TRUSTS
The trust is a development of English common law, with its beginnings traceable to the MIddle Ages. While the concept of the trust has evolved over the centuries, it continues to be an extremely flexible and effective estate planning tool.
This flexibility allows a trust to be adaptable such as to provide pragmatic solutions to a wide variety of problems encountered in the estate planning process. Trusts can be established either during one's lifetime (inter vivos trusts) or in one's Will (testamentary trusts). Some examples follow.
Inter Vivos Trusts
Provided the person(s) funding the trust (the "settlor(s)") is 65 years
or over and meets the requirements of the Income Tax Act, the settlor(s)
who are the beneficiaries can hold his, her or their assets in trust for himself, herself or themselves during
their lifetimes and provide for the distribution of his, her or their estates without having to probate the estate
or pay probate fees. Such trusts also maintain privacy and, with certain caveats, do not result in additional
income tax being paid. These trusts also have the benefit of protecting wealth transfers from disappointed beneficiaries.
These trusts are typically established for the benefit of disabled persons or persons on government
assistance in order to provide a stable, long-term stream of income for their benefit without the beneficiary's government
assistance.
These trusts are established to minimize the rate of taxation which would otherwise be paid by one
person if the assets were registered in his or her own name. Often, children of the owners of the property are the beneficaries.
These trusts are also another method of wealth transfer outside the use of a Will.
These types of trusts are often used in conjunction with closely held companies, where the trusts owns
certain classes of shares in the company. Dividends declared by the company on these classes of shares may be paid out of the trust
to family members of the principal(s) of the company, thereby reducing the income tax burden of the company.
Testamentary Trusts
This trust, established in a Will, ususally provides for an interest for life for the spouse of a deceased
person in both income and capital of the trust fund. Such a trust is useful from an income tax perspective, in that it is capable
of deferring the taxation of accrued capital gains on the fund's assets and provide potential opportunity for income tax saving
through income splitting.
By naming one or more family members of the deceased, potential income tax savings are possible by income splitting
among the beneficiaries than if the capital of the trust were given to them outright. The beneficiaries may also be able to share in the
capital of the trust before final distribution to the trust.
In the same way as a discretionary inter vivos trust can be established during the lifetime of the settlor, the
testator can establish this type of trust in his or her Will.
The testator can establish a trust for a person that stipulates how much, when and on what terms, if at all, such
a beneficiary is to receive his or her share in the estate. This trust is most often used when the intended beneficiary is not judicious
with the use of money.
These trusts are used by the testator to provide access to income and/or capital for minors (under age 19) who are in need of financial assistance, but who, from a legal and maturity standpoint, cannot manage their inheritance in a responsible manner.