Overview for creating a Trust in Canada 

A trust is a legal arrangement that will benefit people who wish to privately structure their affairs, or who wish to control assets without actually owning those assets, or, in some circumstances, who wish to take advantage of certain tax-planning opportunities. 

Trusts are used in many different circumstances and come in different flavours. Anyone who has an RRSP or a RRIF has a trust. Our main use of trusts is for advanced corporate structuring. Trusts are used in corporate structuring to better protect your assets from future creditors. Trusts empower you to better deal with future financial difficulties. Secondly, trusts allow you to transfer shares in your corporations to other family members without losing control. For instance, a trust can be used so that every member in your family enjoys a $750,000.00 tax free capital gain on the sale of the shares in a qualified small business.

Another major use of trusts is for estate planning. In Canada, if you are over 65 years of age you can transfer assets into special types of trusts tax free which allows you to control your assets and enjoy the income while you live but which distributes your capital to your beneficiaries when you die.  Many prefer to provide for the distribution of their capital to beneficiaries while they are of strong mind rather than having worried potential beneficiaries ask for a new will when you are near death.  Testamentrary trusts (those in a will), that takes effect on death, also offer certain income tax benefits. With these estate planning trusts, you'll need to follow certain income tax rules in order to get the benefit you seek.

A trust can be set up for a specific purpose; such as to run a business or hold a specific parcel of land. In Canada, a person can set up a principal residence trust to better protect their home from future creditors while continuing to enjoy his or her principal residendence capital gains exemption.

Creation of a Trust

A trust is created when a settlor (the person who makes the trust) transfers certain specific property (typically a gold or silver coin, but also cash or land or personal property) to another person called the trustee. The settlor and the trustee agree that the trustee, however, must hold the trust property for people called the beneficiaries of the trust for a certain length of time (typically, not longer than 80 years in British Columbia). Although the trustee is listed as the legal owner of the trust property, in fact it is the beneficiaries who are the true owners (the beneficial owners) of the trust property.

In creating your trust, you'll also want to consider these further distinctions:

• Beneficiaries can be distinguished between capital beneficiaries (that is, those beneficiaries who are ultimately entitled to receive the capital of the trust property) and income beneficiaries (that is, those beneficiaries who are only entitled to receive any income earned on the trust property).

• Discretionary versus non-discretionary trusts: In a discretionary trust, the trustees have the power to decide which beneficiary or group of beneficiaries will receive which part of the income or capital that they are entitled to. In a non-discretionary trust, the trust document specifies exactly which beneficiary gets what item of trust property. 

Benefits of Trusts

The main benefits of a Canadian trusts are:

• Privacy: Trusts are created by written agreements, known as deeds or trust settlements or even simply trusts. They usually don't have to be registered anywhere. They're valid as soon as they are signed.

• Asset Protection: In a sense, a trust arrangement allows you to have your cake and eat it. Because a trustee is only a legal owner of the trust property, he can say "I don't own it". And because the trust document does not necessarily give the trust property outright to a beneficiary, the beneficiary can also say "I don't own it, either". This sort of benefit is directly useful for asset protection.

• Control: In addition, a trust can give you control over how assets are divided among your family members. For example, if you own shares in a company that you want to leave to your children, you can set up a discretionary trust so that it falls to the trustee to decide which child will receive all, or none, of the shares, depending on how the children turn out and their interest in the business.

• Tax planning: In general, in Canada trusts are not a great vehicle for tax planning, because they are taxed on income at the highest marginal rates (29 percent federally, and at varying provincial rates). But they can be used, usefully, for income splitting to either or both of spouses or adult children, if those people are themselves in one of the lower tax brackets. (Note that I said adult children (children 19 and over). Because of the "kiddie tax" passed in Canada in about 2000, it is generally not worthwhile income-splitting with minor children.)

Our Package

Our package includes legal consultation and a choice of trust structure is designed to achieve your goals. We provide legal advice with respect to issues relating to your choices for settlor, trustees and beneficiaries, and other matters related to setting up the trust. We help make sure that the trust is created properly. You will receive a full trust agreement along with the necessary acknowledgements and trustee resolutions for the transfer of the initial trust property from the settlor to the trustee. and, where applicable, the initial trust property of a gold or silver coin. Separately, we will also handle any related transfers of specific property to the trust (such as shares of a corporation or land).

To purchase the Canadian living trust, provide us with:

• a name for the trust (such as "Smith Family Trust No. 1"),

• the full names and street addresses of the proposed settlor(s), trustee(s) and beneficiary(ies) of the trust;

• whether there is any specific property (such as shares of a corporation or some land) that must be transferred into the trust after it is created; and

• how you wish to pay (online banking, Visa, Mastercard, Amex or PayPal).

Then e-mail donaldmoir@incorporate.ca or call Donald Moir at 604-272-6960 or fax him at 604-272-6959. If Donald Moir is not available when you call, ask for Stuart Moir or e-mail at stuartmoir@incorporate.ca.

The total cost for creating basic Canadian trust is $2,495 + tax, all inclusive. Trusts that require more complex drafting cost more, and are charged depending on the time needed. In both cases, transfers of specific property (such as shares of a corporation or land) to the trust are billed separately, with the cost depending on the complexity of the transfer (but typically would be a couple of hundred to several hundred dollars).

If you're not sure whether a Canadian trust would suit your circumstances, we would be pleased to consult with you. Our fees for consultation are $250 per hour, plus applicable taxes (one hour minimum, paid in advance), and will be applied to your package if you decide to go ahead.

Contact Us Today to Order

Once we have your initial information, a first draft of the trust will take approximately one week. After you send us your  trust enquiry we will respond with a phone call or e-mail. After we consult with you and determine your requirements, we prepare a first draft of the trust document and send it to you to review yourself and with any tax adviser. After that, we prepare a final draft, along with the supporting acknowledgements and trustee resolutions, for your signature, and, where applicable, obtain the initial gold or silver coin that will be the initial trust property. If there are post-creation transfers of specific property that need to be done, we attend to those, as well.

Creating a Canadian living trust with INC Business Lawyers is quick, cost-efficient, and convenient. Start your business today!