What is a Trust?
A trust is a legal arrangement where an owner (Settlor) transfers property or assets to a trustee that may be an individual or a financial institution. The trustee manages the assets or property for the beneficiary who may receive income, assets or property from the trust. A trust that takes effect after your death is called a Testamentary Trust, while one set up while you are alive is called a living or Inter Vivos Trust. The primary purpose of a trust is to transfer ownership of assets to your beneficiaries while maintaining control over the assets.
Testamentary trusts can be used to:
- Designate funds for a specific purpose such as education expenses or the purchase of a first home.
- Provide for and manage funds left to a person not fully capable of handling his/her own affairs.
- Ensure that assets are passed to children from a prior marriage rather than all being passed to the second spouse's beneficiaries. .
- Reduce probate fees.
Inter Vivos trusts can be used in estate planning in a variety of ways:
- Protect property and assets from creditors.
- Minimize incomes tax owing at death by freezing the value of investments or business shares.
- Provide income to a spouse or child while retaining control of the capital.
- Reduce probate fees.
