Helping you reduce your family s tax burden

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Kathleen Waters
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1 The RBC Do m i i o Se c u r i t i e s Family Trust Helpig you reduce your family s tax burde Professioal Wealth Maagemet Sice 1901

2 1 RBC Domiio Securities Charitable Gift Program

3 Who should cosider a RBC Domiio Securities Family Trust? A RBC Domiio Securities Family Trust may be appropriate if you: Have childre or gradchildre who have little or o icome Wish to reduce your family s overall tax burde through icome-splittig strategies recogized by the Caada Reveue Agecy (CRA) Possess surplus capital you wat to protect from your high persoal tax rate Wat to have access to the capital you fud to the trust Would like to assist your childre or gradchildre with expeses such as private school tuitio, post-secodary educatio ad extracurricular activities RBC Domiio Securities Family Trust 1

4 Helpig you help your childre Givig childre every opportuity to achieve their full potetial is somethig all of us wat as parets or gradparets. Whether it s esurig they receive a quality educatio, or ecouragig their artistic or athletic iterests, we all wat the very best for our childre. Oe way you ca esure the childre i your family have the best opportuities to fulfill their potetial is to establish a RBC Domiio Securities Family Trust. Through a Family Trust, you ca provide fuds for your childre s beefit, while at the same time alleviatig your family s overall tax burde. Reducig your family s taxes A Family Trust eables you to miimize your family s overall taxes because, whe properly structured, the ivestmet icome (iterest, divideds ad/or capital gais) eared withi the trust may be taxable to your childre or gradchildre. Every child or gradchild i Caada who has o other icome ca ear up to a certai amout of ivestmet icome tax free every year subject to the icome attributio rules. To take advatage of this aual tax-savig opportuity, without givig up access to your capital, you ca establish a RBC Domiio Securities Family Trust. If you have low-icome childre or gradchildre, there are three major beefits of settig up a Family Trust: 1. Assumig your child or gradchild has o other icome, they ca ear up to a certai amout of ivestmet icome tax free every year due to their basic persoal tax exemptio. 2. Because you loa moey to the Family Trust, you ever lose access to the loa capital. 3. Ivestmet icome eared i the trust ca be used to pay for expeses that directly beefit the child or gradchild, such as private school, post-secodary educatio, lessos ad camps. 3 RBC Domiio Securities family Trust

5 How icome splittig helps you miimize taxes There are two reasos why icome splittig ca help you reduce your family s tax burde: 1. Caada s tax system is based o graduated tax rates. A graduated tax rate system meas that the higher your taxable icome, the higher your tax rate. 2. Everyoe i Caada has a tax-free basic persoal exemptio amout (varies by provice). This meas a family member (regardless of age) that has o other icome ca ear the followig amouts every year tax-free, subject to the attributio rules: > Iterest icome tax-free up to the basic persoal exemptio; > Capital gais tax-free up to two times the basic persoal exemptio sice oly 50% of capital gais are taxable; or > Eve higher amouts of Caadia public compay divided icome tax-free due to the divided tax credit. These two factors mea that if you are a highicome earer, ad you ca trasfer some of this icome to low-icome family members, your family ca realize substatial tax savigs every year (subject to the icome attributio rules). Oe way to take advatage of this aual tax savigs opportuity is to establish a RBC Domiio Securities Family Trust. Choosig the right optio for you To meet your family s specific eeds, we offer three types of trusts at RBC Domiio Securities: 1. RBC Domiio Securities Formal Trust 2. RBC Domiio Securities Family Trust Discretioary 3. RBC Domiio Securities Family Trust Age 40 The key differece betwee the Formal Trust ad both of the Family Trust optios is that cotributios to the Formal Trust are cosidered irrevocable gifts, which the child may have rights to at the age of majority. I the case of both Family Trust optios, you would loa cash to the trust (with or without iterest) so you ever lose access to the loa capital. As you result, you may be more comfortable loaig more moey to the Family Trust i order to geerate larger amouts of tax-free ivestmet icome, kowig you ca call back the loa capital ay time. Decidig which of the two Family Trust optios is most appropriate geerally comes dow to two key factors. First, the umber of beeficiaries you wat per trust. Secod, whe you wat your beeficiaries to have access to the icome that was payable to them but ot spet o their expeses. The two Family Trust optios are idetical i all respects except for these two key differeces: Number of beeficiaries per trust Beeficiary s access to ivestmet icome payable to them that was ot spet o their expeses Family Trust Discretioary Multiple Immediate Family Trust Age 40 Oe If eared prior to age 21, the as late as age 40 ad if eared after age 21, the immediate RBC Domiio Securities Family Trust 3

