Introduction to Trusts

INTRODUCTION TO TRUSTS

A cornerstone to your estate plan.

July 7 2016

Trusts date back many hundreds of years and were primarily used for legal purposes. Today, however, trusts have evolved into an important tool from both a tax and estate planning perspective. The appropriate implementation of a trust allows for the effective flow-through of income and capital to a beneficiary to achieve substantial tax savings, while for legal purposes, a trust can provide a mechanism to control and preserve precious assets. 


Trusts can provide the following benefits

  • Create substantial tax savings
  • Provide continuing control over assets and beneficiaries
  • Protect assets from potential creditors
  • Maintain privacy
  • By-pass probate
 

STRUCTURE OF A TRUST

In its simplest form, a trust provides a method for an individual (the settlor) to transfer legal title of property to another person (the trustee) who in turn has a fiduciary responsibility for administering the property on behalf of the beneficiary. The beneficiary does not have legal title to the property, but may enjoy benefits from it. Since trusts can be quite complex, this article will concentrate on the basics of personal trusts.

PARTIES TO A TRUST

There are three parties to a trust: the settlor, trustee and beneficiary.

Settlor

The settlor is the individual who contributes money or property to establish the trust. Legal title is transferred to the trustee for the benefit of the beneficiaries. If a trust is revocable, the settlor continues to enjoy control over the property and can revoke the trust as specified in the trust document. The settlor, in this instance, may also be a beneficiary. If a trust is irrevocable, the settlor gives up their right to use the property and will generally not be a beneficiary. A testamentary trust exists when the settlor’s death causes the trust to come into existence and is usually part of a will, while an inter vivos trust is created during the settlor’s lifetime. The fair market value of the property transferred to the trust by the settlor cannot be exceeded by the fair market value of other property subsequently transferred to the trust by other parties. If this occurs, there may be a question as to who is the actual settlor of the trust.

Trustee(s)

A trustee is appointed by the settlor and is charged with fiduciary responsibility in administering property within the terms of the trust agreement. It is extremely important to assess the person who will take on the role of trustee. In many instances, the settlor may seek an individual who knows them well and understands the way in which they would like the property distributed. The complexity of the trust should be considered when selecting a trustee. Consider these factors, amongst others, before appointing a trustee: Do they possess skills to manage and control the assets? Do they have necessary investment and banking knowledge? Do they have the ability to work with professional advisors?

Beneficiary(ies)

The beneficiary will be entitled to the use of the property of the trust. Beneficiaries can receive either income, capital or both from the trust depending upon the terms of the trust regarding distribution. The trustee has a fiduciary duty to take an “even hand” approach to the trust unless the trust document dictates otherwise. This means that the interests of all beneficiaries must be taken into account. 


Interested in learning more?

We're happy to provide you with a copy of our full Introduction to Trusts publication. Contact your Richardson GMP Investment Advisor to get yours today.
 
Previous Tax & Estate Planning Strategies
View items by year:

2017

2016

2015

2014

2013

  • 2016 Tax Planning Checklist

    Dec 05, 2016

    Financial planning is time sensitive. While the following list is not exhaustive, here are some items that must be considered, incurred or paid prior to year-end in order to be included in your 2016 tax return.
    read more
  • Dealing with estate conflicts

    Nov 10, 2016

    Estate conflicts can cause irreparable harm to family and personal relationships. Prevent conflicts before they occur and explore alternative ways to resolve a dispute should one arise.
    read more
  • Family cottage planning with trusts

    Oct 06, 2016

    An effective cottage succession plan is needed to ensure the most efficient method of passing the cottage to your children. One option to consider is the use of a trust either now during your lifetime or in your will as part of an overall estate plan.
    read more
  • Being an executor

    Sep 14, 2016

    Many of us have received a request from a friend or family member to act as the executor of their estate. Acting as an executor can be a daunting task that takes time, knowledge and patience.
    read more
  • Creating a will to protect loved ones

    Aug 04, 2016

    The people and causes you care most about can be taken care of by your estate—if you plan properly.
    read more
  • Introduction to Trusts - A cornerstone to your estate plan

    Jul 06, 2016

    There are many benefits to you and your family in using trusts for both financial planning during your lifetime and estate planning. Properly set up, a trust can lead to substantial tax savings as well as provide control and preservation of your assets.
    read more
  • The value of a fireproof safe

    May 06, 2016

    To help you in preparing the contents for your fireproof safe, we have compiled a general checklist of what you should keep in it for protection and easy access in the event of an emergency.
    read more
  • Federal Budget 2016

    Mar 22, 2016

    Finance Minister Bill Morneau announced the Liberal’s 2016 Federal Budget plan on March 22, 2016 with promises of supporting Canadian families and a clear focus on the middle class wage earner.
    read more
  • Opportunities for tax savings

    Mar 03, 2016

    Investing time and effort as you prepare your personal tax returns can result in substantial tax savings. We've put together tips to assist you in identifying potential opportunities to reduce taxes and protect your family’s wealth.
    read more
  • Top up your RRSPs. Maximize your savings.

    Feb 03, 2016

    Once again, we are fast approaching the RRSP season deadline. Monday, February 29, 2016 is the last day you can make tax-efficient RRSP contributions for 2015. This is a great opportunity for you to review your retirement investment strategy with your Investment Advisor.
    read more