Family Trusts

Comprehensive Trust Modeling for Investments, Income Allocation, and Tax Planning.

The Family Trusts feature in Conquest Financial Planning Software enhances personal financial planning by allowing you to model various trust-related scenarios. This includes:

• Investments
• Multiple beneficiaries
• Promissory notes
• Discretionary allocation of taxable income to beneficiaries
• Retaining taxable income in the trust
• Cash distributions to beneficiaries
• Additional trust-related scenarios

• On the dashboard homepage, navigate to the top of the screen and select the 'Client Data' tab.

Step 2:

• From the dropdown menu, select 'Current Data - Client'.

Step 3:

• From this menu, select the 'Family Trusts' tab located on the far right-hand side of the screen.

Step 4:

• Under the Trusts tab located in the top left corner, click the dropdown arrow icon and select 'ADD A TRUST+'.

Trust Details 

The Trust Details section allows you to define key aspects of the trust. The province of taxation impacts tax calculations, and the trust date determines the timing of the 21-year anniversaries. Other fields in this section are informational only.

In the Beneficiaries area, you can specify income and capital beneficiaries. Eligible beneficiaries include the client, co-client, dependents, designated beneficiaries, and one "other" beneficiary for flexibility.

Investments

Under the Investment Accounts tab, you can create and manage an investment account with multiple holdings. Assigning an investment profile to the account allows you to define its expected return rates.

Promissory notes

The Promissory Notes page offers a streamlined way to manage balances for each beneficiary. You can define the starting balance, and the trust will track one balance per beneficiary.

After the valuation date, balances automatically adjust—rising with tax allocations and decreasing with cash distributions. Each promissory note's outstanding balance is treated as a liability for the trust and an asset for the beneficiary, ensuring accurate and transparent financial tracking.

Allocation of taxable income

The Allocation of Taxable Income section enables you to assign the trust's taxable income to beneficiaries on a discretionary basis, offering flexibility in managing distributions.

• Allocating income to beneficiaries provides a tax deduction for the trust and makes the income taxable for the beneficiary. It also increases the beneficiary's promissory note balance, reflecting the required payable amounts.

• The promissory note balance adjustment occurs on December 31st, with the new balance available for cash distribution starting the following day.

It's important to note that the allocation of taxable income does not result in an immediate cash outflow. Cash transactions must be defined separately in the Cash Distributions section.

By default, taxable income is allocated pro-rata to the income beneficiaries throughout the plan. The percentage allocations can be modified by setting Pro-rata to No. Any percentage not allocated to beneficiaries will be taxed in the trust. Multiple allocation phases can be added to model changing the tax allocation in future years.

Capital Gains

Annually realized capital gain taxable income can be allocated to either income or capital beneficiaries, depending on the Allocate Capital Gains as Income toggle.

• When set to Yes (the default setting), capital gain taxable income is allocated to income beneficiaries annually based on the taxable income allocations.

• When set to No, capital gain taxable income is allocated to capital beneficiaries using the allocation phases defined on the Capital Gains page.

Cash distributions

To make payments from the trust to specific beneficiaries, enter Cash Distributions on the Cash Distribution page.

There are three ways to determine the distribution amount:

• Specific Amount: Enter a fixed dollar amount and specify the frequency.

• Tax Allocation: Distribute an amount equal to the prior year’s increase in the promissory note balance due to end-of-year tax allocations. Available frequencies include Annual and One-Time.

• Promissory Note Balance: Distribute an amount equal to the outstanding promissory note balance at the time of distribution. Available frequencies include Annual and One-Time.

Limits on cash redemptions

• Income Beneficiaries: Cash distributions are capped at the promissory note balance for beneficiaries who are not also capital beneficiaries.
• Capital Beneficiaries: Distributions first deplete the promissory note balance and can continue if sufficient trust capital remains.

Difference in the detail modeled for various types of beneficiaries

1. Client or Co-Client Beneficiaries

• Cash distributions flow directly into the plan cash flow.
• Tax allocations from the T3 Summary Report integrate seamlessly into the clients' personal tax forms.

2. Dependents (18+ and Non-Dependents)

• Cash distributions exit the trust but do not flow into the plan cash flow.
• Tax allocations serve as deductions for the trust, appearing in the T3 Summary, but are not included in the beneficiaries' detailed tax calculations.

3. Minor Dependents (<18)

• When 'Pay into Plan Cash Flow' is set to Yes:
  • Cash distributions go into the clients' cash flow.
  • Tax allocations impact the dependent’s income tax forms, and any tax owed is paid from the plan’s cash flow.
• When 'Pay into Plan Cash Flow' is set to No:
  • Cash distributions exit the trust but do not affect the plan’s cash flow.
  • Tax allocations on the T3 Summary do not impact detailed tax forms.

Trust Reporting Tools

Efficient trust management relies on detailed and transparent reporting. Below are the key reports available to support your planning:

• Trust Detailed Activity: Provides a transaction-by-transaction audit trail, offering a clear view of all trust activities.

• Trust Single Account Activity: Focuses on the investment account, presenting activity details similar to single account activity reports.

• Trust Tax Reports: Displays income tax schedules with detailed calculations to ensure compliance and accuracy.

• Tax Allocations T3 Summary: Breaks down taxable income allocations by tax type for each beneficiary, ensuring transparency and precision.

• Cash Distributions:

  • Transactions View: Lists individual cash distribution transactions for granular tracking.
  • Summary View: Groups total distributions by beneficiary for a high-level overview.

• Promissory Note Balances: Highlights end-of-year promissory note balances for each beneficiary, helping monitor outstanding obligations.

These reports provide wealth planners with the tools needed to maintain accuracy, transparency, and compliance in trust management.

T3 Trust Income Tax Forms

The platform supports a comprehensive range of T3 trust tax schedules to ensure accurate and compliant tax reporting. These include:

• T3 Schedule 1: Net income allocations
• T3 Schedule 8: Capital cost allowance
• T3 Schedule 9: Income allocations to beneficiaries
• T3 Schedule 11: Federal tax and credits
• Allocation of Income and Expenses Worksheet

Additionally, the following steps are included to guide precise calculations:

• Step 1: Calculating total income
• Step 3: Calculating net income
• Step 4: Calculating taxable income
• Step 5: Summary of tax and credit

Provincial tax forms are also supported, ensuring full compliance across jurisdictions. This robust framework equips wealth planners with the tools needed for meticulous trust tax preparation.