Deck 19: Trusts and Estate Planning

Question 1

What conditions must be satisfied in order for a trust to qualify as an alter ego trust? Briefly describe the income tax and non-income tax reasons for using an alter ego trust.

Answer 1

The following conditions must be met in order to establish an alter ego trust:
• The settlor must be 65 years of age or over.
• The settlor is entitled to receive all of the income of the trust that arises during the settlor's lifetime.
• No person other than the settlor can receive or make use of the capital or income of the trust during the settlor's lifetime.
The major tax advantage of these arrangements is that assets can be transferred into such trusts on a tax free basis. An additional tax feature is the possibility of establishing the trust in a low tax rate province, thereby minimizing the taxes that will arise at the time of death.
With respect to the non-tax advantage of such arrangements, the basic feature is that the assets in the trust will not be part of the settlor's estate at the time of death. This means that these assets will not have to go through the probate process, a process that can be both costly and time consuming.

Question 2

The preferred beneficiary election allows amounts to be taxed in the hands of a beneficiary even though the amounts have not been distributed to that beneficiary. What is the objective of this election?

Answer 2

The preferred beneficiary election is only available if:
• the beneficiary is claiming the disability tax credit; or
• the beneficiary is 18 years of age or older, is claimed by another individual as a dependant, and does not have income that exceeds the base for the beneficiary's personal tax credit.
As such individuals usually have very little income, the objective of this provision is to allow the relevant amounts to be taxed at low rates, while not transferring the funds to an individual who might not be able to use them in an appropriate manner (e.g., a mentally infirm child).

Question 3

Briefly describe the 21 year deemed disposition rule. Your answer should include the objective of this rule.

Answer 3

This rule requires that there be a deemed disposition and reacquisition of trust capital property every 21 years. The disposition is deemed to be at fair market value, resulting in the recognition of any accrued gains on the assets. Like corporations, trusts have an unlimited life. In the absence of this rule, capital gains could accrue for an unlimited period of time inside the trust. This rule is designed to limit the accrual period.

Question 4

What are the consequences for the settlor if the CRA concludes that a trust is a reversionary trust?

Question 5

Legally, the estate of a deceased individual is not the same as a trust. Given this, why does the Income Tax Act use the terms estate and trust as though they had the same meaning?

Question 6

A testamentary trust has been designated a graduated rate estate (GRE). In accordance with the decedent's will, the widow and the decedent's adult son each receive 40 percent of the GRE's income and the remaining 20 percent of the GRE's income is retained in the GRE. Briefly describe the tax consequences of the income earned and retained by the GRE, and the income distributed by the GRE to the widow and son.

Question 7

Briefly compare the tax perspective on trusts with the legal perspective on these arrangements.

Question 8

The text notes that it is, in general, difficult to revoke or vary a trust. What is the importance of this characteristic?

Question 9

What is the difference between an inter vivos trust and a testamentary trust? Explain briefly how Tax Payable is calculated for these two types of trusts.

Question 10

Describe the tax treatment that is applicable to capital gains realized within a trust.

Question 11

The three types of persons who are associated with a trust are usually described as the settlor, the trustee, and the beneficiary. Briefly describe the role of these persons with respect to the trust.

Question 12

What is a "personal trust"?

Question 13

In order to avoid probate fees, an Ontario resident is planning to transfer all of his capital assets to a joint spousal trust. These assets have a significant amount of accumulated capital gains. He is aware that a tax free rollover is available. He is also aware that he can elect out of this rollover position. Why might he want to make this election?

Question 14

Describe the basic model that is used for the taxation of trusts. Your answer should include the tax effects for settlors, the trust itself, and the beneficiaries.

Question 15

In order for a trust to exist, three characteristics must be established with certainty. What are these three characteristics?

Question 16

A trust will normally deduct all amounts that are paid or payable to a beneficiary. However, under ITA 104(13.1), it can designate certain amounts that have been paid as "not to have become paid or payable in the year". This will result in the trust having to include these amounts in its Taxable Income. Why would a trust make such a designation?

Question 17

What is the difference between a discretionary and a non-discretionary trust?

Question 18

What are the tax consequences associated with a transfer of trust assets to a capital beneficiary?

Question 19

Briefly describe two non-tax reasons for using a trust.

