Trusts

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 kids with a second spouse, a trust can protect your kids 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, but the entire inheritance is not made available all at once, eliminating the chance that the lump sum might be spent immediately on harmful substances or activities, leaving your son or daughter poorly provided 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.

Here's how a trust works

You appoint a secure and reliable third party (an individual or a trust company), as your trustee to look after certain assets for the benefit of your beneficiaries. To make the trust legal, you must transfer title or ownership of those assets to the trustee. The trustee in turn invests the assets, manages the growth, and sees that the assets are distributed to beneficiaries according to your instructions.

A trust may operate while you are alive, after your death, or both, and may be used to ensure that your assets are always managed according to your wishes.