March 21, 2019

Trusts and Their Use in Estate Planning

trust puzzle

TRUSTS AND THEIR USE IN ESTATE PLANNING

Trusts are similar in function to a gift left to someone in a Will, except that Trusts can be set up either within a Will or while the “settlor” (the person creating the Trust) is still alive. A Trust is created using a written instrument that sets out the terms of the Trust. A Trust needs to appoint at least one trustee, who administers the Trust for the settlor according to the terms set out in the document. Most Trusts are set up to be “irrevocable” which means that once they are set up and the assets and/or money being held by the Trust is transferred to the trustee, the settlor cannot change their minds and get the assets or money back.

Trusts in general allow for the control, management, and distribution of property over a period of time. Trusts can allow for income splitting, deferral of capital gains taxes, avoidance of probate fees, asset protection, allocation between income, distribution of capital to specified beneficiaries and confidentiality.

A Trust can be used as a vehicle to avoid probate fees payable upon the death of a person. If a Trust is created that is irrevocable, where the settlor is not a beneficiary, the property that has been transferred to the Trust does not form part of the deceased’s estate. As it is not part of the estate, assets held in Trust can also potentially be protected from claims for dependant’s relief.

It is important to consider, however, that a Trust is considered to be a “person” for tax purposes, so the Trust must complete tax returns and there is the possibility of capital gains tax payable on Trust assets if they are sold or distributed when a Trust is terminated. Capital gains tax can be deferred by placing assets or property in Trust, but it will eventually have to be paid when those assets are sold or the Trust is terminated.

It is best to consult with a lawyer about all the potential benefits and downsides to employing a Trust in your estate planning.

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Feel free to contact us at any point for assistance or advice related to Estate Law, Estate Planning, Estate Administration or Estate Litigation. We may be reached at 705-435-4339 / 1-877-85LEGAL (1-877-855-3425) or contact us via email.