As you may be aware, the 2014 Federal Budget did not bode well
for the tax savings achieved through the use of testamentary
trusts. Currently, establishing a trust during someone's
lifetime (inter-vivos) results in income earned by the trust being
taxed at the highest marginal rate. In contrast, a trust settled on
the death of an individual (testamentary) allows for the use of
marginal tax brackets. Using a testamentary trust can result in
large tax savings.
The proposed legislation eliminates the use of marginal tax
brackets for grandfathered inter-vivos trusts, trusts created by
Will and estates. It's important to note that an estate created
on death will have a grace period of 36 months. This means that the
estate (or trust) will have access to the marginal tax brackets for
that period. At this time, the trust will be considered a
"graduated rate estate". The grace period of 36 months
was determined to be the time it will take to clear up all
administrative