Question 20

What is a qualifying spousal trust? What is the major tax advantage associated with a trust being classified as a qualifying spousal trust? Briefly describe two non-tax reasons for using a qualifying spousal trust.

Question 21

The beneficiaries of a trust hold formal legal title to the trust property.

Question 22

Which of the following statements with respect to inter vivos trusts is NOT correct?

A)These trusts must use the calendar year as their taxation year.
B)Any income that is left in these trusts will be taxed at the maximum federal rate of 33 percent.
C)If all of the trust's income is distributed to beneficiaries, the trust will not have any Tax Payable.
D)Amounts earned in these trusts are not subject to the income attribution rules.

Question 23

With respect to the role of a trustee, which of the following statements is correct?

A)The trustee can also be the settlor of the trust, but not one of the beneficiaries.
B)The trustee will hold formal legal title to the trust property.
C)All of the benefits of the trust will accrue to the trustee.
D)The trustee cannot enter into contracts on behalf of the trust.

Question 24

A spousal or common-law partner trust can either be an inter vivos trust or a testamentary trust.

Question 25

List and describe three non-tax considerations that are involved in estate planning.

Question 26

The three essential characteristics of a trust are certainty of:
• the identity of the property to be placed in the trust;
• an intent on the part of the settlor to create a trust; and
• the basis for allocating the trust income to the beneficiaries.

Question 27

An inter vivos trust can designate amounts to be deemed not paid when they are, in fact, paid or payable to beneficiaries. One reason for doing this would be to have the income taxed at a lower rate in the trust.

Question 28

Income that is flowed through a trust retains its tax characteristics (e.g., a dividend earned by the trust can be allocated to a beneficiary as a dividend).

Question 29

If a period of time passes between the time of an individual's death and the distribution of the individual's capital assets, income may accrue on these assets. If this is the case, the administrator of the individual's estate will have to file a T3 trust tax return.

Question 30

If capital property is transferred to a qualifying spousal trust, there will be no gain or loss on the transfer, any income earned on the property will be attributed back to the settlor, but capital gains on a disposition of the property by the trust will not be attributed back to the settlor.

Question 31

An estate freeze can be carried out by simply giving property to the intended beneficiaries of future growth. What are the disadvantages of this approach?

Question 32

Which of the following is NOT required for the successful establishment of a trust?

A)The settlor must clearly intend to create a trust.
B)The individual beneficiaries must be named.
C)The property to be held in the trust must be known with certainty.
D)There must be an actual transfer of property to the trust.

Question 33

If a trust receives eligible dividends and does not distribute them or allocate them to a beneficiary, the trust will be eligible for the usual dividend tax credit on such dividends.

Question 34

A trust can be used to protect some of an individual's assets from the claims of creditors.

Question 35

To establish a trust, a lawyer must prepare, in writing, a formal trust agreement.

Question 36

What is a family trust? What is the usual objective of such trusts?

Question 37

As long as he or she is the only beneficiary, any individual can transfer assets to an Alter Ego trust.

Question 38

While there are exceptions, transfers of trust assets to beneficiaries can generally be made without tax consequences to either the trust or the beneficiary.

Question 39

Any transfer by a settlor to a trust will be treated as a disposition to be recorded at fair market value.

Question 40

The Tax Payable of an inter vivos trust will be calculated using the same schedule of progressive rates that applies to individuals.

Question 41

Upon his death three years ago, Mr. Tajima's will provided for the creation of a trust with his four children as beneficiaries. During 2020, the trust's income consisted of interest received from Canadian sources of $20,000. For 2020, the trustees jointly agreed that all income received by the trust, except for the following two amounts would be paid to the beneficiaries. In addition, the trust designated the share of one beneficiary to be not paid, even though the beneficiary received the payment. The amount was $5,000. What is the Net Income For Tax Purposes of the trust?

A)$11,000.
B)$13,000.
C)$16,000.
D)$20,000.

Question 42

A graduated rate estate is a testamentary trust that has been designated as such in its first tax return. Which of the following statements is correct with respect to graduated rate estates?

A)Its taxation year must be the calendar year.
B)Its tax return is due 90 days after the trust's year end.
C)All of its income will be taxed at the highest federal rate of 33 percent.
D)It will not be eligible for a dividend tax credit on dividends received and retained in the trust.

Question 43

Which one of the following statements with respect to an alter ego trust is correct?

