Thursday, December 27, 2007

Practitioner’s Guide to Trusts, Estates and Trust Returns

If I heard someone say “readable tax law,” I would be tempted to ask “readable by whom?” With all of the cross-references, never-ending sentences, formulas, exceptions, and exceptions to exceptions, the Income Tax Act, Canada, is pure torture; at least I find it such.

Larry H. Frostiak and John E.S. Poyser have remarkable skills in explaining tax law in an easy-to-read manner. They have done so in the 2006-2007 edition of their book, Practitioner’s Guide to Trusts, Estates and Trust Returns, Toronto: (Thompson Canada Limited, 2006).

My only criticism of the book is that I don’t think the title fully captures the breadth of the topics. This book is divided into four parts: Estate and Trust Planning, Taxation of Trusts and Beneficiaries, Filing Requirements and Administration by CRA [Canada Revenue Agency], and Preparing the T3 Trust Information and Income Tax Return.

The first two parts were of greatest interest to me as an estate planning lawyer. In Chapter 2, the authors review the tax features of personal estate planning techniques, including testamentary trusts, inter vivos trusts (including alter ego and joint partner trusts), spousal trusts, insurance trusts, charitable remainder trusts. Mr. Frostiak and Mr. Poyser write about potential pitfalls, matters of critical importance to practitioners.

Chapters 3 through 5 contain a discussion of taxation rules for trusts, beneficiaries of trusts, and those who contribute to trusts. In Chapter 6, the writers talk about the tax rules when property is transferred out of a trust.

I find these to be complex topics, but they are not written that way. The text sets out the rules in plain language, and then the footnotes cross-references the relevant Income Tax Act sections. This avoids the mind numbing experience of staring at the impenetrable prose of the Income Tax Act in the middle of the page. The authors also cite relevant Interpretation Bulletins, and other documents setting out Canada Revenue Agency’s views.

In Chapter 7, Mr. Poyser, and Mr. Frostiak discuss the use of trusts. They talk about techniques to minimize taxes, such as estate freezes, and the use of multiple testamentary trusts.

Chapters 8 and 9 cover the basics of filing requirements and Canada Revenue Agency’s administration. The authors answer questions such as what needs to be filed, and when? They talk about practical estate and trust administration issues, such as how to close the estates for income tax purposes to get the clearance certificate required before the executor or administrator can make a final distribution.

Chapters 10 through 16 set out the nuts-and-bolts of filing in the tax returns for a trust. I found this had useful information for me. But I expect it will be of greatest assistance to accountants, who are involved in preparing the returns.

Practitioner’s Guide to Trusts, Estates and Trust Returns offers estate lawyers, accountants and financial planners an excellent overview of the important tax law points that affect an estate practice. This book is also is a handy reference.

I look forward to reading the 2007-2008 edition, which includes material on non-resident trusts, and is just coming out.

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