On his deathbed, Bertrand's eyes beckoned as he supplicated his "old buddy, old pal" to relent and accept the impossible task.
"If you have a better idea, what is it? Please, just take it, and do as I ask. I've thought about it a lot, and really can't see anyone else doing this for me. You are my dearest friend in this world!"
If Ernest was honest with himself, he would have to admit that there really was nobody else. Even if he would rather trade places and die himself, than to negotiate the grief and manage the request simultaneously, he could never say no to his best pal.
And so, as trustee, Ernie agreed to accept ownership of Bert's famed and treasured paperclip collection and see that they were kept in pristine order, polished, labelled and in their individual velvet and glass encasements, touring the continent for inquisitive onlookers who paid a handsome admission fee for the privilege. All proceeds of the tour were to go to the beneficiary, the Paperclip Society of North America, who would, of course, keep the legacy alive for generations to come.
Trustee
A person who takes the title of an asset granted by another and manages it strictly for the good of a beneficiary. Trusts are in various forms and very relevant to the estate planning process.
Inter vivos trusts
An inter vivos trust (Latin for "among the living" - we use Latin to be precise... and glamorous) is established while you are alive to provide the person gifting the assets with significant control over the timing and amount of assets distributed to the beneficiaries. The assets aren't controlled directly, but by trustees, who must administer the trust assets in accordance with the trust agreement.
Point-form details:
The terms of the trust may allow for distributions to your children or spouse beneficiaries.
Can be structured to have income earned taxable to the lower income children/beneficiaries.
May offer creditor protection for the family.
Probate fees may be avoided.
Depending on trust structure, you may no longer have access to the assets for personal use.
There are costs associated with the administration of the trust.
Tax considerations
When assets are transferred into an inter vivos trust, this creates a disposition for tax purposes, which may result in taxes for you. There are also annual tax considerations that need to be accounted for, the full explanation of which could fill several of William the Refrigerator Perry's refrigerators.
Testamentary trusts
This type of trust comes into effect after death, and its creation is generally documented within the will.
Testamentary trusts allow individuals to pass specific assets to beneficiaries without allowing them to gain control of the assets. (Na na na boo boo!) The assets held are managed by the trustee in accordance with your wishes as stated in the will. These trusts can be established separately for different family members.
Not just a haunting
Testamentary trusts are handy for controlling the timing of the distribution of assets to beneficiaries, pending age or educational thresholds, etc. They also provide an effective solution for concerns around spendthrift beneficiaries and disabled beneficiaries.
However, there are costs associated with the maintenance of the trust, and probate fees may be applicable for assets funding the trust.
Testamentary
spousal trusts
Provide support to surviving spouse, but stipulate that on spouse's death, remaining assets get distributed to children.
Creates tax-deferral benefits on the rollover of assets to the spousal trust .
Enables protection of family interests.
Spouse must be entitled to income from their trust during their lifetime. No one else can receive or use the income or capital of the trust during the spouse's lifetime.
Trust structures for blended families
With the rise of step-families and blended-families in Canada, there's a greater need for assistance in navigating the often complicated aspects that these family types face in estate planning and passing down wealth.
Those who are part of a blended family may be challenged by potentially competing interests while trying to ensure family members are treated equitably. For those in a blended family situation, trusts may offer the ability to tailor according to individual needs and preferences. The following chart outlines some of the key types.
Alter ego - Inter vivos
Must be 65 years of age or older when establishing the trust.
The settlor (creator of the trust) is entitled to exclusive income from the trust during the their lifetime.
At death, assets are then distributed according to trust agreement.
Assets transfer outside of the estate, avoiding probate.
May protect against challenges to the will.
A joint partner inter vivos trust is very similar to alter ego, only it provides benefits to a spouse couple, as opposed to an individual. This ensures surviving spouse or partner continues to receive the benefit of the assets during his or her lifetime.
Mark Ryan is an investment advisor with RBC Dominion Securities Inc. (Member-Canadian Investor Protection Fund). This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Mark can be reached at [email protected].