A)An alter ego trust can be either an inter vivos trust or a testamentary trust.
B)For the settlor, the proceeds of disposition for property transferred to the trust will be equal to the fair market value of the assets at the time of transfer.
C)Any resident individual can settle an alter ego trust.
D)When assets are transferred out of an alter ego trust to anyone other than the settlor, the proceeds of disposition to the trust will be the fair market value of the assets transferred.

Question 44

Which of the following items can be allocated to beneficiaries of a trust?

A)Losses incurred on the disposition of trust capital property.
B)Gains resulting from the disposition of trust capital property.
C)Recapture of CCA on the disposition of trust depreciable assets.
D)Items A, B, and C.
E)Items B and C.

Question 45

Which of the following trusts could be either a testamentary or an inter-vivos trust?

A)An alter ego trust created by an individual who is 65 years of age in anticipation of his death in the near future.
B)A spousal trust created to benefit a spouse.
C)A family trust established by a parent while alive to benefit his or her children.
D)A joint spousal trust created for the benefit of an individual and his spouse.

Question 46

An inter vivos trust earned $50,000 in eligible dividends. In addition, it received interest of $12,000 during the current year. The trust incurred accounting fees of $2,000 which were claimed by the trust. The trust has one beneficiary who is 23 years old and has no other source of income. During the current year, all of the dividends were distributed to the beneficiary and none of the interest. What is the Net Income For Tax Purposes of the beneficiary?

A)$69,000.
B)$67,000.
C)$81,000.
D)$50,000.

Question 47

Which one of the following statements with respect to a qualifying spousal trust is NOT correct?

A)The transferor's spouse must be entitled to receive all of the income of the trust arising before the spouse's death.
B)The settlor must be 65 years of age or older.
C)No person other than the spouse may receive or benefit from any of the income or capital of the trust, prior to the death of the spouse.
D)A spousal trust can be a non-discretionary trust.

Question 48

Anika is planning to create a testamentary trust. She has not yet decided if the beneficiaries will be only her common-law partner Belinda, only their 14 year old blind daughter Elena, or both Belinda and Elena equally. The non-depreciable property she will transfer to the trust has an adjusted cost base of $45,000 and a fair market value of $75,000. In order to defer the taxation of the capital gain on the transferred property until it is sold by the beneficiary(ies), which alternative should Anika use?

A)Anika should transfer the property to a trust to benefit only their daughter, Elena.
B)Anika should transfer the property to a common-law partner trust.
C)Anika should transfer the property to a trust with both Elena and Belinda as beneficiaries.
D)Anika cannot defer the taxation of the capital gain with the use of a trust.

Question 49

Which of the following statements is NOT correct?

A)A trust can be used to administer assets for beneficiaries with limited asset management experience.
B)A trust can be used to ensure that assets are ultimately delivered to the intended beneficiaries.
C)A trust can be used to avoid the income attribution rules applicable to a spouse.
D)A trust can be used to protect assets from creditors.

Question 50

On July 1, 2020, Martin Long transfers shares with a fair market value of $300,000 to a newly established inter vivos trust. His 35 year old son, Shorty Long, is the only beneficiary. Martin's cost for these securities was $170,000. During 2020, the trust receives eligible dividends on the shares of $21,000. All of these dividends are distributed to Shorty. What are the tax consequences of these transactions to Martin, the trust and Shorty?

A)The trust will report dividends received of $21,000 and will claim the dividend tax credit. There will be no tax consequences for Martin or Shorty.
B)The trust will have no income. Shorty will report dividends received of $21,000 which must be grossed up and will claim the dividend tax credit. There will be no tax consequences for Martin.
C)Martin will report a taxable capital gain of $65,000 [(1/2)($300,000 - $170,000)]. The trust will have no income. Shorty will report dividends received of $21,000 which must be grossed up and will claim the dividend tax credit.
D)Martin will report a taxable capital gain of $65,000 [(1/2)($300,000 - $170,000)]. The trust will report dividends received of $21,000 which must be grossed up and will claim the dividend tax credit. There will be no tax consequences for Shorty.

Question 51

The Weir family trust is an inter vivos trust with one beneficiary. The beneficiary is 25 year old Marcus Weir, the son of the settlor. During 2020, the trust had the following income: The non-eligible dividends and capital gain are distributed to Marcus. By how much will Marcus' Net Income for Tax Purposes increase as a result of this distribution? Ignore the possibility that the income received by Marcus could be subject to the TOSI.

