March tax Alert - An update on the new trust and estate rules

In December 2014, legislation was passed which significantly changed the taxation of certain types of testamentary trusts such as spousal/common law partner trusts, joint partner trusts and alter ego trusts, more commonly referred to as life interest trusts. In our November 25, 2014 Tax Alert, we outlined how the rules could result in a mismatch of tax liability to assets. Essentially, the life interest trust now has a year-end at the end of the day the surviving spouse (i.e. beneficiary spouse) dies. Additionally, the new rules treat the life interest trust's income for the short year as having been paid to the beneficiary spouse in that year.