While family trusts are great tools for flexibility in income
splitting and succession planning, a day will come where the
trustees must make the decisions about what to do with the trust
property.
From an income tax point of view, a trust is deemed to dispose
of trust property at the 21st anniversary of settlement of the
trust, and every 21 years thereafter. This policy is meant to force
a distribution of trust property to the beneficiaries or have taxes
triggered.
Below are some key planning considerations when approaching the
21st anniversary of a family trust.
Keeping Property in the Trust: As the trust
reaches its 21st anniversary, under the 'do nothing'
approach, the trust will retain the property but will be deemed to
dispose of it at fair market value (FMV) and reacquire it at that
same FMV, essentially triggering the taxes and having a new cost on
the property. The trustees should determine the consequences of
triggering the gain on the 21st
