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22 lacible | Mai 2018 FEATURE ARTICLE Sylvain Chartier M. Fisc., F. Pl. Advisor National Bank Private Banking 1859 On the other hand, the testamentary trusts that are commonly called "education trusts" are still worthwhile. Two tax-saving situations can be covered by this kind of trust: 1. a parent who leaves their assets to their children who have (or will have) children; 2. on the death of one of the spouses, a trust created for the surviving spouse and the minor children or low-income adult children In this second situation, it is important to ensure that the bequeathed assets trigger little or no tax expense. This type of plan is mainly for couples with young children. These people often start by contributing to the RESP, TFSA or RRSP and paying down their debts, so they have few non- registered assets. But young couples should purchase life insurance to provide replacement income in the event one of them dies. This capital can easily be transferred to a trust. No income tax will be payable. To transfer the life insurance proceeds, the benefit must be paid to the estate. A beneficiary designation in favour of the spouse will prevent the use of this strategy. One of the major advantages of a testamentary trust is the option of splitting the income with minor children. During the testator's lifetime, the attribution rules and income tax on split income (kiddie tax) considerably undermine the capacity to achieve tax savings. The table on the next page shows an example of the scope of tax savings that a testamentary trust can provide when there are children among the beneficiaries. Clearly, this strategy is not reserved for the very wealthy. Imagine someone who has the choice between leaving $600,000 in life insurance proceeds (or other non-registered assets) to their spouse or to an education trust with the spouse and two children as beneficiaries. In this example, the surviving spouse has a personal income of $50,000, the funds generate a return of 4% (interest only) and the annual trust fees are $2,000. TESTAMENTARY TRUSTS – STILL A VALID CHOICE? In recent years, the possibilities for achieving tax savings using income splitting strategies have been considerably curtailed. The following strategies, in particular, have become somewhat less attractive: • Pension income splitting can only begin at age 65 in many situations • The payment of dividends directly or through a trust to family members, beginning in 2018 • Taxation at the maximum marginal rate for income generated in a testamentary trust, since 2016 In this article, we will look at the last of these. Are testamentary trusts finished as a means of income splitting? Exclusive or non-exclusive spousal trusts created solely for income splitting purposes no longer allow for income tax savings, except in some rare situations where the effective marginal tax rate (EMTR) is high. In fact, all testamentary trusts with a single beneficiary are pointless if they are created solely for tax purposes. They are still useful for a testator who wants to manage the devolution of their assets, for example: • Limited or no encroachment clauses for a spouse (second union or remarriage of the spouse) when the testator wants to ensure the capital will be passed on to their children • Gradual handover of assets for a child who has not yet reached financial maturity.

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