Setting up a trust fund in Canada is easy when you go through the proper channels and know what you want. That being said, though, there are many types of trusts, making it tricky to know which will best benefit your decedents. Work with a trained life insurance and investment advisor to find the best trust for your business or family and set your next generation up for success.
Continue reading to find a brief breakdown of every type of trust in Canada. For more advice on how to set up a trust fund, contact Sim Gakhar in Ontario, Canada. Sim will help you create your fund and advise you on how to maximize your financial growth.
An inter vivos trust is a trust fund set up before the time of death. Also known as a living trust, inter vivos trusts are created by living people for the benefit of their partners, spouses, children, or any other beneficiary. Inter vivos trusts are set according to a time limit determined at the time of creation and can continue to disburse assets after the founder passes away.
There are many forms of inter vivos trusts but the most common include the following:
Alter ego trust funds allow a settlor aged 65 or above to access all of the income they’ve gathered across their lifetime. The named settlor is the only person who can access the fund to withdraw money or capital from the trust.
Joint spousal and common-law partner trust funds function the same as alter ego trust funds. They allow the settlor and the settlor’s spouse or common-law partner to access the total income gathered through the settlor’s lifetime before or after death. This type of trust fund provides for the spouse in the event that the settlor passes away before them. Only the settlor and spouse can access the funds.
Master trust funds originate as standard trusts but may elect to become master trusts in order to earn better tax advantages if they currently reside in Canada, were established to invest capital, have never taken out loans longer than 90 days or received deposits, and the beneficiaries of said trusts are other existing trusts governed by a profit-sharing plan, pension plan, or pooled pension plan.
Existing trust funds may elect to file as real estate investment trusts (REIT) for a single tax year as long as they have resided within Canadian territory throughout that year. Filing as an REIT fund grants the trust more advantageous tax benefits for that year.
To qualify as an REIT, trusts must consist of at least 90% REIT qualified properties from which 90% of said properties’ revenue came from rent, real estate, interest, capital gains on real estate, dividends, or royalties. 75% of that revenue can consist of profits gained from mortgages and capital gains.
Testamentary trusts come into effect after the death of a will-holder or by the decision of a provincial or territorial court. The terms of the trust are dictated by the will or according to the court’s decision. Testamentary trust funds are typically not funds created by a living person. Rather, they come into existence after a wealthy individual passes, leaving their estate to a trust.
In the event that the assets held by an estate are not passed on to the beneficiaries of a will, a testamentary trust will become an inter vivos trust, which you can find detailed below. Testamentary trusts will also become inter vivos trusts in the event that the trust lapses into debt.
Certain debts are excluded from this clause, including:
Testamentary trusts include the following trusts:
Graduated rate estate funds may arise after the death of an individual if the trust is established within 36 months of the estate owner’s death, the deceased’s social insurance number has been provided in the estate’s T3 tax return, and no other estate can claim itself as the graduated rate estate for the deceased’s property.
Note: After 36 months, an estate can no longer be classed as a graduated rate estate.
A qualified disability trust must establish itself as such by electing to do so through Form T3QDT, Joint Elections for a Trust to be a Qualified Disability Trust. To qualify, the beneficiaries of the trust must have been named as beneficiaries by the deceased, qualify for a disability tax credit, and provide their Social Insurance Numbers,
If a beneficiary is named as a beneficiary to another trust, they may not elect for both trusts to be classified as QDT funds during the same tax year. Additionally, the trust must be held within Canadian territory.
Any spousal and common-law partner trust written after 1971 entitles the living beneficiary of the trust to earn all income earned by the spouse over the course of their lifetime. However, only the spouse qualifies as a beneficiary of the trust. Other living decedents are barred from accessing the funds held within the trust, as dictated under the terms of the spousal trust.
Lifetime benefit trusts entitle the beneficiaries of the trust to have lifetime benefits from the fund as long as they were the spouse, common-law partner, child, or grandchild of the deceased prior to death. Lifetime benefit trusts must be considered personal trusts from which no one other than the direct beneficiaries can benefit.
Find more information about Canadian trusts at https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/types-trusts.html. If it’s all Greek to you, let a qualified expert help decipher inter vivos and testamentary trusts for you. Sim Gakhar is a trained insurance agent and investment advisor who can help guarantee wealth for your future generations. Enquire with all your questions and start bolstering your family’s wealth today.
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