Trustee for the benefit of beneficiaries. This is a legal arrangement where the Trustee holds legal title to the assets, but the beneficiary owns the benefits. It is not a separate legal entity like a corporation. However, a Trust is treated like a separate person for income tax purposes. This document is written bearing in mind legal implications as well as a range of tax rules.
Trust come in two types: “inter vivos” or Living Trusts and Testamentary Trusts. A living trust is set up during the Settlor’s lifetime, but a Testamentary Trust only comes into effect after the Settlor has passed away. A testamentary trust is usually established under a Will.
Living Wills come in different types:
This is usually to take care of children or other family members. They provide financial support to the beneficiaries. The income and capital are taxed at lower rates. Attribution rules limit income splitting, especially when dealing with minor children.
Alter Ego Trust
A person over 65 years of age creates this trust for themselves where they are entitled to the income and capital until death. These are usually set up to avoid estate administration tax and the public disclosure of assets during the processing of an estate with a Will.
Joint Partner Trust
This is very like an Alter Ego Trust since it is established by someone over 65 for the benefit of the Settlor and the Settlor’s spouse or common-law partner, who receive the income and capital until the last person dies.
This is specific to maintenance of a person with a disability, but allowing that individual to continue to collect certain governmental benefits, like the Ontario Disability Support Program.
Testamentary Trusts come in several varieties as well:
Like it sounds, it is created for the benefit of a spouse. The spouse receives all the income during his or her lifetime, but the trust designates who receives the capital when the spouse is deceased.
Trust for Minors
These arrangements are usually in Wills to deal with the joint deaths of parents. They can also be established for education of grandchildren and will gradually distribute at specified ages.
This is set up when a beneficiary has difficulty properly managing money or property.