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When inheriting money through a family trust, do you still pay income tax on the money?

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When inheriting money through a family trust, do you still pay income tax on the money?

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The Family Trust Another trust which can be used to save income taxes is the family trust. Where the trust owns income producing assets (for example a management company which supplies staff to a business or a leasing company which leases equipment to a business), the income earned by the trust can be allocated to the beneficiaries of the trust. If those beneficiaries are children or a spouse with little or no income, then the beneficiaries will not be taxed on that income. Such beneficiaries can receive tax-free income of approximately $21,000 each annually, saving an individual with a 39 percent marginal rate (in Alberta) about $8,190 each year. The income earned by the trust need not be paid to the beneficiaries each year, but must be allocated to them and declared in their individual tax returns. Because parents are responsible for the basic needs of their children, including shelter, clothing and food, the Canada Revenue Agency has taken the position that the children’s trust inco

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The issue is actually rather complicated and you need to consult with an accountant to make the proper determinations for your situation, but in general here’s what happens: A trust does not have to pay income tax on income that is distributed to the beneficiaries, but does have to pay tax on undistributed income. The trustee is free to distribute trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries’ personal marginal tax rates. The beneficiaries then pay the tax on distributions made to them. For example, if an adult beneficiary of the trust only receives income from a trust and has the benefit of the tax-free threshold (currently $6,000) for the year, the trustee could distribute part of the family trust’s income to this person. The result is that the beneficiary will receive some income but may not have to pay tax if that amount is less than $6,000. If the distribution to the beneficiary exceeds his or her tax-free thr

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