What is a Trust?
Trusts are a good way of holding and passing on complex assets, arranging for the care of vulnerable family members, as well as reducing your family's taxes by shifting income to other family members who are in lower tax brackets.
A trust is established when the settlor gives property to another person (the trustee). The trustee is now expected to manage the property on behalf of other people (the beneficiaries).
Trusts, unlike corporations, are NOT legal entities that can enter into contracts or incur liability. The Canada Revenue Agency (CRA) considers a trust to exist when a group meets all of the following conditions:
has members who live and work together;
does not permit its members to own property in their own right;
requires members devote their working lives to the congregation's activities;
carries on one or more business directly OR owns all of the shares of the capital stock of a corporation (not including directors' qualifying shares) or every interest in a trust or other person that carries on business to support/sustain its members or the members of another congregation;
follows the practices of and operates according to the principles of the religious organization it is a part of;
Types of Trusts
There are three types of trusts:
Inter-vivos or living trusts; and
Alter ego trust
1) Testamentary trusts are created as part of a will and only take effect after the death of the testator. Terms of the trust are established by the will - if assets are not distributed to the beneficiaries according to the terms of the will, the testamentary trust may be considered an inter vivos trust.
Having a testamentary trust will allow you to better manage and protect your wealth.
2) Inter-vivos or living trusts are any other type of trust that is not testamentary. The CRA has identified 31 different types of such trusts, including but not limited to:
Real Estate Investment Trust (REIT)
Registered Retirement Savings Plan (RRSP) Trust
Spousal or Common-Law Partner Trust
Tax-Free Savings Account (TFSA) Trust
Each type of trust has its own requirements and/or conditions, such as requiring the trust to be resident in Canada. Read more about the different types of trusts and their requirements here.
3) Alter ego trusts are created after 1999 by a settlor 65 years of age or older at the time the trust was created. These trusts permit the settlor to receive all income that may arise during their lifetime, designating the settlor as the only person who can receive and use any income or capital of the trust during the settlor's lifetime. Note that a trust will not be considered an alter ego trust if it so elects in its return for its first tax year.
For more information on how we can help you set up a trust, feel free to contact us at firstname.lastname@example.org.
Disclaimer: This blog post is for general information purposes only and is NOT intended to be relied upon for legal advice, or to be construed as legal advice. Please consult with us directly through email (email@example.com) for legal advice about your specific situation.