and use it to claim a deduction on his 2015 tax return. Alternately, he could have claimed a deduction for the contribution on his 2016 tax return, or any future tax year.

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How is your RRSP taxed when you die?

It’s likely that your RRSP will present the largest tax liability for your estate. It will be included as income on your terminal tax return at fair market value. Tax will be payable unless you undertake one of a few strategies prior to death.

The most common strategy is to name a qualified beneficiary for your RRSP. That includes your spouse or common-law partner, a dependent minor child or grandchild. The usual practice is to choose your partner. Please note that Quebec residents must name beneficiaries in their will—they cannot do so in registered plan documents.

The RRSP funds are transferred to that person as a refund of premium. The full amount could be taxed as your partner’s income. Usually, however, your partner would transfer the funds into an RRSP or RRIF, continuing the deferral of tax until the funds are withdrawn, or passed on again when he or she dies.

If the beneficiary is a dependent child or grandchild and is named your beneficiary, the funds could be used to purchase an annuity. The only caveat imposed by the CRA is that annuity must end by the time the child or grandchild turns 18 years of age. This results in spreading the tax over several years, when the annual income from the annuity is received, allowing the child or grandchild to take advantage of personal tax credits to lower his or her tax bill. If the child or grandchild (youth or adult) has a physical or mental disability, your RRSP funds can be transferred to the child’s RRSP, RDSP, RRIF, or Pooled Registered Pension Plan, or can be used for the purchase of an annuity.

If you name a registered charity as your beneficiary, your estate will be entitled to a charitable tax donation credit. It is likely to offset any tax owing upon deregistration of your RRSP at the time of death.

If you name neither a charity, nor a qualified beneficiary (such as a partner, child or grandchild), your estate will be responsible for paying the tax owed upon the collapse of the plan. If there are insufficient funds in your estate, the beneficiary may have to pay a share of the taxes owing in situations when the estate and beneficiary share responsibility for the tax liability.

Talk to your TD advisor about a possible beneficiary for your RRSP. Make sure you know the tax impact of your choice.

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This post has outlined some of the ways that RRSPs can help you prepare for retirement, and some of the challenges that they can cause. Be sure to contact your advisor with your questions.

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The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. TD Wealth represents the products and services offered by TD Waterhouse Canada Inc. (Member – Canadian Investor Protection Fund), TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
®The TD logo and other trade-marks are the property of The Toronto-Dominion Bank.

Retirement is coming - Will you have enough?

This blog submission is being provided by our friends from the Sonoda Team at TD Wealth to help WITH your retirement and estate planning education.

For years you’ve been saving for retirement. How much do you think you will actually NEED to spend? Will you have enough? Do you have a withdrawal strategy, with options, should you face unforeseen challenges or decide to reset your goals?

There are plenty of recommendations to make your retirement income last longer. One popular withdrawal rule of thumb is to withdraw 4% per year. However, does that figure have any connection to you and your retirement? Estimating how much you will need during retirement will involve a blend of personal reflection and number-crunching.

If you’re between ten to five years away from retirement, now more than ever is the time to sit down with your TD advisor and do some solid planning. This is when you need to work closely to estimate your spending and withdrawal patterns over the span of your retirement.

You’ll need to shift from asset accumulation to asset utilization. You’ll need to construct a flexible, tax-efficient cash flow to pay your fixed expenses, and have a solid sense of your ability to afford discretionary spending.

While putting together your plan, you should consider planning for unexpected events, for example, a diagnosis of a long term illness. This, plus economic and market factors could have an impact on your ability to withdraw from your retirement income sources.

There are 4 key steps to consider when developing a retirement and estate planning strategy: Ask questions to develop specific goals Identify retirement income sources Plan for different spending stages Establish a withdrawl strategy

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Key questions

Establishing whether you will have enough, and what you may need to do to ensure security in retirement starts with asking some key questions about your retirement goals. Here are some questions to work through with your TD advisor:

• When do I want to retire?
• What are my retirement income sources (government benefits, pensions, registered and non-registered investments)?
• Will I have debts when I retire?
• Will I have sufficient health insurance coverage?
• Will I sell my home because I may not be able to maintain it, or will I need the sale proceeds to fund my retirement?
• Will I be leaving a legacy for my children/grandchildren?
• Will I be leaving a gift for charity?

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The next step is review your retirement cash flow. Will your retirement income meet your retirement goals? Dive into your financial files for the following information and speak with your TD advisor:
First, establish what your fixed expenses are likely to cost. This includes housing costs (such as property tax, maintenance, utilities and insurance premiums), food, clothing and transportation.
Second, what type of discretionary spending will you engage in? Will you be travelling more during retirement? Will you throw your energy into a hobby that may involve expenses? What about entertainment?

