Show Transcript
If your family holds a Trust, or even if you share a joint account with a parent, new federal Trust reporting rules could impact you this coming tax season. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Greg Bonnell to explain what people should know.
Print Transcript
[AUDIO LOGO]
* If you set up a trust, you know it can help you manage your financial affairs. Well, guess what, there are new trust reporting rules that could apply to you this coming tax season. Nicole Ewing, Director of Tax and Estate Planning at TD Wealth joins us now to dig into what we need to know about these new rules and some surprising ways you could be impacted. Nicole, pretty interesting stuff here. First off, let's start about these new trust reporting rules versus what they originally were, and when do they take effect.
* So the original rules, essentially, only required certain trusts to file a tax return. And there was a lot of exemptions. So it didn't really apply to that many people.
* Now the exemptions are not as fulsome as they once were. And a lot more trusts are going to be captured by these rules. They apply to trusts with a year-- a year and, after December 30 of this year, so that's, essentially, all trusts that are ending-- have a December 31 year end.
* And you can't simply just wind it up now. You're still caught by the rules. It's still the same tax year. And reporting under these rules is going to be due in March. So make sure that you're aware whether these are going to impact you at all.
* All right, so some people listening to this right now are saying, OK, I didn't know that information. Or maybe I did, but I have a better idea of [CHUCKLES] some of my obligations if this is my situation. Why are we even seeing these new trust reporting rules?
* So the government feels that there are gaps in the information that it has with respect to who is really the beneficial owner of the assets in a trust. What are they? Who owns them? Who's entitled to them? And so they are taking steps.
* And similarly, we see other money laundering, anti-money laundering, or tax evasion rules coming into place. This is part of that. And it requires now the trustee of a trust to report much more information than they needed to in the past about more people than they needed to in the past. So now a trustee is required to complete this return and provide information about themselves, any other trustees, the settlors, beneficiaries, anybody who is exerting influence over the trust.
* And I think what's tripping a lot of people up is that beneficiaries include contingent beneficiaries. So people who may not even realize they have an interest in a trust now are going to be asked to provide this information, which includes their name, date of birth, tax residency, tax information number-- so that's going to be your social insurance number or your business number-- but a lot of information now required on a lot of people.
* I mean, it sounds like a pretty wide net. I was just thinking, if someone was watching this and was thinking, OK, well, I set up a trust. Do they apply to me? This is a wide net.
* It's a very, very wide net. And I'm not sure how well the layperson would know that. So there are some exemptions that would apply if the trust is $50,000 or less, but only of publicly traded securities or, essentially, cash. If it's a short trust, if it's only been in existence for three months, you might get out of those rules.
Graduated rate estates we don't apply, qualified disability trusts. Essentially, anything else, so your typical family trust, is going to be caught here. And even some bare trusts and things that people might not even think of as trusts are potentially going to be caught as well.
* Walk me through the bare trust thing because I was going to ask you about that. I mean, people might not even realize the situation they're in. What's the rules around that?
* So I'll explain it this way. Essentially, any asset that we own can have both a legal and a beneficial owner. They are not necessarily the same person. And so when you have a bare trust, one individual is the legal owner. Their name is on title.
* But they don't have a beneficial interest in that property. They're holding it for somebody else. They are not making any decisions about it. And they're, essentially, the agent. They're following the instructions of that individual. But these are trusts, and these rules explicitly apply to a bare trust. And so those who may have had a trust account for a minor who can't open an account themselves-- people who have wanted privacy or anonymity in their planning may have put things in the name of a corporation or another individual.
So there's a lot of different ways that people may be caught from this. And bare trusts, again, it was a bit of a surprise. And I'm not sure that many people even know what a bare trust is. But definitely seek some guidance on that. I think we've talked before about joint accounts, as well, being potentially caught by these rules and catching people off guard on that as well.
* OK, that one does catch me off guard. A joint account can be considered a trust. Well, walk me through the logic there.
* For the purpose of these rules, they may qualify as a bare trust because, essentially, if we think about an individual who's been on the account of their elderly parents, and they've done that for convenience purposes, they are in legal title. They're able to transact on that account. But they don't have a beneficial interest. They are a trustee of that money.
* Similarly, you might have a property that is in joint names. You may have real estate, for example, that people have tried to avoid probate by adding all their kids onto title. Or you may have a parent who's taken-- helped with the mortgage a little bit and is on title just until things are paid back.
* All of those are bare trust circumstances. They are potentially caught by these rules. And the individual, the trustee in the case, so the person who's the legal owner, who doesn't have any beneficial interest in this asset at all is responsible for reporting these rules. And then the penalties are quite significant. So definitely look into that if you have joint accounts. This is one of many reasons to revisit that structure and see that it's the right one for you.
* Obviously, people watching this are intelligent. They may have different-- taken different actions, including trust. But as you're listening to this, what would they do? Who do you need to speak to to get a better understanding to say, OK, what is going on with these new rules, and would I even be affected by them?
* Well, that's-- firstly, we want to look at how your assets are held. So definitely reaching out to your financial institutions, looking at how your real estate is held, whose name is on title, because that's who's going to potentially be caught here. But working with your tax advisor, your accountant, and lawyer, asking them whether these rules impact you. I'm sure you're not the only one who's asking that question. Many, many professionals are fielding questions about this because it's really-- frankly, it's not intuitive to very many people that trust reporting rules would apply to a joint account or an interest account for a minor. But they do, so be on guard.
[AUDIO LOGO]
[MUSIC PLAYING]
* If you set up a trust, you know it can help you manage your financial affairs. Well, guess what, there are new trust reporting rules that could apply to you this coming tax season. Nicole Ewing, Director of Tax and Estate Planning at TD Wealth joins us now to dig into what we need to know about these new rules and some surprising ways you could be impacted. Nicole, pretty interesting stuff here. First off, let's start about these new trust reporting rules versus what they originally were, and when do they take effect.
* So the original rules, essentially, only required certain trusts to file a tax return. And there was a lot of exemptions. So it didn't really apply to that many people.
* Now the exemptions are not as fulsome as they once were. And a lot more trusts are going to be captured by these rules. They apply to trusts with a year-- a year and, after December 30 of this year, so that's, essentially, all trusts that are ending-- have a December 31 year end.
* And you can't simply just wind it up now. You're still caught by the rules. It's still the same tax year. And reporting under these rules is going to be due in March. So make sure that you're aware whether these are going to impact you at all.
* All right, so some people listening to this right now are saying, OK, I didn't know that information. Or maybe I did, but I have a better idea of [CHUCKLES] some of my obligations if this is my situation. Why are we even seeing these new trust reporting rules?
* So the government feels that there are gaps in the information that it has with respect to who is really the beneficial owner of the assets in a trust. What are they? Who owns them? Who's entitled to them? And so they are taking steps.
* And similarly, we see other money laundering, anti-money laundering, or tax evasion rules coming into place. This is part of that. And it requires now the trustee of a trust to report much more information than they needed to in the past about more people than they needed to in the past. So now a trustee is required to complete this return and provide information about themselves, any other trustees, the settlors, beneficiaries, anybody who is exerting influence over the trust.
* And I think what's tripping a lot of people up is that beneficiaries include contingent beneficiaries. So people who may not even realize they have an interest in a trust now are going to be asked to provide this information, which includes their name, date of birth, tax residency, tax information number-- so that's going to be your social insurance number or your business number-- but a lot of information now required on a lot of people.
* I mean, it sounds like a pretty wide net. I was just thinking, if someone was watching this and was thinking, OK, well, I set up a trust. Do they apply to me? This is a wide net.
* It's a very, very wide net. And I'm not sure how well the layperson would know that. So there are some exemptions that would apply if the trust is $50,000 or less, but only of publicly traded securities or, essentially, cash. If it's a short trust, if it's only been in existence for three months, you might get out of those rules.
Graduated rate estates we don't apply, qualified disability trusts. Essentially, anything else, so your typical family trust, is going to be caught here. And even some bare trusts and things that people might not even think of as trusts are potentially going to be caught as well.
* Walk me through the bare trust thing because I was going to ask you about that. I mean, people might not even realize the situation they're in. What's the rules around that?
* So I'll explain it this way. Essentially, any asset that we own can have both a legal and a beneficial owner. They are not necessarily the same person. And so when you have a bare trust, one individual is the legal owner. Their name is on title.
* But they don't have a beneficial interest in that property. They're holding it for somebody else. They are not making any decisions about it. And they're, essentially, the agent. They're following the instructions of that individual. But these are trusts, and these rules explicitly apply to a bare trust. And so those who may have had a trust account for a minor who can't open an account themselves-- people who have wanted privacy or anonymity in their planning may have put things in the name of a corporation or another individual.
So there's a lot of different ways that people may be caught from this. And bare trusts, again, it was a bit of a surprise. And I'm not sure that many people even know what a bare trust is. But definitely seek some guidance on that. I think we've talked before about joint accounts, as well, being potentially caught by these rules and catching people off guard on that as well.
* OK, that one does catch me off guard. A joint account can be considered a trust. Well, walk me through the logic there.
* For the purpose of these rules, they may qualify as a bare trust because, essentially, if we think about an individual who's been on the account of their elderly parents, and they've done that for convenience purposes, they are in legal title. They're able to transact on that account. But they don't have a beneficial interest. They are a trustee of that money.
* Similarly, you might have a property that is in joint names. You may have real estate, for example, that people have tried to avoid probate by adding all their kids onto title. Or you may have a parent who's taken-- helped with the mortgage a little bit and is on title just until things are paid back.
* All of those are bare trust circumstances. They are potentially caught by these rules. And the individual, the trustee in the case, so the person who's the legal owner, who doesn't have any beneficial interest in this asset at all is responsible for reporting these rules. And then the penalties are quite significant. So definitely look into that if you have joint accounts. This is one of many reasons to revisit that structure and see that it's the right one for you.
* Obviously, people watching this are intelligent. They may have different-- taken different actions, including trust. But as you're listening to this, what would they do? Who do you need to speak to to get a better understanding to say, OK, what is going on with these new rules, and would I even be affected by them?
* Well, that's-- firstly, we want to look at how your assets are held. So definitely reaching out to your financial institutions, looking at how your real estate is held, whose name is on title, because that's who's going to potentially be caught here. But working with your tax advisor, your accountant, and lawyer, asking them whether these rules impact you. I'm sure you're not the only one who's asking that question. Many, many professionals are fielding questions about this because it's really-- frankly, it's not intuitive to very many people that trust reporting rules would apply to a joint account or an interest account for a minor. But they do, so be on guard.
[AUDIO LOGO]
[MUSIC PLAYING]