A)$245,000.
B)$291,000.
C)$215,000.
D)$265,000.

Question 52

In 2019, Diego transferred property with an adjusted cost base of $400,000 and a fair market value of $750,000 to an alter ego trust. In his will, Diego bequeaths all his property to his son. At his death in 2020, when the trust transfers the property to his son, the fair market value of the property has increased to $800,000. Diego uses any rollovers that are available to minimize the tax consequences. What are the tax consequences of these two transfers?

A)In 2019, a rollover would allow Diego to transfer his property to the trust tax free. In 2020, when the trust transfers the property to his son, the trust will include a taxable capital gain of $200,000 [(1/2)($800,000 - $400,000)] in income.
B)In 2019, there will be no rollover available, and Diego will include a taxable capital gain of $175,000 [(1/2)($750,000 - $400,000)] in income. In 2020, when the trust transfers the property to his son, there will be a rollover available, and the trust will not report any income.
C)There will not be a rollover available for either transaction. In 2019, Diego will report a taxable capital gain of $175,000 [(1/2)($750,000 - $400,000)] in income. In 2020, when the property is transferred to his son, the trust will include a taxable capital gain in income of $25,000 [(1/2)($800,000 - $750,000)].
D)Rollovers will be available to defer tax on both transactions.

Question 53

Which of the following amounts will NOT be included, either as an inclusion or a deduction, in the determination of the Taxable Income of a trust?

A)Retained income which has been allocated to a preferred beneficiary of the trust.
B)Amounts paid or payable to a beneficiary of the trust.
C)The difference between the fair market value and the cost of assets transferred to a capital beneficiary.
D)Amounts Retained For Beneficiary Under 21 Years Of Age.

Question 54

On the death of Martin Meryk, his shares in Meryk Limited, a CCPC, were transferred to a graduated rate estate (GRE). During 2020, the GRE receives non-eligible dividend income from Meryk Limited in the amount of $200,000. Martin's will requires that one-half of the dividends be distributed to his wife, Marta with the remainder retained in the GRE. Marta has no income other than what she receives from the trust. Which of the following statements is correct?

A)The federal tax payable is the same for Marta and the GRE.
B)The Taxable Income is the same for Marta and the GRE.
C)The federal dividend tax credit is available to Marta, but not to the GRE.
D)The income retained in the GRE is taxed at a federal rate of 33 percent.

Question 55

Which of the following statements is correct with respect to the preferred beneficiary election?

A)This election is available for beneficiaries that are eligible for the disability tax credit, or who are eligible to be claimed by another individual for either the infirm dependant over 17 credit or the caregiver credit.
B)A trust cannot deduct amounts that are paid or payable to a preferred beneficiary.
C)A trust can deduct amounts allocated to, but not distributed to, a preferred beneficiary.
D)The preferred beneficiary election is used when the trust wants to allocate 100% of its income to a particular beneficiary for one year.

Question 56

The Strike family trust is an inter vivos trust with one beneficiary, Maria Strike, the 25 year old daughter of the settlor, Gregor Strike. The trust receives interest income of $150,000 in 2020. The trust makes a charitable donation of $15,000 and distributes $105,000 to Maria. Maria has no income other than what she receives from the trust, and is eligible only for the personal tax credit. Determine the federal Tax Payable for the trust for 2020. Ignore the possibility that the income received by Maria could be subject to the TOSI.

A)$14,850.
B)$9,900.
C)$1,836.
D)$9,936.

Question 57

Upon his death three years ago, Mr. Allen's will provided for the creation of a trust. The will required that any income distributed by the trust be allocated 50 percent to his wife, and 12.5 percent to each of his four children. During 2020, the trust had the following income and expense: For 2020, the beneficiaries and the trustees jointly agreed that all income received by the trust, except for $5,000 of the interest, would be paid to the beneficiaries. What is the taxable income attributable to Mrs. Allen for the year from the trust?

A)$12,000.
B)$12,500.
C)$15,800.
D)$15,000.
E)$13,800.

Question 58

When an individual dies, there is a deemed disposition of certain types of property. This would include property held by one type of trust for which the deceased taxpayer was a settlor. That type of trust is:

A)a discretionary trust.
B)a testamentary trust.
C)a joint spousal or common-law partner trust.
D)an alter ego trust.

