A trust can be set up to benefit a person and is administered by the trustee in accordance with the terms of the trust document (eithera testamentary trust in a Will, or an inter vivos trust). There are various kinds of trusts and they are often established to benefit young persons (both before and after the age of majority) and disabled persons.
Trusts may also be used for income splitting purposes, to benefit a spouse during his or her lifetime, a discretionary trust set up during an Estate Freeze, alter ego trust and joint spousal trusts.
Testamentary Trust for the benefit of young children
A trust in a Will enables the testator to set up terms whereby a minor child does not receive money from the Estate until the beneficiary attains a certain age. Until the person attains the specified age, the trustee of the trust (the executor of the Will) will often have discretion to pay to or apply income or capital for the benefit of the beneficiary.
Henson Trust for the benefit of Disabled Persons
If you have a person with a disability that you wish to benefit in your Estate, you should consider establishing a Henson Trust in your Will. This is a trust which is designed to preserve government benefits that the disabled person receives from Ontario Disability Support Plan. Under the ODSP rules, if the disabled person has more than $5,000 of assets, the person will be disqualified from continuing to receive ODSP benefits.
The Henson Trust is totally discretionary, in that the disabled person is only entitled to the monies that are actually paid to him or her by the Trustee.
In setting up a Henson Trust it is very important to choose the right Trustee since this person will have absolute control over the monies held in the trust. You must also consider who would act as Trustee in the event of the death of the person first named and how the funds remaining in the trust would be distributed at the date of death of the disabled beneficiary. At Golden Law Office, we can help prepare your Will with a Henson Trust.
Estate Freezes and Discretionary Trust
At Golden Law Office, we will work with your accountant in the event you wish to achieve an estate freeze and issue shares of a corporation in the name of a Discretionary Trust. In an Estate Freeze, shares of a corporation (that are likely to increase in value) are transferred to a new corporation in exchange for shares of the new corporation. A Discretionary Trust will acquire the common shares of the new corporation. The most common reason for a discretionary trust are tax savings on death and income splitting.