Trusts

The concept of ‘trust’ is used throughout Canadian law in many different contexts. For tax purposes, a trust can sometimes be considered a separate person, who deals with property according to special rules and is taxed at special rates. Trusts are also used as a means of controlling the management and distribution of property in estate planning, family matters, and in a wide variety of business transactions.

What is a Trust?

A ‘trust’ is primarily a device for dealing with property. It arises where one person is the legal owner of property, but holds that property for the benefit of some other person. A trust can be created by a person who intends to create one – in which case it is referred to as an ‘express trust’. It can also be created when the people involved did not necessarily intend to create one, but where a court decides that a trust should arise – in which case the trust is said to be created by ‘operation of law’.

Uses of Trusts

There are many different uses for trusts, some of which include:

Protective trusts, where a person wants to use property for the benefit of loved ones, without actually giving full control of the property to the loved ones. This can be particularly beneficial where a person is concerned that, say, his or her children may waste money or property provided in an inheritance.
Incapacity provision trusts, where property is to be used for a person, say a minor child or physically or mentally incapacitated loved one, who otherwise lacks legal capability of dealing with the property on his or her own behalf.
Family trusts, to minimize taxes in certain situations and control property (such as shares in a closely-held corporation) for the benefit of family members.
Secret trusts, where someone wishes to provide some benefit for a particular person without the awareness of others (this is an interesting, though problematic use of the trust, since a secret trust is usually settled in a will with no means of enforcement since the beneficiary is kept a secret from everybody except the trustee).
Business trusts: there are many types of business trusts, from the now-infamous income trust, pension trusts, shareholder voting trusts, asset securitization trusts, and many others, all of which are designed with specific business objectives in mind.

Of the above trusts, by far the most common are the protective trusts associated with gifts in a will. As you can see, the trust is a powerful and often complicated concept requiring careful planning for proper usage. Let us help you make the most of trusts in your business and estate plan.

Please contact us for more information.