Question 59

For which of the following types of trusts is a tax free rollover available for property transferred to the trust by the settlor?

A)1, 2 and 4.
B)2 and 4.
C)1 and 2.
D)1, 2, 3, and 4.

Question 60

In 2019, Emilio, who is 82 years old, transfers property with an adjusted cost base of $400,000 and a fair market value of $750,000 to an inter vivos family trust to benefit his 3 adult children. In 2020, he becomes seriously disappointed with his two sons, and decides to have the trust transfer the property to his daughter. Subsequent to the distribution, the trust is wound up. At the time of the trust's distribution to the daughter, the fair market value of the property has increased to $800,000. For both transactions, Emilio uses any rollovers that are available to minimize the tax consequences. What are the tax consequences of these two transfers?

A)In 2019, a rollover would allow Emilio to transfer his property to the trust tax free. In 2020, when the trust transfers the property to his daughter, the trust will include a taxable capital gain of $200,000 [(1/2)($800,000 - $400,000)] in income.
B)In 2019, there will be no rollover available, and Emilio will include a taxable capital gain of $175,000 [(1/2)($750,000 - $400,000)] in income. In 2020, when the trust transfers the property to his daughter, there will be a rollover available, and the trust will not report any income.
C)There will not be a rollover available for either transaction. In 2019, Emilio will report a taxable capital gain of $175,000 [(1/2)($750,000 - $400,000)] in income. In 2020, when the property is transferred to his daughter, the trust will include a taxable capital gain in income of $25,000 [(1/2)($800,000 - $750,000)].
D)Rollovers will be available to defer tax on both transactions.

Question 61

Saddam Holt transfers a number of capital assets to a trust in favour of his spouse, Lena Holt. She is the only income or capital beneficiary of the trust. Which of the following statements with respect to this trust is NOT correct?

A)The income that is left in the trust will be taxed at the maximum federal rate that is applicable to individuals.
B)Any property income that is retained in the trust will be attributed back to Mr. Holt.
C)Any capital gains that are retained in the trust will not be attributed back to Mr. Holt.
D)Any income that is distributed to Mrs. Holt will be attributed back to Mr. Holt.

Question 62

Lara Jensen was living with her common-law partner Portia at the time of her death in 2020. Lara's will established a group of equity securities that were to be transferred to a qualifying common-law partner trust. The securities had an adjusted cost base of $675,000 and a fair market value of $850,000 at the time of transfer. The securities are to be transferred to Portia five years after the date of Lara's death.
What are the tax consequences to Lara of the transfer made at the time of her death? What would be the tax consequences to Portia if, after she receives the securities from the trust, she sells them for $950,000?

Question 63

An individual has property with a cost of $2,100 and a current fair market value of $2,500. Seven Scenarios are presented for the transfer of this property by the settlor to a trust. For each Scenario, indicate the tax consequences to the settlor at the time of transfer, as well as the adjusted cost base of the property within the trust.

Question 64

An estate freeze can be accomplished using various means. With respect to the various alternatives, which of the following statements is correct?

A)Implementing an estate freeze through the use of gifts does not involve any immediate tax consequences.
B)The use of Section 85 to implement the estate freeze can avoid immediate tax consequences.
C)Implementing an estate freeze with the use of an inter vivos trust can avoid immediate tax consequences.
D)An advantage of using gifts to implement an estate freeze is that the freezor can retain control of the assets.

Question 65

The Burton family trust was created when Mr. Burton transferred publicly traded securities with a cost of $300,000 and a fair market value of $750,000 into the trust. The beneficiaries are Mr. Burton's two sons, Tim and Jerry Burton, both of whom are over 30 years old. They have equal shares in the income and capital of the trust. At a later point in time, when the value of the securities has increased to $2,100,000, Tim purchases Jerry's capital interest in the trust for $1,050,000 [(1/2)($2,100,000)]. The tax consequences of this transaction to Tim and Jerry are as follows:

A)Tim has acquired a capital interest in the trust with an adjusted cost base of $1,050,000. Jerry will report a taxable capital gain of $525,000.
B)Tim has acquired a capital interest in the trust with an adjusted cost base of nil. Jerry will report a taxable capital gain of $525,000.
C)Tim has acquired a capital interest in the trust with an adjusted cost base of $1,050,000. Jerry will report a taxable capital gain of $150,000.
D)Tim has acquired a capital interest in the trust with an adjusted cost base of $1,050,000. Jerry will report a taxable capital gain of $337,500.

