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Trusts

WHAT IS A TRUST?

A Trust is a set of instructions to a Trustee contained in a legally enforceable document. To establish a Trust, a “Settlor” places assets into the Trust, or settles the Trust (hence the phrase “Settlor”) and appoints someone to manage those assets (the “Trustee”), pursuant to a set of instructions contained in a document (a “Deed of Trust”) for the benefit of persons or organizations (“Beneficiaries”).

SHOULD I DO A TRUST OR A WILL?

That depends on a number of things; the most important of which is what you are trying to accomplish. If you are trying to ensure that your wishes as to what happens to your assets after you die are not challenged, you should speak to your lawyer.

When to do a trust:

  • You are leaving assets to a beneficiary who will waste them if he receives them outright;
  • If you believe that a Trustee should stand in between your intended beneficiary and people who would charm or defraud that beneficiary out of his trust money;
  • If you want to give a beneficiary income for life, with a remainder interest in a different beneficiary;
  • If you want to plan effectively for the possibility of your own disability and you desire the accountability and the efficiency of a Trustee.

Note: a Trust can be in a Will or a stand-alone document made during your lifetime and intended to take effect immediately.

IF I DO A TRUST, DO I STILL NEED A WILL?

Most people who set up a Trust during their lifetime (hence the term “Living Trust”) do so to avoid probate. The Trust succeeds in avoiding probate only if all otherwise probatable assets are retitled in the name of the Trustee of the Trust. Sometimes people establish a Living Trust but don’t get around to retitiling all the assets into the Trust before they die. Sometimes they become incapacitated as the result of an accident and they then receive settlement proceeds which are probatable. Yes, you should do both.

IF I DO A TRUST, DO I STILL NEED AN ENDURING FINANCIAL POWER OF ATTORNEY?

  • There is no law that says people have to do business with the Attorney under your Power of Attorney, but because your Trustee has become the legal owner of your property, they have to deal with your Trustee;
  • Powers of Attorney don’t contain provisions requiring the Agent to give you a periodic accounting of your financial affairs;
  • The Agent under a Power of Attorney cannot make decisions after your death, but a Trustee can.

It is a good idea to do some kind of Financial Power of Attorney.

WHOM SHOULD I SELECT TO BE MY TRUSTEE?

  • A Trustee has full and unrestricted access to your Trust assets to have your best interest at heart;
  • A Trustee has to invest the Trust assets. Your Trustee should be knowledgeable about investing, or at least be willing to obtain competent advice, as they would have to invest the trust assets;
  • A Trustee needs to be able to resist the temptation to invest in high risk investments;
  • A Trustee needs to avoid self-dealing and conflict of interest;
  • A Trustee needs to know how to say “No” to possible unreasonable and unlawful demands of Beneficiaries and creditors that might arise;
  • A Trustee needs to be sufficiently well organized to be able to account completely for all the affairs of the Trust;
  • A Trustee needs to have the time, energy and interest to give consideration to the individual needs of the Trust Beneficiaries;
  • An individual acting as a Trustee may be judgment proof. An institution like a Trust Company or a Bank Trust Department will be better able to satisfy a judgment against a Trustee where the Trustee acted wrongly.

WHAT IS AN ALTER-EGO TRUST?

An Alter-Ego Trust is a Trust established prior to death whereby the Settlor transfers all of their assets into a Trust managed by them. They are both the Settlor and Trustee and becomes the sole beneficiary during their lifetime. Rolling the assets into the Trust does not trigger capital gains so long as the Settlor and Trustee are the same people, are over 65 years or age and are residents in Canada. The Alter-Ego Trust is used to avoid probate fees in British Columbia. (The Settlor effectively dies a Pauper and has no need for probate; and is an effective tool in avoiding claims by children under the Wills, Estates and Succession Act (“WESA”).) Its effectiveness in ousting a claim by a spouse is questionable. The beauty of an Alter-Ego Trust is that the senior still controls all of the assets in the Trust during their lifetime and during their capacity.