Are Trusts Still Worthwhile

Since recent tax changes imposed by the federal government, it has been a topic of debate whether or not trusts hold the same advantages they used to.  It is true that from a tax perspective trusts aren’t as advantageous as they used to be, however trusts can still be valuable when planning for unique family situations.  In the broadest terms, trusts are used to pass money down through generations in a controlled manner.   Many families utilize trusts to control how money is dispersed to certain family members and to ensure their loved ones are taken care of when they are gone.

What You Need to Know

There are two fundamental types of trusts: 

1. Testamentary

Testamentary trusts are often referred to as estate trusts as they are established upon the death of the trustor.  Testamentary trusts are stated in one’s will.  Testamentary trusts are always irrevocable.

There are three parties involved in a testamentary trust.  The person who orders the trust in their will is called the trustor. The person responsible for distributing and managing the money is called the trustee.  Finally, the person who is receiving the money is called the beneficiary.

2. Inter Vivos

Inter Vivos means between living persons.  Unlike testamentary trusts which are set up after death, inter vivos trusts are established while the trustor is still living.   Living trusts can either be revocable or irrevocable.  A revocable trust would mean that the trustor could cancel or change the trust at any time.

Trusts have many uses.  Below are so of the most common ways Canadians utilize trusts while estate planning and some issues trusts can address:

1. Blended Families

Individuals who have remarried and have children from a previous relationship often use trusts to ensure that both their new spouse and their children are treated fairly in their will.  Trusts can be used to ensure that a spouse is taken care of during their lifetime with the remaining assets being distributed to the children upon the spouse’s death.

2.Gifts to a Minor

A trust can be used to give gifts to minors without allowing them access to a large sum of money all at once.  The trustee will distribute an income to the minor until he/she reaches a specified age at which time they may be granted full access to the capital.

3. Disabled Family Member

Trusts can be set up in a way that ensures that a disabled family member, whether that be a spouse or child, receives an appropriate amount of care and income after you die.  This can bring great peace of mind to caregivers who worry about leaving behind a disabled dependent.

4. Spouses Lacking Money Management Skills

Spouses who lack money management skills, whether that be impulsive spending or simply lack of experience, can benefit from a trust being set up for them that distributes an income.  In this situation, the trustee can be charged with managing the money and a spend-thrift spouse won’t be able to use the capital too quickly.

5. Bypassing Probate

Any assets that go through probate become public record.  Trusts can offer privacy to an estate as they are not subject to probate.  This can be appealing to individuals who would prefer to keep their beneficiaries due to potentially problematic estranged family members.

The Bottom Line

Trusts are a great planning tool for many families.  It is important to keep in mind that trust law is very complicated and there is a number of tax and estate implications that need to be considered.  

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This information is designed to educate and inform you of financial strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a Qualified Financial Advisor.