Retirement Income: Sources and Assets

Like most Canadians, you may have more than one cash flow source for your retirement. You will have discretion about when and how much you wish to draw from your retirement assets and savings. Here are some of the common retirement income sources and assets:

Income

• Canada Pension Plan/Quebec Pension Plan (CPP/QPP)
• Old Age Security (OAS)
• Defined Benefit or Defined Contribution company pension plans
• Life Annuity

Assets

• Registered Retirement Savings Plans (RRSP)
• Registered Retirement Income Funds (RRIF)
• Tax-Free Savings Accounts (TFSA)
• Non-registered investments & savings accounts
• Home equity

You should consider speaking with your TD advisor to review your optimal asset allocation based on your portfolio, financial/personal goals, estimated life expectancy and attitude toward risk.

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Spending stages during retirement

Let’s assume there are three broad — sometimes overlapping — spending stages of retirement:

• Active retirement years
• Slowing down
• Less active years

The starting point for your planning will be to sit down to revisit your goals as well as any potential life events that could affect your spending.

During your active years, you may be spending more than in any other stage of retirement. For example, will you be travelling extensively?

Based on your family health history, what are the chances you will face some type of health challenge that will require you to slow down, and potentially incur expenses related to adjustments related to slowing down.

In the less active stage, you may have decreased discretionary costs but greater medical expenses.

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Establishing a withdrawal strategy

You’ll need to devise your withdrawal strategy based on your income and assets to meet your retirement goals across these three stages. There are many opinions and strategies as to what the best withdrawal strategy is during retirement. Will these strategies meet your retirement goals?

Let’s look at some common withdrawal strategies, as well as an illustration that examines options when certain needs arise.

1. Convert your RRSP to a RRIF before age 71:
   Let’s assume you have amassed a large RRSP and intend to convert it all to a RRIF at 71. However, if you expect lower amounts of retirement income prior to 71, you might consider converting your RRSP earlier to spread out the tax impact of the RRIF withdrawals. Remember that your RRSP contributions were tax-deductible and accumulated on a tax-deferred basis, and upon conversion to a RRIF, you are required to make annual minimum withdrawals which are included in your annual taxable income.
2. Base RRIF minimums on your spouse’s age:
   If you have a younger spouse or common-law partner, you can decrease your required minimum RRIF withdrawals by basing them on your spouse’s or common-law partner’s age. The required annual minimum RRIF withdrawal is based on a prescribed percentage applied to your age at the beginning of the year multiplied by the value of your RRIF assets at the beginning of the year. This percentage increases as you age, thereby forcing larger amounts of RRIF withdrawals in later stages of retirement. However, if your spouse or common-law partner is younger than you, you can base your RRIF minimum on their age and prescribed percentage and, therefore, reduce the annual withdrawals required. Please note you must elect to set your minimum based on your spouse’s/common law partner’s age before you begin making RRIF withdrawals.
3. Lowering taxes payable on your estate:
   For example, if you wish to leave a legacy to your children, you could look at the benefit of purchasing a life insurance policy, rather than increasing savings in a registered plan.
4. Reinvestment strategy for investment income:
   If you have significant non-registered assets that include dividend-producing equities, and you have set up your account to automatically reinvest the dividends, depending on your retirement income requirements, you might consider receiving the dividends in cash instead of reinvestment. Generally, tax is payable on the dividend income in the year it is received regardless of whether it’s reinvested or paid out in cash. Perhaps you will need cash flow. Taking the dividends in cash could mean you’re diminishing withdrawals from your TFSAs or RRSPs, or selling stocks. Consider speaking with your TD advisor about the most tax-efficient way to manage your non-registered accounts, while striving to meet your retirement cash flow needs.

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Conclusion

Planning for retirement is crucial and you should work with your TD advisor to look ahead. Assess your retirement needs over time. Speak with your TD advisor about your asset allocation to review whether it’s appropriate to meet your needs. Active planning can give you confidence you have planned effectively for your retirement.

Consider: Taking a hard look at your retirement goals & needs, aiming to ensure you’ll have enough funds to support your retirement lifestyle goals. Working with your TD advisor to build a solid retirement withdrawal plan that takes into accountyour spending estimates and any setbacks such as potential health concerns. Reviewing your asset allocation based on your goals/needs during each stage of retirement.

The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. TD Wealth represents the products and services offered by TD Waterhouse Canada Inc. (Member – Canadian Investor Protection Fund), TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
®The TD logo and other trade-marks are the property of The Toronto-Dominion Bank.

Executor and Estate Planning Seminar

Ryan Carson is honored to be asked to provide his legal expertise at the Estate and Executor seminar being provided by Jennifer Aubertin and RBC Dominion Securities in Burlington, ON. Attendance is open to the public and complimentary, but seating is limited so anyone interested should RSVP sooner than later.

Thursday, October 5, 2017

6:00 p.m. – 6:30 p.m.
Reception and light dinner

6:30 p.m. – 8:00 p.m.
Panel discussion and Q&A

RBC Dominion Securities
4475 North Service Rd., 4th Floor
Burlington, ON (Appleby exit)

Please contact Tammy Lawson at 905-332-2583 or tammy.lawson@rbc.com to reserve your seats.

How are you planning for the future?

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