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planned giving & trust se r vices Navigating the Waters Wills, Trusts, and Policy Changes Economic calms and storms, as well as the headwinds of government and political change, make it necessary to alter the course from time to time. In my 20s I got my commercial pilot license and also sailed across the Atlantic Ocean from Africa to South America in a 29-foot sailboat. Both of these things require knowledge about navigation: you need to know where you are and where you are going and then plot a course for how you are going to get to your destination. However, winds and seas change, storms come, and courses must be altered accordingly. God willing, you still arrive at your destination, but the intended course may be somewhat different from the actual course taken. Today as a portfolio manager and investment advisor, I am constantly challenged by economic calms and storms as well as the headwinds of government and political change. These challenges and changes don’t mean that I and my clients won’t attain our goals; however, they make it necessary to alter the course from time to time to avoid damage or disaster. Recent changes to policy regarding spousal trusts presents one of these challenges for some of my clients. A case in point is Saul and Hope. Years ago this young couple came to see me to talk about creating a financial footprint to leave to their family and favourite charities. God had been loving and generous to them, and they were looking to the future to extend God’s love and generosity to others when they passed on—something that would have purpose and meaning. At the time, setting up a spousal trust made the most sense. This was both Saul and Hope’s second marriage. Saul had children from his previous marriage; Hope had no children but wanted to leave her legacy to her nieces and nephews and her favourite charity, ADRA Canada. Originally, we set things up so that if Saul predeceased Hope, Saul’s money would go into a trust called a “spousal trust” (also called a “testamentary trust”). The trust was set up in his will and would provide Hope with income for the remainder of her life. When she passed away, the trust would then be dispersed according to Saul’s wishes —it would go to his kids and the Seventh-day Adventist Church in Canada. Her will was set up in much the same way, in that if she predeceased Saul, her legacy gifts would be put into a spousal trust for Saul’s benefit and then passed on to her nieces and nephews and ADRA Canada when Saul was laid to rest. The benefit in setting up a spousal trust for both Saul and Hope was that in the event the death of one or the other, the trust would continue to benefit from graduated tax rates in the same way an individual would. 1 However, the government has changed the rules surrounding spousal trusts since Saul and Hope set up this arrangement, and, therefore, the goal posts have now moved. What happens to these trusts greatly depends on the wording and how they were originally set up. In Saul and Hope’s case, they might receive graduated tax rates for three years, but then the trusts would become taxable at the highest marginal tax rates after that. To make things worse, Hope’s legacy could end up paying for any tax on Saul’s trust before it would be distributed to his heirs and vice versa. New legislation (that took effect Jan. 1, 2016) has caused Saul and Hope to re-evaluate their spousal trust situation, their wills, and their gifts to their respective charities. The effectiveness of spousal trusts has been significantly changed, and they may have to plot a new course of action. If you have a spousal trust set up in your wills, please call your trusted financial advisor to discuss the new legislated changes for 2016. Rick Wiegel is an investment advisor in Victoria, B.C. 1 For example: no tax on the first $11,138 of income, 15% of the next $43,953, 22% of taxable income greater than $43,953 and less than or equal to $87,907; 26% of taxable income greater than $87,907 and less than or equal to $136,270; 29% of taxable income over $136,270. M M a rch 20 16 13