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Are Trusts for You? - Fall 2010
Are Trusts for You? - (PDF Format)

Are Trusts for You?

To the majority of people the concept of trusts is intimidating. They believe that trusts are complicated, expensive and only for the wealthy. These beliefs are NOT true.

Trusts are simply a legal relationship between a contributor, a beneficiary and a trustee. They can be used for many different things, estate and tax planning being the most common. Trusts are created either while you are alive (an Inter Vivos Trust,) or upon your death (a Testamentary Trust).

Types of Trusts

A Testamentary Trust is part of your will and can be used to safeguard assets for your spouse, your children, your grandchildren or anyone you wish. It can also be used for gifts and charities. The spousal trust will provide income for your spouse during their lifetime with the remaining capital going to your children or grandchildren upon their death. If there are no children then the remaining capital can go to anyone or any organization which you desire.

A trust for minor children or grandchildren can be set up with you directing how and when the inheritance will be paid. It may be paid over time, i.e. ¼ at the age of 21, ¼ at the age of 26, ¼ at the age of 31 and the remainder at the age of 36, or all at one time. For children that cannot manage money properly an annual amount could be paid for life or until a desired age.

A Family Trust is created while you are alive and can be an effective tool in income splitting and capital gains splitting. In order to gain the most benefit your children must be at least eighteen years of age. As an example, a Quebec resident with no other income other than a $24,000 dividend from a Family Trust would pay a total tax of approximately $ 433. That is a tax rate of 1.08%. A $ 30,000 dividend would result in a total tax liability of approximately $1,075 or a tax rate of 3.6%. If the recipient is a university student the dividend can be increased to take into account tuition related income tax credits. The Family Trust is an excellent tool in succession planning and creditor proofing assets.

Cost of Trusts

An Inter Vivos Trust should have a one time fee for setting up the Trust. It should normally be between $ 1,000 and $2,500 but will increase if the Trust is more complicated.

A Testamentary Trust's fees are included in the cost of preparing your will as it comes into existence upon your death. The annual fees associated with any Trust are comprised of two components. There is the fee for preparation of the Federal and Quebec Trust Income Tax Returns and the fee for the accounting and administration of the Trust. The fee for the preparation of the income tax returns should be approximately $ 500. The fees for the accounting and administration of the Trust are based on an hourly rate. The fees should NEVER be based on a percentage of the assets of the Trust.

If you would like more information on how trusts can be of value to you please contact the Braley Winton Financial Group at http://braleyfinancial.ca/.