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Monday, August 2, 2010

Should you set up a trust in your Will?


When talking about estate planning and tax planning, there is always quite a bit of discussion of trusts. Many people assume that because their lives and their assets are pretty simple, there is no need of using a trust. However, there are plenty of every-day situations where a trust could be just the right tool to bring about the outcome they want. The following is a brief list of some of the main reasons people use trusts. You just might see yourself or a family member in one of them


Hold for minors - A child can't inherit until he or she has reached legal age, so a child's inheritance must be held in trust until then. But it's also possible to hold a child's share past the age of majority if you feel that age is too young to handle money.


Protect from children's spouses - A parent who will be leaving quite a bit of money to a young person might want to hold the money in a trust to a certain age, to avoid having the money vest in the young person and be available to an unscrupulous spouse.


Protect from spendthrifts or addicts - Sometimes individuals need help managing their money to make the most of it, due to problems that may or may not be resolved in the future. For example, a child with a drug addiction probably should not be given a large sum of money. The child's parent can help protect the child by setting up a trust that pays the child's rent but not for the habit.


Hold a particular asset - A family asset such as a lake cottage may be held in a trust for a set period of time so that all of the family members can use it. The trust should ideally also hold enough money to pay for taxes, insurance and repairs of the asset.


Control ultimate destination of funds - Putting money in trust for individuals, as opposed to simply giving the money to the same individuals, means that if not all of the funds get used up, you can control where they end up. For example, you could set up a trust leaving money for use by your elderly parents, but if the parents don't use it up, you could direct that any money left over goes back to your estate.


Defer taxes - It might be a smart idea to put certain assets, say the shares of a privately-owned business, into a trust for a spouse so that the capital gains tax that would otherwise arise will not arise until the spouse passes away (or disposes of the shares).


Split income - If a parent is paying significant taxes on financial assets, he or she might want to put some assets into a trust, such as a family trust, so that the tax burden is shared with others in the family, or paid by the trust itself.


Achieve a purpose - Trusts can be set up to fund trusts that are not for an individual person but are intended to meet some purpose. An example would be setting aside some money in your Will for the care of your pets or animals after you pass away.


These are very general descriptions, and of course there are other types of trusts as well, but this list is intended to give you some ideas about how readily trusts can be used to achieve certain estate-planning goals. As a word of caution, please do not try to draft a trust without help from an experienced lawyer, as the wording is absolutely critical.

5 comments:

  1. Hey I my friends I tell you something can you give me answer I When you make gifts to a child in trust, you want to do it in such a way that your gifts qualify for the annual gift tax exclusion. This isn't automatic because your kid can't touch the money until she's an adult. Under the gift tax law, this is viewed as a gift of future interest, which doesn't automatically qualify for the annual gift tax exclusion. But the law allows two types of trusts for minors to qualify for this exclusion. Both types get their names from the provision in the Internal Revenue Code that creates them.
    Superannuation Funds online

    ReplyDelete
    Replies
    1. As the term "Internal Revenue Code" might have already alerted you, this reader is American. Gift tax is American. His point may or may not be valid in the US but has nothing to do with us here in Canada.

      Lynne

      Delete
  2. My Mother's will states: "To divide the residue of my estate into two equal shares, and: During the lifetime of my son, Xxxx Xxxx, to hold in trust and keep invested one share, and: Pay to or apply for the benefit of Xxxx out of the income and capital of that share any amounts my Trustees decide are necessary or desirable for the benefit, care, comfort and wellbeing of Xxxx, or for the education of Xxxx, or un the event of sickness, accident or other emergency affecting Xxxx, or to meet what my Trustees decide are special or unusual circumstances"

    Xxxx is an addict. This trust was set up by my Mother to prevent Xxxx from the danger of a large sum of sudden cash.
    Probate is granted, however, Xxxx refuses to sign Waiver to Release in order to proceed to Distribution.
    Xxxx wants the trust overturned/negated and instead, have his share paid out in full in cash.
    Does Xxxx have any legal recourse to have this clause overturned?

    Thank you for your help!

    ReplyDelete
    Replies
    1. It's not unusual for someone whose share is held in trust to be unhappy about that. There are two separate things going on here that X is attempting to roll into one.

      If he feels that he wants to attack the trust and have it changed or collapsed, he can apply to the court. It will be an uphill battle. However, simply refusing to sign the release will not make his application happen and it won't force anyone else to bring the application either. He has to do that and spend the money on it.

      Keep the issue of attacking the trust separate from the issue of signing the Release. Refusal to sign it only indicates that X is not happy with what has been done on the estate so far, and has nothing at all to do with his share going to trust.

      The executor may apply to the court to pass his accounts. This will dispense with the need to get X's signature on the release and will allow the executor to take next steps, including setting up the trust for X.

      At that point, if X still doesn't want the funds in trust, he can bring an application to the judge to try to show why the trust should not be upheld. This is difficult, because people are entitled to set up trusts in their wills where they feel it is appropriate. X cannot hold up the entire estate because he wants his share outright.

      In my opinion, the executor should consider passing his accounts, leaving the trouble and cost of challenging the trust up to X.

      Lynne

      Delete
    2. Thank you Lynne, that was valuable help!
      Monte Shea

      Delete

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