Question 66

An estate freeze can be implemented using either ITA 85 or ITA 86. Which of the following is an advantage of using ITA 85, rather than ITA 86?

A)The use of ITA 85 does not require an election.
B)The use of ITA 85 does not require a corporation to be in place prior to the freeze.
C)The use of ITA 85 will significantly reduce the legal and accounting costs of the freeze.
D)The use of ITA 85 does not involve an exchange of shares.

Question 67

Which of the following is NOT a valid reason for using an alter ego trust?

A)An alter ego trust removes property from the estate of the settlor, and these assets will not be subject to probate procedures on the death of the settlor.
B)The trust could be established in a low rate province resulting in a tax savings on the death or emigration of the settlor.
C)The trust will be subject to lower tax rates, and can be used to split income with the settlor.
D)If all assets have been transferred to an alter ego trust prior to the death of the settlor, the settlor does not need to leave a will, which could be easily challenged. It is not as easy to challenge the validity of a trust.

Question 68

The Ali family trust was established when Mrs. Ali transferred publicly traded securities with a cost of $100,000 and a fair market value of $250,000 into the trust. The beneficiaries are Mrs. Ali's 30 year old twin daughters, Aida and Fatima. They benefit equally from the income and the capital of the trust. In the current year, Aida purchased Fatima's capital interest from her for its fair market value of $350,000 [(1/2)($700,000)]. The tax consequences of this transaction to Aida and Fatima are:

A)Aida has acquired a capital interest in the trust with an adjusted cost base of $350,000. Fatima will report a taxable capital gain of $112,500.
B)Aida has acquired a capital interest in the trust with an adjusted cost base of $350,000. Fatima will report a taxable capital gain of $175,000.
C)Aida has acquired a capital interest in the trust with an adjusted cost base of nil. Fatima will report a taxable capital gain of $175,000.
D)Aida has acquired a capital interest in the trust with an adjusted cost base of $350,000. Fatima will report a taxable capital gain of $50,000.

Question 69

What is the objective of an estate freeze?

A)To freeze certain family members out of participation in a large estate.
B)To allow future appreciation in valuable assets to appreciate for the benefit of specific related parties.
C)To delay the transfer of income generating private company shares to minor children to avoid the tax on split income.
D)To allow a wealthy taxpayer to transfer valuable assets to the next generation without tax consequences.

Question 70

Monique Flaharty has accumulated securities that earn interest of $45,000 per year. Her other sources of income exceed $250,000 per year. Her 35 year old daughter Deborah has no income of her own. Her only tax credit is the basic personal tax credit. Determine the amount of federal taxes that could be saved by transferring the interest earning securities to a trust with Deborah as the income beneficiary. The trust will be required to distribute all of its income each year.

A)$8,100.
B)$10,084.
C)$4,766.
D)$12,866.

Question 71

At the beginning of 2020, Martha Stuart transfers a group of common stocks to a trust that has her 15 year old daughter Jane as the only beneficiary. The securities have an adjusted cost base of $350,000 and a fair market value of $500,000. During 2020, the securities pay eligible dividends of $50,000, all of which are distributed to Jane.
At the beginning of 2021, all of the securities are transferred to Jane in satisfaction of her capital interest. At this time their fair market value is $550,000. Jane immediately sells the securities for this amount.
Indicate the tax consequences for Martha, Jane, and the trust, in each of the years 2020 and 2021.

Question 72

Ian Home has a property that he purchased several years ago for $20,000. It has a current fair market value of $30,000.
The following Six Scenarios are proposed for the transfer of this property by Ian to a trust. For each Scenario, indicate the tax consequences to Ian at the time of transfer, as well as the adjusted cost base of the property within the trust.

Question 73

Five years ago, a depreciable asset was transferred from Mark's estate to a qualifying spousal trust created on his death. The asset, which cost $224,000, had a UCC of $147,200 at the time of transfer. At the time of Mark's death, the asset had a fair market value of $262,400. Since then, the trust has claimed CCA of $15,400. At the end of the current year, the trust sold the asset to an arm's length party for $243,200.
Determine the tax consequences of the transfer of the asset to the spousal trust and of the disposition of the asset by the trust. Determine the maximum amount of trust income that can be allocated to Mark's spouse from the sale.

