Various uses of the Trust have developed and continue to develop over the years. The information provided is not exhaustive, but provides discussion on the typical uses of the Trusts.
Family Trusts
Asset Protection
Bare Trusts
Non-Resident Trusts
Business Trusts
Family Trusts
General uses:
- Control the use and division of family assets for members
- Wish to pass assets to family members but hesistant to give them the propery outright
Probate avoidance:
- In inter vivos trusts, the assets are not subject to probate and inherent fees
Spousal Trusts:
- Estate taxes are deferred if it is transferred to a spouse or spousal trust
- It is used where there are unrealized gains which cannot be otherwise sheltered
- Protect estate where beneficiaries include children of previous marriage
- Used if spouse is not considered competent to manage investments
- Protect spouse who may remarry against their second spouse in claiming the assets
Trust for disabled:
- Trust setup for disabled persons so that parents have the opportunity to see the trusts in operation during their own lifetimes
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Asset Protection
From creditors:
- Trust is not made with the deliberate intent of defeating creditors
- Protect attack by subsequent personal creditors after the ownership is transferred to a Trust in which you have limited or no beneficial interest.
Principal Residence Trust:
- Uses principal residence exemption to transfer residence to trust - no tax is incurred for prinicpal residence
Protective/Spendthrift Trusts:
- Protects the assets against creditors of the beneficiary if they become bankrupt
- Beneficiary will cease to have an income interest in the trust upon their bankruptcy
- Discretionary family trusts accomplish same objective provided that trustees have complete discretion to distribute income and capital to the absolute exclusion of any other beneficiary
Family Relations Act:
- Protect assets againsts claims using the Family Relations Act
- Setup prior to a marriage
Wills Variation Act:
- Assets transferred to a Trust is not subject to the Wills Variation Act
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Bare Trust
- Used where a nominee corporation holds title to real estate for the beneficial owner
- Trustee has no independent powers, directions, or responsibilities and few administrative duties
- Transfer of property to a family trust but the settlor does not wish to currently pay the property transfer tax
- If the settlor is the sole beneficiary, they can cause the property to revert to them at anytime
- All income, losses and capital gains from the property will be attributable to the settlor
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Non-Resident Trust
Immigrant Trusts or Five year Trusts:
- Canadian resident is subject to tax on the income in a non-resident discretionary trusts where the settlor is a Canadian resident and resides currently in Canada or has done so for 18 months
- Use for contributors to a Trust that has not been resident in Canada for a period totalling 60 months
- Non-resident sets up Trust for Canadian beneficiaries prior to becoming a resident in Canada
- Passive income and capital gains earned or realized outside Canada by the non-resident trust would not be subject to Canadian Tax for 60 months
- Widely used by new immigrants
Off-shore Trusts
- Relocation of assets outside of Canada to reduce tax and provide asset protection
- Assets usually located in tax-haven countries
- Used with at least $1,000,000 in assets
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Business Trust
As a substitute for a corporation:
- used to aquire business assests
- trustees operate business on behalf of the beneficiaries
- recieves payments according to the profitability of the business
- trustees are strictly personally liable on all contracts in which they enter
- offer greater limited liability for the beneficiares than other trusts
- beneficiaries acquire interest through voluntary contractual relationship rather than gift from the settlor in private trust
Commerical Trusts:
Investment Trusts
- assets are transferred to the trustee for investment over a period of time
- at the close of the investments, the funds is available either on a total pay out or in instalments
Unit Trusts
- each beneficiary has units of value and recieves benefits accordingly
- units may or may not be assignable; if units are assignable, it can be bought and sold - See Income Trust FAQs for more information
A Voting Trusts:
- used to secure the control and management of a corporation
- trustees under agreement to vote shares for a fixed determinable amount of time and remid dividents to the shareholders
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Different Uses of Trust?
