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TheReview Wednesday, October 14,1992 — A25

Get expert advice on setting up trusts

Think of your accountant and
your lawyer when you think about
setting up a trust.

“Trusts offer several tax and
estate planning opportunities,”
said Elio Luongo, tax manager of
KPMG Peat Marwick Thorne,
chartered accountants.

“But setting up a trust is a
complex matter. You always need
expert advice to decide if a trust
would be beneficial and if so, to
avoid the various tax and other
traps.”

An inter vivos trust is set up
while you are alive; a testamentary
trust is created following death.
Testamentary trusts are particu-
larly common when one or both
parents die, leaving money or
other assets to minor children for
whom a trust must be set up
through a will. The trust can
continue even after the children
reach the age of majority.

Our annual series of tax-
planning columns continues with
some tips about trusts — but as
Luongo stressed, getting expert
advice is important. His comments
here refer to Canadian residents
and income tax.

“A small business owner or
somebody with substantial invest-
ments who Is a parent often wants
to share future growth with the
children — and limit his (or her)
tax liability at the same time,”
Luongo said.

“An estate freeze is the most
popular way to accomplish this. It
involves the issuing of different
classes of shares so the parents
freeze the value of the company
into preference shares while the
children acquire common shares
with a nominal value which will

_teflect the future growth of the

company’s worth.
“An estate freeze can also mul-
tiply the benefit of the capital

gains exemption, provide future
income-splitting opportunities and
reduce tax at death.

“But if the children are minors,
you may need to set up an inter
vivos trust so the parents can still
exercise some control. This is also
important if there could be a

breakdown in an adult child’s
marriage.”

Luongo stressed the importance
of structuring such a trust care-
fully. “Otherwise, the income and
capital gains earned by the trust
could be attributed back to the
parents,” he said.

A trust is usually treated as a
separate taxpayer, paying tax after
claiming deductible expenses
from its income. An inter vivos
trust pays tax at the top personal
Tate on any income not distributed.

“By filing a preferred benefici-
ary election, it is possible to have
the trust’s income taxed in the
hands of the beneficiaries — even
though the money is not distri-
buted to them,” said Luongo.

On-the other hand, a testamen-
tary trust pays tax as an individual
does, with the same graduated
rates of tax.

“If a spousal trust is properly
Structured, for example, income
can be split between the surviving
spouse and the trust so that both
may use the lower tax brackets,”
Luongo said.

N. Saanich firms get fech funds

Four Peninsula companies are

among 15 Vancouver Island organ-
izations who will use Technology
BC grants to fund developments
that will keep B.C. in the forefront
of new technology.

Technology Minister Tom Perry
announced the competition results
for the $5.7 million Technology
BC program, which is adminis-

~ tered by the Science Council, last

month.

The program is designed to
Stimulate the development and
application of science and technol-

_ ogy for the economic benefit of

the province.

Two North Saanich firms, Vic
Tec Corporation ($22,560) and,
Quester Tangent Corporation
($97,980) received new grants and
two others, Espinosa Mariculture
($28,000), and Axys Environmen-
tal Systems Limited ($140,000)
had their grants renewed.

Vic Tec Corporation ($22,560)
is developing long life seals for
hydraulic cylinders, and Quester
Tangent Corporation is building a
prototype system to analyze sonar
data to obtam information about
the ocean floor in shallow water
areas.

A number of grants were also
awarded to University of Victoria
researchers.

In addition four Victoria compa-
nies were awarded new grants.

The Science Council operates
Technology BC on behalf of the
Ministry of Advanced Education,
Training and Technology.

“These financial awards allow
innovative companies and individ-
uals to undertake leading edge
research on projects that demon-
strate great potential,”’ said Perry.

Proposals were adjudicated by
the Science Council’s volunteer
peer review committees.

Proposals are evaluated on the
basis of scientific and technical
merit, economic potential, the
applicant’s capabilities and
resources, and DNdges and time
frame.

Close to $35 million has been

_ awarded for 531 projects in six

competitions since Technology
-BC was established in 1989.

The deadline for the next Tech-
nology BC competition is Friday,
October 30. Application forms as
well as further information and
guidance can be obtained from the
Science Council office.

- If a trust ears Canadian divi-
dends and pays them to a benefici-
ary, then the beneficiary may claim
the dividend tax credit.

A testamentary trust is often set
up through a will for children,
providing regular income plus per-
haps percentages of the capital at
different ages — 19, 25 and 35, for
example.

“Spouse trusts are useful for

both general and tax planning,” [i

Luongo said. “The terms of the
trust must specify that only the
spouse may receive income or

capital from the trust until the |

spouse’s death.”

“If you leave your assets
directly to your spouse instead of a
spouse trust, your spouse can then
determine what happens to these
assets following his or her death.
With the spouse trust, you decide
what happens.”

If you remarry, you can use a
spouse trust on your death to make
sure your children or other rela-
tives receive some or all of your
assets following your spouse’s
death. Otherwise, your spouse
could leave those assets to his or
her beneficiaries.

“Special rules allow a tax-
deferred rollover of property —
typically stocks and revenue prop-
erty — to a Spouse trust,” said
Luongo.

“When property passes to a
spouse Or spouse trust, it may be
transferred at its tax cost rather
than fair market value. This avoids
a deemed: disposition and the

_tesulting immediate tax. The tax

may then be differed until the
surviving spouse dies.”

Mike Grenby is a Vancouver-
-based columnist and independent
financial adviser who works with
individuals; he will answer your
questions as space allows — write
to him clo The Review, 9726-First
St, Sidney, B.C., V8L 3C7.

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