Why add a trust to your estate plan?

While you’re probably aware of the role a will or power of attorney plays in estate planning, you might not be as familiar with trusts. “Trusts can play an important part in your estate plan,” says Jamie Golombek, Managing Director, Tax and Estate Planning with CIBC Private Wealth in Toronto. “They can be especially useful for families with more complex dynamics, or if you wish to have greater control over your assets after you’re gone.”

When you establish a trust, you transfer legal ownership of assets to a trustee. You set parameters around who gets the assets, when and under what circumstances.

For instance, you (the settlor) might assign your adult child (the trustee) to hold money for your grandchildren (the beneficiaries), until they turn a certain age. Trustees don’t have to be immediate family members. They can be close friends, professionals like lawyers, accountants or corporate entities like trust companies.

Two types of trusts that are popular for estate planning are inter-vivos trusts and testamentary trusts. An inter-vivos trust takes effect during your lifetime. A testamentary trust is included as part of your will and takes effect after your death.

Here are some reasons to consider a trust.

Asset protection. Let’s say you leave your child a sum of money — but later in life, they become the target of a lawsuit. In such a case, having assets in a discretionary trust may offer shelter from creditors.

Distributing inheritance. An inheritance trust can help you provide for your spouse or partner while preserving some of your estate for your children. This may be particularly useful if you’re in a new relationship or have kids from a previous one.

Leaving assets to minors. With a trust, you can appoint someone to manage funds on behalf of children until they reach the age of majority or older.

Controlling distributions to beneficiaries. Trustees maintain control over both the timing and the amount paid out to the beneficiaries based on your wishes.

Leaving assets to dependents with disabilities. If you have a loved one with a disability, a trust may offer financial support without compromising their government benefits.

Splitting income. Trusts can also be useful for those in a high tax bracket who want to help family members in a lower bracket. You can loan funds to a trust with family members (such as your grandchildren) as beneficiaries. Structured properly, these loans can provide income paid from the trust to such family members.

Golombek notes it’s important to seek professional advice when exploring trusts. “Since trust and tax laws are complex, advice should be obtained from legal and tax professionals prior to implementing any of the trust strategies outlined above,” he wrote in a recent paper.

Interested in learning more about establishing a trust?

The strategic use of trusts (PDF, 625 KB) Opens in a new window.

At CIBC Private Wealth, we understand that everyone has unique needs. Whether you need support for a transitional period of your life or building a long-term wealth plan, we’re here to help. Talk to us about how to customize, structure, preserve and optimize your wealth.