Trusts and committees

Trust today

Back in the fifties, trusts were set up by working men — most often the main (or sole) income earners, they wanted to know their wives would be taken care of in the event that they died or became incapacitated. Spousal trusts are still being used, but in today’s more complex families, carefully drafted trusts are often required to ensure that the desired course of one’s money is honoured after death.

For example, if you have divorced and your spouse has remarried and has had other children with a second spouse, a trust can protect your children by ensuring that your wealth is transferred to them and not to your spouse’s other children.

Another example might be that you wish to leave your money to a son or daughter who suffers from addiction problems. A trust can ensure that a certain amount of your money flows regularly to your child to support a reasonable lifestyle. This process will eliminate the chance that a lump sum payment might be spent immediately on harmful substances or activities, leaving your son or daughter unprovided for.

Trusts are also invaluable when you wish to leave money to some, but not all, of your children, or to someone other than your children. Many provinces, including British Columbia, favour the rights of all children to an equal portion of their parent’s inheritance, but a carefully drafted trust ensures that your wishes will be carried out. A trust cannot be easily overturned in a court of law. However, here in BC, a child who did not inherit what they consider to be their fair share can apply to the courts for the right to claim it, and often, unless there is a trust in place, the courts will find in favour of the child.

If you are childless and have no nieces and nephews to whom you wish to bequeath your money, you can set up a Charitable Remainder Trust. This provides you with steady income plus tax relief today and benefits your favourite charity when you pass away. You commit to giving your money to charity upon your death and continue to live off the interest for the remainder of your life. You get a tax credit that eliminates the taxes you would otherwise owe on your income. When you die, your charity receives the remainder of your wealth, which has been subject to a minimum of estate tax.

Effectively implemented, trusts can help you avoid the expense and bother of litigation. Trusts provide good protection for your funds because, when you create them, you have legally already given away your money; whereas with a Will, the funds have not yet been disbursed and remain subject to dispute and legal challenge.

Committees

Committees (pronounced commit-táys) are a little-known but very useful financial planning tool. Setting up a committee enables you to act freely on behalf of a relative who has become incapacitated.

For example, if your Mother owns a house and becomes mentally unsound, she may need to sell that house to afford a nursing home. If you have been named in her committee, you have been approved and appointed by the court to sell your Mother’s house on her behalf. The terms of the committee require you to report annually to the court on how you have spent your Mother’s money.

Being named in a committee requires caution on your part due to the strict legalities and fiduciary responsibility they carry with them. As your Mother’s <executor>, you must keep a careful paper trail to prove that you have acted ethically and protect yourself from liability.

Used judiciously, the committee is the ideal solution for people who have elderly parents as it can give them the license to act effectively in their family’s best interest in ways the Power of Attorney does not. 

The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances.