The importance of good estate planning is hard to overstate. However, working with a will lawyer is only one element of the process. While a will covers what happens with your estate after you pass, it can leave some assets vulnerable in ways that may conflict with your wishes. The right kind of trust, structured carefully and aligned with your circumstances, is necessary.

Trusts can seem complicated, especially since there is more than one kind. Consulting with wills and estate lawyers from Lypkie Henderson in Edmonton can help you take the required steps. Here, we’ll cover some of the facts to know about these solutions.

What Is a Trust?

Though there are different kinds of trusts and strategies for their use, they all generally operate on the same principles. There are three parties involved in setting up a trust:

• The settlor: The original owner and controller of the assets that will go into a trust.
• The trustee: Who oversees those assets and property.
• The beneficiaries: Those for whom the trustee manages the property.

The law considers property that was placed into a trust prior to your death separate from your estate. While tax implications vary by trust type and structure, trusts created prior to death typically bypass the probate process after one’s passing. In this manner, trusts can be a more valuable means for planning the future of your estate as you prefer. They can simplify the future distribution of key assets, especially cash, to beneficiaries such as your children or spouse.

What Are the Different Types of Trusts?

There are two main categories of trust: a living trust (or inter vivos) and a testamentary trust. There are more specific types of trust structures in each category and there are considerable differences between these two categories.

A living or inter vivos trust allows you to transfer assets into the trust for the trustee to control during your lifetime. If you so desire, inter vivos trusts can terminate upon the settlor’s death, or they may distribute remaining assets to beneficiaries. A living trust may be revocable, meaning you can dissolve the trust, or irrevocable, meaning you cannot.

The settlor’s death can lead to the creation of a testamentary trust based on the wishes expressed within a will. Testamentary trusts are always irrevocable, and the probate process must occur before their establishment.

The Pros and Cons of a Living Trust

With a living trust, the settlor transfers assets into the trust while alive. The trustee becomes the legal owner of those assets, while the beneficiaries become the beneficial owners. This difference is why a living trust can bypass probate; when the settlor passes, the assets in the trust are not in their name. Trustees manage the assets, which generally involves investments or other efforts to preserve or grow their value. Trust documents lay out the guidelines for such management.

In a revocable living trust, you may change the terms of the trust agreement when you like. In an irrevocable trust, changes to the terms are virtually impossible except in very narrow circumstances. Revocable trusts provide greater flexibility, while irrevocable trusts may make more sense in some family or financial situations.

There are many other types of living trusts you may wish to consider. One example, the alter ego trust, allows an individual to be both the settlor and the trustee/beneficiary during their lifetime. Speaking with a lawyer to understand the right approach for your estate is essential.

While living or inter vivos trusts can be a great tool for estate planning and avoiding the probate process, placing your assets into a living trust limits the control you or your beneficiaries have over those assets. Trusts can also be quite expensive and complex to set up and manage, so they would be appropriate only when the value of the assets is quite high.   

The Pros and Cons of Testamentary Trusts

Not everyone wants to transfer control of their assets into a trust during their lifetime. A testamentary trust established on death may be useful for providing for one’s loved ones, especially children, over an extended period. These trusts may support paying for a child’s education and other needs while withholding larger inheritance payouts until a particular age. Testamentary trusts may also offer your beneficiaries tax benefits and shield those assets from creditors.

An Absolute Discretionary or “Henson” Trust

Canadian law features a unique type of trust popular in estates involving beneficiaries with disabilities. Due to means testing, a sudden, large inheritance could mean an individual loses access to essential government benefits. The government may view that inheritance as new income or a valuable asset, which could, in turn, result in benefit reduction or termination of disability benefits for the beneficiary.

Henson trusts come into play when disabled beneficiaries earn benefits such as AISH. These trusts shield the beneficiary’s inheritance, provided the assets remain in trust. As such, the individual may continue receiving disability benefits for stability and quality of life, while also receiving benefits from their inheritance. However, distributions from a Henson trust occur only at the absolute discretion of the trustee, and may only be used to provide for the needs of the beneficiary. Henson trusts may be either living or testamentary.

Which Type of Trust is Right for You?

Every individual’s situation is different, and the appropriate trust for your estate may not be the same as the next person. Working with wills and estate lawyers in Edmonton can clarify the way forward. By discussing the specifics of your financial situation, available assets and future wishes, the team at Lypkie Henderson can support you in structuring trusts that can yield positive outcomes for you and your family. Speak with a trust and will lawyer today for more information about your next steps.