In our previous article, we have touched on the basics of setting up an estate plan. Apart from making a Will, you can also consider setting up your Trusts as part of your estate plan. Do you know an estate plan can include two types of trusts?
Let's recap on the concept of Trusts
A Trust is legal relationship that describes assets that are held by one person (a "Trustee") for the benefit of another person (the "Beneficiary"). Trusts can be used to protect assets from creditors, to assign or manage the control or distribution of assets, and for tax planning or probate purposes. An estate plan can include two types of trusts: Testamentary Trusts; and Inter-Vivos Trusts (or "Lifetime" Trusts).
- Testamentary Trusts are the trusts created and settled by your will. Common trusts that we see in wills include Age Trusts for minor beneficiaries, which are used to control the distribution of assets, over time. (for example, you might not want your 19 year old to have access to large sums of money all at once...). Similarly, your will might include a Special Needs Trust, if any of your beneficiaries are disabled. Your will might also include a Spousal Trust, which can set aside some of your assets for the continued use of your spouse during their lifetime, while preserving the residue or remainder of those assets for your children, after your spouse passes away. (Spousal trusts are commonly used in estate plans for blended families.)
- Lifetime Trusts are settled during your lifetime and may benefit you while you are alive while containing directions for the distribution of trust assets after you pass away. Examples include Alter Ego, or Joint Partner Trusts. Sometimes called "will substitutes", these Lifetime Trusts are intended for Canadians over age 65 and can be effective tax planning and probate planning tools. Family Trusts are other common Lifetime Trusts, often used in estate plans where there are business assets that need to be passed down to successor owners or beneficiaries.
Next week, we are going to cover two more important documents you might consider to setup your estate plan. Stay tuned with us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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