A variety of family trusts may be created for the benefit of family members as part of your estate planning.
These are trusts created within your will and are typically for the benefit of young children or vulnerable persons.
Trusts for Benefit of Young Children
Typically, trusts are created by Wills in order to provide for the benefit of young children before and after the age of majority. Such trusts usually provide for vesting at a certain age or ages (it is not uncommon to provide different amounts to the children in phases and at different ages) and meanwhile for the trustees to have discretion to pay or apply income or capital for the benefit of the child.
Trusts for Vulnerable People
When you are concerned that loved ones will never be capable of dealing with property of financial affairs for their benefit, you may give discretion to your trustees to apply income of capital for the benefit of such vulnerable loved ones throughout their lifetime rather than gift trust funds directly to them.
Such trusts may not preclude handicapped beneficiaries from continuing to receive government benefits related to their handicap. Trusts designed to preserve this entitlement to such benefits are often referred to as "Henson" trusts.
An additional benefit arising from the use of testamentary trusts created within the Will is that they are taxed at progressive, graduated rates (rather than at the highest individual tax rate as is the case with inter vivos trust).
The income paid out of the trust may be taxed in the hands of the beneficiaries at their individual tax rate. Or, a designation may be made under the Income Tax Act (ITA) to have such income pay out taxed by the trust. It is possible for a Will to create multiple trusts each of which will be separate taxpayers for the purposes of the ITA.
Under the ITA, a deemed disposition of capital properties on a person's death and tax becomes payable on the accrued capital gains. However, when property is given on death to a spouse or to a spouse trust, the disposition and tax will usually be deferred until the earlier of an actual disposition of the property or the death of the spouse.
For blended families, a trust may be create successive interests in a property. For example, if the settler had children from a former marriage, she or he may give discretion to the trustee to provide for the current spouse and children from a former marriage.
Landmark Law Professional Corporation may assist in the creation of your family trusts and estate planning matters.
Disclaimer: This article does not contain legal advice and only provides general information. It is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this article before making decisions. Use of this article does not establish a lawyer-client relationship.