Wills, Lasting Power of Attorney (LPA)

Trusts

There are various types of trusts, (please be aware that this list is not exhaustive) each serving different purposes and offering distinct advantages. Here’s a very brief overview of some common types of trusts:

Family Asset Protection Trust

The proven way to safeguard assets for you and your family’s future.

• Keep control of your most valuable assets
• Protect your property for the benefit of your loved ones
• Protect your assets from bankruptcy, creditors and strangers
• Save on Inheritance Tax for future generations
• Use a product with a proven pedigree dating back centuries
• Preserve your wealth for your family
• Save on Probate Costs
• Assets stay in the Bloodline through the generations
• Remarriage – Sideways Disheritance No longer an issue

A Discretionary Trust

Overview a discretionary trust is set up for the benefit of a beneficiary or beneficiaries, but for which the Trustee is given full discretion. The Trustee decides when and how much funds are distributed to the beneficiaries. In turn, the beneficiaries have no rights to the funds held in the Trusts. Further, the funds held in the Trust are excluded from the beneficiaries’ estates.

In most cases, Trusts are set up with specific terms that instruct the Trustee to distribute funds to beneficiaries on a set schedule. The terms also usually set how much should be distributed. Discretionary Trusts are unique from other types of trusts because there are no such terms. It is up to the Trustee to decide if beneficiaries should receive any distributions, how much, and when.

These Trusts are most useful when the Trustor feels that it is in the best interest of the beneficiaries. For instance, the beneficiary of a Discretionary Trust may have displayed continued irresponsible behaviour, is disabled, mentally impaired, has a gambling problem, or has a great deal of debt. The Trustee can help protect the beneficiary from themself, as well as the assets from creditors. It is under the Trustee’s discretion to determine when it is appropriate to provide funds to the beneficiary, and how much.

Beneficiaries of a Discretionary Trust do not have any legal claims over the Trust funds. The Trustee has complete control and is considered the legal owner, although they cannot benefit from the funds in any way.

Advantages Discretionary Trusts are associated with many advantages. In the examples above, you learned about a couple of specific advantages, such as protecting a child from themselves if they suffer from mental health issues or addiction. Alternatively, a Discretionary Trust can be used to benefit a child with a disability in such a way that does not disqualify them from government support.

Most Trustors create a Trust because they want to assert some type of control over their funds, even after they have passed away. Discretionary Trusts are different because there are no terms set, and ultimate discretion is given to the Trustee. This doesn’t mean that you can’t provide guidelines, however. For instance, you could set the guideline that you want the funds to help with your child’s education. The Trustee would then make their own decisions on how the funds should support the child in any educational endeavours.

Avoid difficult Decisions Making decisions about how to distribute funds amongst your loved ones isn’t easy. If you want to avoid making these decisions altogether, you can. A Discretionary Trust allows you to step away from decision-making about which property should go to which child, and so on and so forth. This can save you a lot of time and effort if you have a sizable estate.

Revocable Living Trust

Overview The grantor can modify or revoke this trust during their lifetime. It becomes irrevocable upon the grantor’s death.

Advantages Allows flexibility, avoids probate, and enables seamless asset management during incapacity.

Irrevocable Living Trust

Overview The terms of this trust cannot be altered or revoked without the consent of the beneficiaries.

Advantages Provides potential estate tax benefits, asset protection, and can safeguard assets from creditors.

Testamentary Trust

Overview Created through the grantor’s will and comes into effect upon their death.

Advantages Offers control over the distribution of assets after death, can provide for minor beneficiaries, and may reduce estate taxes.

Charitable Remainder Trust (CRT)

Overview Allows the grantor to donate assets to a charitable trust while retaining income from the assets during their lifetime. The charity receives the remaining assets after the grantor’s death.

Advantages Provides income to the grantor, offers potential charitable deductions, and supports philanthropic goals.

Charitable Lead Trust (CLT)

Overview The trust makes payments to a charity for a specified period, after which the remaining assets go to non-charitable beneficiaries.

Advantages Supports charitable causes, may reduce estate taxes, and allows assets to pass to heirs.

Special Needs Trust (SNT)

Overview Designed to benefit individuals with disabilities without jeopardizing their eligibility for government assistance programs.

Advantages Ensures financial support for individuals with special needs, maintains eligibility for government benefits, and provides peace of mind for caregivers.

Irrevocable Life Insurance Trust (ILIT)

Overview Holds life insurance policies outside the taxable estate to mitigate estate taxes.

Advantages Reduces estate taxes, provides liquidity to cover taxes, and ensures tax-free proceeds for beneficiaries.

Qualified Personal Residence Trust (QPRT)

Overview Allows the grantor to transfer a residence to an irrevocable trust while retaining the right to live in it for a specified period.

Advantages Reduces the value of the estate for tax purposes, facilitates tax-efficient transfer of a residence to heirs.

Family Limited Partnership (FLP) or Family Limited Liability Company (LLC)

Overview Business owners use these entities to transfer family wealth, often with the added benefit of control.

Advantages Centralised management, potential tax advantages, and controlled gifting of interests to heirs.

Dynasty Trust

Overview Designed to pass wealth to multiple generations by mitigating estate taxes over successive generations.

Advantages Preserves family wealth, allows for the efficient transfer of assets to future generations.

Choosing the right type of trust depends on individual goals, family dynamics, and financial considerations. Seeking advice from legal and financial professionals is crucial to ensure that the chosen trust aligns with specific objectives and adheres to legal requirements.

If you have any questions about estate planning or if you’re considering a will review, we are here to assist you. Please find enclosed additional information about our services, and don’t hesitate to reach out to schedule a consultation at your convenience