BY: VALERIE DYE
A trust may be described as a mechanism which allows property or other assets to be held in the name of one person but for the benefit of another. A trust may also occur where one person (the settlor) transfers assets to another person (the trustee) to be held in trust for another person (the beneficiary) until a specified time or until a particular event occurs.
Quite often it is not practical or possible for property or other assets to be held in the name of the beneficial owner. One way in which this may occur is where one may be in a financial position to purchase a home but for some reason may not qualify for a mortgage and therefore cannot purchase the property in his or her name. In such situations, it is common for the property to be purchased in the name of a third party with the intention that the property is merely being held in trust for the beneficial owner.
A trust may also be used for the purpose of protecting assets from future creditors in the event of lawsuits or any liabilities which may affect assets being held in one’s own name. For these purposes, the trustee does not have to be an individual but may be a corporation.
The illustrations given above relate to trusts created during the lifetime of the settlor (inter vivos trusts). In estate planning, one may also create a testamentary trust which allows property left in a will for a trustee to be used for the benefit of (or held in trust for) various beneficiaries. A testamentary trust can be incorporated into a will or can be a separate document known as a declaration of trust. A testamentary trust will allow the testator to leave property in the name of a trustee for the benefit of his minor children. The trust may stipulate that the property should be transferred to the children once they become adults.
Another form of testamentary trust is the Henson Trust which allows a testator to leave property in trust for a disabled dependent. Under the Ontario Disability Support programme, a disabled person will not be entitled to receive disability payments unless his assets are valued below a certain amount. This provision can be circumvented if property is left for the disabled person under a Henson Trust which will allow the assets to be left to a trustee for the benefit of the disabled person.
A trust may also be used in blended families where a testator has children from a previous marriage and wishes to ensure that property left to his current spouse will pass on to his children after the death of his spouse. In such a case, a spousal trust may be created in a will. This allows the surviving spouse to enjoy the use of the property after the death of the husband while ensuring that after her death the property will not pass to her descendants or to a new husband if she remarries, but will instead pass on to the testator’s children.
While trusts are very beneficial in planning one’s estate one must also be aware that there are various tax implications to the use of trusts.