Trusts and Estate Planning
Trusts are and important legal tool in Estate Planning including tax planning. A trust is an obligation binding a person, who is called a trustee, to deal with property over which he or she has control, i.e., the trust property, for the benefit of persons who are called the beneficiaries. The person who creates the trust is usually referred to as the "settlor". A trust is not a legal entity (like a corporation) but rather a relationship between the trustees and the beneficiaries. For tax purposes, however, a trust is considered to be an "individual" under the Income Tax Act.
There can be considerable tax and control advantages in the use of trusts if properly arranged.
The following are the most common examples of uses of trusts in Estate Planning:
* To provide for the maintenance and education of infants or other persons to whom it is desired to give the enjoyment of property without powers of control or management. The ability of trustees to act as owners of the trust property permits trustees to deal with any beneficiary's legal (e.g., under age) and natural incapacities (e.g., mentally disabled) with respect to property;
* To provide a degree of financial independence for an adult child while postponing the time at which the child will obtain full management and control over the property.
* To provide for the care and maintenance of a spouse during his or her lifetime while controlling the disposition of the trust property on that spouse's death to, for example, ensure protection for children of a former marriage. (Spouse is defined in the Income Tax Act to include a common law partner, which union is formed for tax purposes after cohabitation for one year).
* To implement legitimate tax planning objectives such as income splitting, Capital Gains with minor beneficiaries.
* To provide for the education of children and/or grandchildren.
Trusts tend to be under-utilized legal tools for tax planning and/or assisting others, especially loved ones, during their life course. The benefits are many and may well be worth exploring with your lawyer.
Bryan Embree is an associate at the law firm of Cobb & Jones LLP