6 Loa optios ad attributio rules You are permitted to loa moies to the Family Trust either iterest-free or at the curret CRA-prescribed iterest rate. Whe you loa moies to the trust o a iterest-free basis, the the iterest ad divided icome eared withi the trust is taxable to you, but capital gais ca be taxable to the beeficiaries. If you loa moies to the trust at the CRA-prescribed iterest rate, the all the ivestmet icome (iterest, divideds ad capital gais) eared withi the trust will be taxable to the beeficiaries as log as the trust pays the iterest o the loa to you o a aual basis. The best loa optio for you will deped o the curret CRA-prescribed iterest rate, your ivestmet risk tolerace ad the goals of your Family Trust. Usig a trust to pay for childre s expeses The RBC Domiio Securities Family Trust is a iter-vivos trust. For tax purposes, this meas that ay ivestmet icome eared i the trust that is ot paid or payable to a beeficiary will be subject to tax i the trust at the top margial tax rate, thus achievig o icome-splittig beefits. However, ay ivestmet icome paid or payable to the beeficiary is taxed i their hads, subject to the attributio rules. I additio, the CRA allows ivestmet icome used to pay for expeses that directly beefit a mior beeficiary to also be taxed i their hads, subject to the attributio rules. Qualifyig expeditures There is o official list of expeditures that qualify as directly beefitig the child. However, accordig to the CRA, qualifyig expeditures ca iclude amouts paid for the support, maiteace, care, educatio, ejoymet ad advacemet of the child, icludig the child s ecessaries of life. If you use trust icome to pay for expeses that beefit the child, you must properly documet the expeses ad retai all receipts. Some types of expeses that may qualify iclude: Private school fees Lessos Camps Sports equipmet Gifts If you pla o usig the trust s icome to pay for a beeficiary s expeses, the expeses must uequivocally beefit the beeficiary. Paymets beefitig someoe else or used for ordiary household expeses will result i adverse tax cosequeces. Please make sure you cosult with your legal or tax advisor before usig trust icome to pay for a child s expeses. We recommed that you review all trust ad loa documets with your legal ad tax advisors before establishig a RBC Domiio Securities Family Trust. It is also recommeded that the trustee(s) cosult with their tax ad legal advisors to discuss the resposibilities of a trustee ad recordkeepig requiremets. 4 RBC Domiio Securities Family Trust

7 Help your childre achieve their goals with a RBC Domiio Securities Family Trust If you are lookig for a way to help your childre, while ejoyig importat tax advatages, the RBC Domiio Securities Family Trust may be the right choice for you. Please cotact your Ivestmet Advisor for more iformatio. This publicatio is ot iteded as or does it costitute tax or legal advice. Readers should cosult their ow lawyer, accoutat or other professioal advisor whe plaig to implemet a strategy. This iformatio is ot ivestmet advice ad should be used oly i cojuctio with a discussio with your RBC Domiio Securities Ic. Ivestmet Advisor. This will esure that your ow circumstaces have bee cosidered properly ad that actio is take o the latest available iformatio. RBC Domiio Securities Ic.* ad Royal Bak of Caada are separate corporate etities which are affiliated. *Member CIPF. Registered trademark of Royal Bak of Caada. Used uder licece. RBC Domiio Securities is a registered trademark of Royal Bak of Caada. Used uder licece. Copyright All rights reserved.

8 Please cotact your Ivestmet Advisor for more iformatio about the RBC Domiio Securities Family Trust (02/2010)

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