Trust

The main difference between a Will and a Trust is that the trust will let you transfer assets to beneficiaries when you’re still alive, while a will transfers your assets when you die.

Purpose

A trust allows you to separate the control and management of an asset from its ownership.

Trusts are used to manage estate taxes, shelter assets from creditors and pass on wealth to future generations.

• one of the most common uses of a trust is to allow for family income and capital gain splitting.

The way that the trust does this is by splitting income amongst lower-income earning family members by way of paying dividends out of a private corporation.

• spec: is this just for a family trust?

a trust is formed when a settlor contributes property to the trust for the person he intends to benefit

The usefulness of a trust is based on the fact that a trustee can hold property on behalf a single beneficiary, or a group of beneficiaries, for their benefit while maintaining control over the property.

• This can be useful from a tax perspective, as it allows income of the trust to be shared with beneficiaries who may be taxed at a lower rate than the trust while not giving up control over the property.

Parties

There are 3 parties to a trust:

• a grantor/settlor - the person who makes the trust and transfers their assets into it. They also set out instructions on how the assets are to be used or managed and who will benefit from the assets
• a trustee - the person who manages the assets in the trust on behalf of the beneficiaries. Often the trustee is the same person as the settlor, but upon death the role of trustee goes to someone else.
• the beneficiaries - the individuals who receive some type of financial benefit from the trust

an individual can be all three parties in the same trust.

• there may be adverse tax consequences if the settlor is a trustee or beneficiary.

A trust may either be:

• testamentary
• inter-vivos

Terminology

• trust settlement - The transfer of assets to the trust
• trust agreement - the instructions left by the settlor

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Children

1. Family
2. Intervivos
3. Testamentary

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Backlinks

• Estate