It is possible to transfer residence and investments to an asset protection trust.
Adrien and Lucille (fictitious names) have decided to spend their winter in Florida since the beginning of the retreat. They have accumulated a wealth of approximately $ 850,000 (residence, RRIF, TFSA, non-registered investments). An unfortunate accident happens to them during their trip to Florida and they have just received a lawsuit from a Florida law firm for $ 370,000 for injuries to a US passenger.
Our two retirees are really nervous about losing their hard-earned assets. Adrien and Lucille wonder if they could have done anything to protect their heritage.
Asset Protection Trust
All assets held by the trust are owned by the trust. It is possible to transfer assets from one authorized entity to another.
In our example, our two retirees could have transferred their residence, their investments to an asset protection trust. Since the responsibility for the accident lies with individuals, the assets that would be owned by the trust could not be used to pay possible damages to our beneficiaries. It is also important to know that the income generated from the assets of the trust is the property of the trust. However, it is possible to attribute these to the beneficiaries. Beneficiaries could receive these amounts for their needs.
You have to wonder what happens in terms of taxation if you decide to do this kind of protection strategy. When transferring assets, the Tax Act assumes a disposition of assets for the individual. However, this provision will be made at its tax cost therefore without tax consequences.
In the case of income, if it is not allocated to the beneficiary, it will be taxed at the trust level at the highest rate in the Tax Act, a combined federal and Quebec rate of 53% currently. This tax expense can be reduced if the trust allocates investment income to its beneficiary. This allocation will reduce the income of the trust and be included in the individual’s income. Thus, if the individual has a lower tax rate, we will return to the same situation as if there had been no trust.
Does this apply to you?
This strategy is interesting for people who travel a lot abroad and especially in the United States, where the risk of prosecution can be significant (eg: accident, serious illness occurring abroad if your insurance coverage does not apply). is not adequate). It also applies if you have had professional activities that may make you personally liable for them. You must have unregistered assets, for example, investments, stock market shares, residence, cottage, private company shares of significant value, and the loss of those assets could put your retirement at risk.