Question 74

Larry died during 2020 and bequeathed a portfolio of equity securities to a qualifying common-law partner trust created in his will. Larry is survived by his common-law partner, David who is to receive the securities from the trust three years after Larry's death if they have not been sold. The portfolio, which had an adjusted cost base of $420,000, was valued at $723,000 on the date of his death.
Determine the tax consequences of the transfer, including the adjusted cost base of the portfolio in the trust and in David's hands if it is transferred.

Question 75

On January 1, 2020 , Jerry Fallen transfers publicly traded debt securities with a fair market value of $570,000 to a newly established inter vivos trust for which his 22 year old son, James, is the only beneficiary. The cost of these securities to Jerry was $520,000. During 2020 , the securities earn and receive interest of $32,000, all of which is distributed to James.
On January 1, 2021, the securities are transferred to James in satisfaction of his capital interest in the trust. At this time, the fair market value of the securities has increased to $615,000. James sells all of the securities for $615,000 on January 3, 2021. Indicate the tax consequences for Jerry, James, and the trust, in each of the years 2020 and 2021.

Question 76

Martine Flex died three years ago. At the time of her death, a depreciable asset was transferred from her estate to a qualifying spousal trust that was created on her death. The asset had a capital cost of $150,000 and it was the only asset in its class. The balance in the class was $140,000. At the time of Martine's death, the asset had a fair market value of $180,000.
Since that time, the trust has claimed CCA on the asset of $20,000. At the end of the current year, the asset is sold to an arm's length party for $205,000.
Determine the tax consequences of the transfer of the asset to the spousal trust and of the disposition of the asset by the trust. Determine the maximum amount of trust income that can be allocated to Martine's spouse from the sale.

Question 77

In each of the following Cases, an individual is attempting to establish a trust. For each of these Cases, indicate whether the attempt has been successful. Explain your conclusion.
Case A - Martin Falk has signed an agreement that specifies the property that he will transfer to a trustee at the end of the current year. The income from the trust will be distributed to his friend of several years, Lola Lamour.
Case B - Martha Stuart transfers property to a trustee, specifying that the income from the property should be distributed to prison inmates in Virginia.
Case C - Joan Morgan sends a cheque to her son, indicating that the money should be used for the education of her grandchildren.

Question 78

Ferran Ginton has operated a very successful bakery for 30 years, and has accumulated securities that earn interest income of $40,000 per year. His other sources of income put him in the top tax bracket for personal tax purposes. He has a son, Habib who is 22 years old and currently has no income that is subject to taxation. Habib's only tax credit is the personal tax credit. Determine the amount of federal taxes that could be saved by transferring the interest earning securities to a trust with Habib as the income beneficiary, assuming that the trust will be required to distribute all of its income each year.

A)$7,200.
B)$9,184.
C)$4,016.
D)$11,216.

Question 79

On January 1 of the current year, Mandeep Gill transferred interest earning securities with a cost of $95,000 and a fair market value of $250,000 to a family trust for no consideration. One-half of the income of the trust is allocated to his 12 year old son, and the other half to his wife. The trust earns $7,000 in interest income during the year. What will the tax consequences of these transactions be to Mandeep?

A)Mandeep will have a taxable capital gain of $77,500 and will have attributed interest income of $7,000.
B)Mandeep will not report a taxable capital gain on the transfer, but the interest income of $7,000 will be attributed to him.
C)Mandeep will have a taxable capital gain of $77,500. No interest income will be attributed to him.
D)Mandeep will have a taxable capital gain of $77,500 and the interest income allocated to Mrs. Gill of $3,500 will be attributed to him.

Question 80

An estate freeze can be accomplished by various techniques. Which of the following techniques will NOT involve immediate tax consequences at the time of the freeze?

A)A gift to an individual's children of capital assets with accrued gains.
B)A transfer of capital assets with accrued gains to a corporation using ITA 85.
C)A transfer of capital assets with accrued gains to a trust with the transferor's children as beneficiaries.
D)A transfer of capital assets with accrued gains to a holding company in which the individual's children are the majority shareholders.