Setting up a Trust: Is It Right for You?

05 Aug Setting up a Trust: Is It Right for You?

For many people, the phrase “trust fund” conjures up images of wealthy, irresponsible young people, wasting their time and money in ways that are completely unfathomable to hardworking, dependable businesspeople.

Although you may not want your children to become wealthy overnight – not to mention careless with that hard-earned wealth – it may still make sense to plan your estate that way.

Before making a decision, it’s a good idea to make sure you understand what a trust can do for you. A trust is a separate entity designed to hold and protect assets on behalf of the trustee (you) for the benefit of the beneficiaries (your heirs). A trust can be set up in a variety of ways to protect both the trustee and the beneficiaries.

There are several different types of trusts. Some of the most common include the alter ego trust and the joint partner trust, which are used exclusively for people over age 65. These trusts are designed in such a way that you become the trustee and the beneficiary all at once. In other words, you manage the trust for your own benefit.

Some reasons to set up a trust include:

• Maintaining privacy: When a will goes through probate, it becomes a public document and anyone can review it. Because the assets held in the trust aren’t owned by the deceased, however, it doesn’t go on the public record. This means whatever you pass through your trust remains private.
• Avoiding probate fees: Probate fees are calculated based on the assets that pass through the will. But the assets held in the trust aren’t legally owned by the deceased and will pass outside the will. Collecting much of your estate and moving it into a trust can help avoid probate fees after your death.
• Lessening the tax burden: A trust has to file its own taxes with the CRA, much like a corporation, but beneficiaries receiving the money usually pay taxes at a lower rate than the trust does. Similarly, capital gains are calculated differently when receiving money from a trust than it would if you received the funds through the will.
• Protecting assets: The trust is a separate entity, so neither the trustee nor the beneficiary owns what is in the trust. That’s why creditors can’t come after the assets in a trust to satisfy any outstanding debts.

On the other hand, you’ll need a certain amount of money just to set up and maintain a trust, not to mention fees for registering and administering it. Consult with your advisors about whether setting up a trust would make sense for you.

To learn more about preparing your estate, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.