Trusts

What is a Trust?

A trust is a fiduciary arrangement whereby legal title and beneficial interest are separated. A trust allows one party (a Trustee) to hold assets on behalf of another party or parties (the beneficiaries).

There are two main types of trust:

  1. Testamentary Trusts: created by Will (or other testamentary instrument, such as an insurance declaration); takes effect upon death; can be changed by revising your Will/insurance declaration at any time prior to your death, provided you remain capable.

  2. “Inter vivos” Trusts: created during a person’s lifetime, typically by deed; the trust assets are immediately transferred, and property ownership is immediately changed.

Why Create a Trust?

There are a variety of reasons for creating a trust, including:

  • If you have children from a previous marriage, a trust allows you to support your spouse during his or her lifetime, while directing the eventual distribution of remaining capital to your children.

  • A trust can be used to protect a disabled beneficiary by ensuring their care during their lifetime, while also preserving the beneficiary’s entitlement to government assistance)

  • In some circumstances, a trust can be a helpful Estate Planning tool (avoidance of probate)

  • Trusts can be used for charitable gifts

Types of Trust:

  • Spousal Trust: With a Spousal Trust, you can allow your Spouse the use of some or all of your estate during his or her lifetime, while also directing the distribution of any remainder at the time of his or her death.

  • Trust for younger beneficiaries: A trust allows you to appoint a trustee to control the investment and distribution of assets left (in your Will, for instance) to children. You have the flexibility to determine at what age a child is to be entitled to receive the full capital. In a discretionary trust, you can entrust the trustee to make payments of income and/or capital to the child throughout the lifetime of the trust, until the final distribution date. You also have the flexibility, if you choose, to direct milestone payments (for instance: a particular percentage to be paid at a specific age), or to direct the purpose for which discretionary distributions are to be made.

  • Henson Trust: A Henson (or absolute discretionary trust) is a tool available in Ontario that permits a testator to leave assets for a disabled beneficiary while both controlling the distribution of those assets and (importantly) protecting the beneficiary’s entitlement to receive government assistance.

  • Alter Ego Trust: This specific type of inter vivos trust is an estate and tax planning tool that is available to people over the age of 65. It allows the person to transfer his or her assets tax-free into a trust for which the person is the only beneficiary.

A trust may be an essential part of your estate plan. Berry Gage LLP will advise you if a trust is in the best interests of your family and prepare an expert trust to protect your estate and those you love.

 

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