Setting up a trust happens for several reasons. These include ensuring family members’ financial stability in the future, donating funding to a favourite charity, and providing security for a dependent who has disabilities.
A trust is a legal relationship in which one person (the “settlor”) declares that some of their assets are to be used for another person’s benefit (the “beneficiary”). The person who controls the trust is called the “trustee.”
Trusts are important tools in estate and financial planning. Here are just three of the decisions you may have to make when setting up a trust. For further specifics, you can contact our Coquitlam, Langley, or Sechelt law offices here.
1.Written trust or oral trust
Always have a trust set up in writing. Although they can be oral, ideally trusts will be described in a written legal document, which a wills, estates, and trusts lawyer will help draft. This helps to avoid problems in proving the settlor’s intention, subject matter, and intended beneficiaries, which are all required in the implementation of a legal trust.
2. Inter vivos trust or testamentary trust
When planning your estate, these are the two basic trusts for you to consider.
An inter vivos trust, otherwise known as a living trust, is a legal agreement between two living people. Such trusts can be set up with a spouse or with dependents such as children and relatives with disabilities. Setting up an inter vivos trust outside of your will can have significant tax benefits.
A testamentary trust is a trust that goes into effect following the death of the settlor. These can be set up through a separate written trust or in the settlor’s last will and testament. Testamentary trusts are often set up for family members, charities, and scholarships.
3. Discretionary trust or non-discretionary trust
A discretionary trust gives the trustee complete control over the trust and how the money in it is distributed to the beneficiaries, whereas a non-discretionary trust forces the trustee to make payments in a certain way.
Whether a trust is discretionary or non-discretionary can have important implications on things like access to government benefits or creditor protection it is important to speak with a wills, estates, and trusts lawyer to ensure all parameters are taken into consideration.