Family Law Legislation: Federal, Provincial and Territorial
A trust can be a smart move to protect your estate and provide for your beneficiaries. It’s a way to make sure your wealth is shared equitably amongst your heirs, and avoid potentially countless headaches about your estate. It also ensures a certain amount of time to pass before the beneficiaries have access to the full amount.
The funds held in a trust are issued as a graduated payment, and are not considered part of the beneficiary’s wealth. That means that for a beneficiary who is having financial troubles, the inheritance will be safe from creditors, and cannot be seized. The way in which a beneficiary uses the inheritance will determine if it’s safe from the division of assets during a potential separation or divorce.
Finally, a trust is a good option for blended families, so that the surviving spouse can draw income from the trust until the children from the first marriage become adults.
Trusts fall into two main categories, each with its own unique features and benefits:
- Testamentary trust, which is generally created on and as a result of the death of the donor.
- Inter vivos trust, also known as a living trust, which is created by the donor during his or her lifetime.
A testamentary trust allows you to decide, while you are alive, how the wealth you bequeath should be used. It is created in your will, and will be put into effect upon your death.
The trust specifies who the beneficiaries of your estate will be, how they will access the funds and under what conditions. It provides a way for assets devolving to minor children to be protected until the children are capable of fending for themselves. You appoint a trustee to direct the trust until a set time when it expires. This could be when minor beneficiaries reach a specified age or goal, such as completing an educational degree or getting married. Although not a party to the trust itself, the probate court is a necessary component of the trust’s activity. It oversees the trustee’s handling of the trust.
A testamentary trust is a good way to protect your bequeathed wealth, and remain in control of your assets after your death. You bestow what you want, to whom you want, and under what conditions.
Inter vivos trust (living trust)
An inter vivos trust is created by segregating funds or assets and placing them in trust while you are still alive, so that the beneficiary can receive the benefits during your lifetime, not have to wait until after you are deceased.
The purpose of the inter vivos trust is to hold property for the benefit of others – typically family members, with the aim of income splitting.
Two common examples are:
- To hold growth in capital investments for the benefit of children and grandchildren, including those under 18 years of age; and
- To hold investments which earn capital gains, dividends and interest for the benefit of children and grandchildren who are 18 or older.
A main benefit of an inter vivos trust is that it helps avoid probate, in which a court divvies up assets for an individual after his or her death. No one likes the expense and delay of probate, nor the potential publicity that estate settlement can create. Assets held in trust are transferred to the intended recipients in a smooth and private manner.
When setting up a trust, whether testamentary or inter vivos, it is essential to provide clear directives and anticipate as many situations as possible. At Howard Nightingale Professional Corporation, we help you determine the right type of trust for your needs, and manage all the details, so that there are no oversights or ambiguities. We are centrally located in the Dufferin and Finch area; please call us at 416-663-4423 or toll free at 1-877- 224-8225. We look forward to working with you.