By: Jayson Schwarz LLM
When people hear the words “Family Trust” or “Florida Trust”, they immediately think of wealthy, old-money families like the Kennedys. The truth is that Trusts are simply a second layer of estate planning, over and above a will, for people who have assets, that they want distributed on an ongoing basis after death, or even during life. In addition, Trusts are a very effective way of reducing the tax liability of your estate while still allowing you, or whoever you designate, to be in complete control of your assets.
What is a Trust?
A Trust is a thing, brought to life by a trust document, that creates an entity able to operate on the surface as a separate individual, capable of holding assets and/or operating a business. Instead of shareholders, it has Beneficiaries for whom the assets must benefit, and Trustees who follow a set of rules that are crafted by the lawyer and governmental legislation. The aim is to satisfy your needs through the description of how the Trust shall be operated and for whose benefit. Unlike a will, which merely says, who gets what, after death, a Trust allows you to strategically plan your succession with a view to minimising or delaying tax and Government administration fees. In addition, putting your assets into a carefully structured trust, will allow you to control your estate after death. Trusts may be used while you are alive to split income amongst family members and others, to minimize your own income tax burden. Trusts have a wide variety of uses, and for this reason several different types of trusts have been developed.
What are some of the different types of Trusts?
Trusts can range from the very simple to the very complex. Trusts can vary from document to document as to their effect, complexity and use. The following are but a brief sampling of different kinds of Trusts:
- Testamentary Trust: It is possible to create a trust within your will by specifying how certain assets will be handled and then distributed, after your death. As an example you can stipulate how minors will receive certain bequests and how assets may be invested.
- Spousal Trust: It can be included in a will, or as a separate document in order to place some, or all of your assets into the Trust, prior to death, purely for the benefit of your spouse, in order to avoid the estate tax. You could provide your spouse a life interest in order to enjoy the assets, yet preserve them for the children.
- Family Trust: This Trust is used during your life for any number of purposes. It can be used as a personal and corporate succession planning tool, as a discretionary, flexible tax planning tool and for creditor protection.
- Henson Trust: This Trust is designed to allow disabled persons receiving disability benefits to protect their assets and those benefits.
- International or Florida Trust: this can be an extremely important planning tool for Canadians who are looking to purchase property in Florida or elsewhere outside of Canada. When prepared properly it can insulate you from US estate taxes on death.
How do I Know if a Trust is Right for Me?
It is important to consult with a lawyer and accountant experienced in the use of Trusts to determine which kind of trust is right for you and your family. Trusts are dynamic and useful tools that allow flexibility, peace of mind, succession planning and tax planning, now and in the future.