Graduated Rate Estates (GRE): Toronto Tax Lawyer Guide

Introduction - Taxation of Testamentary Trusts and Estates

A testamentary trust is one that is created as a result of the death of an individual. Under the Canadian income tax system, once an individual dies, all of that individual's assets are deemed to have been disposed and then reacquired by the individual's estate at the current fair market value. Once the estate has paid off its debts and taxes, it can then distribute its remaining assets according to the deceased individual's will. One option is for that will to direct that some or all of those assets to be transferred to a trust, which is known as a testamentary trust. An individual can create any number of testamentary trusts in his will. Prior to January 1, 2016, all testamentary trusts were subject to graduated tax rates, which meant that much of their income was taxed at a lower rate, allowing for significant income splitting. However, as of January 1, 2016, graduated rate estates (GREs) are the only