How To Set Up a Trust For An Estate?

When taking steps to secure your assets and protect your family, a trust could be a good option. It can help reduce tax burdens on your estate and help your loved ones manage the financial stresses that could come from your passing.

Below, we’ll take a deeper look into a trust and how you can use it to secure your assets.

What is a Trust?

A trust is an option that individuals have to help secure their loved ones. There is not just one type of trust, with each one having its own terms and conditions for payouts and beneficiaries. While a trust is thought of as a tool only for the wealthy, those from all financial backgrounds can consider them when planning their estate.

The one thing about trusts that can be tricky is the tax rate surrounding them, which can start to get complex. In addition, the costs to set up a trust are also something to consider, as they can add up quickly.

Trusts in Canada

A lot of times, families create a trust for future generations, choosing when it is paid out. This could be on their children’s 18th birthday or upon their graduation from college. Using a trust, they can take their assets and tie them into an account that will be there when conditions are met, paying out in one lump sum or payments thereafter.

For those who have a business, the options are a bit different, allowing owners to choose an estate freeze. An estate freeze locks the value of assets and shares in their company, keeping them that way until they’re paid out. This can help reduce tax liabilities on assets when policyholders die, letting them collect more of the benefit.

Types of Trusts

Trusts come in all shapes and sizes, meant to fit a variety of people. Some of them will kick in when the creator is still alive while others will not take effect until they are deceased. Apart from when they take effect, there are different types of trusts, a few of which we’ll point out below.

Alter Ego Trust

This trust is one that is set up with one’s own assets. When a settlor creates a trust to themselves, they can use it as a way to pay themselves monthly or choose to receive a sum of money all at once. The creator of the trust is the only one to benefit from this type of trust.

Employee Trust

Business owners can take advantage of an employee trust, using it to reduce the amount they have to pay for taxes. In an employee trust, the company pays out trust payments to employees, reaping benefits all around.

Real Estate Investment Trust (REIT)

This type of trust is set up with those that have investment properties. That means that the trust’s portfolio must have 90% of its investment tied into REIT properties and that income must come from rent.

While trusts can benefit anyone at any age, they are especially useful for those aged 65 and older. They give them a unique option to roll over assets without having to worry about taxes on capital gains. While there are no taxes while the trustee is alive, there are some in the event of their death.

These taxes will go directly on the capital gains, taking away from the value of the trust. On a positive note, properties tied into trusts are not subject to probate fees, which is another key reason why investors choose them.

Using your Trust Wisely

Because of the opportunity to enjoy fewer taxes on assets, many individuals choose trusts. They will often tie assets up into a trust and add their children or loved ones as beneficiaries. While it’s a good option, trustees should be cautious about creating trusts, as some are taxed depending on the chosen beneficiary. Click here to learn more about how to use trusts in estate planning.

If the trust is transferred to a spouse or a child that is under the age of 18, the tax responsibility falls to the trustee. To avoid attributions, trusts can go to adult children, grandchildren, or nieces and nephews.

Choosing Settlors and Trustees

Just like creating any other kind of security for your assets (life insurance or a last will), there needs to be a settlor, one that will disperse the trust to settlors. The person that is transferring cannot be the only trustee and will therefore choose someone to set the trust up for them.

Selection is critical and it takes more than just choosing a family member. It requires someone that is going to act responsibly and make the best decisions for your assets.

As far as additional trustees, the creator of the trust could need to name them as well, especially if they plan to transfer assets to another province. They will need to appoint someone who lives there, giving them the ability to help transfer funds on their behalf.

Gathering Trust Assets

Whether it’s property, monetary gains, or a stake in the family business, creating a trust requires choosing which assets and properties will be transferred. It’s a good idea to consider what’s going into the trust, making sure to avoid high fees.

Another thing to consider is avoiding attributions, reducing the tax burden on recipients (and on yourself). Avoiding the fees and taxes that come along with assets is possible, with help from a life insurance policy or a personal loan with the perfect interest rate.

Let Sim Do the Math

Keeping hold of your assets is important, keeping taxes and fees low so you and your recipients get the max return. With a call to Sim, she can point you in the right direction and help you build a trust that’s perfect for your situation.

You’ve worked hard all of your life, building up your personal empire. Keep it safe and secure the ones you love the most with help from a trust. Sim can find ways to make your trust work for you, avoiding annoying fees and taxes.