Structures Using Trusts

A "trust" is another kind of legal structure. It's a very old legal structure, going back hundreds and hundreds of years. It's not something that you come across every day, but in its place it serves a useful purpose. You know you're into advanced areas when you're thinking about setting up a trust in your business or personal life.

The people involved in a trust are the following: 

1. the "settlor", who is the person who gives the initial item of property (often a gold coin) to the trust, and who then disappears; 
2. the "trustee", who is the person who receives the property and is entrusted (hence the name) to hold and manage that property and other property acquired by the trust; and 
3. the "beneficiary", who is the person for whom or to whom the ultimate benefit of the trust property is to accrue. A trust agreement sets up the relationship between the parties involved and the rules that the trustee and the beneficiaries must follow. There are complications that we won't go into here.
   

The Trustee

In terms of ownership of the trust property, the trustee has what we call "legal" ownership of the property. The trustee will be listed as the registered owner of the property, and will have full legal authority (subject to the terms of the trust agreement itself) to deal with the property. To any outsider of the trust, the trustee will appear to be the full owner of the trust property. However, the trustee does not hold "beneficial" ownership of the trust property; that's the realm of the beneficiary. Think of the beneficiary as being the ultimate owner of the trust property. But at the same time the beneficiary doesn't really control the property; that's the trustee's job.

Trusts are used for many different purposes. They're not all that efficient for income tax purposes any more, but they have their place. One major benefit is that they can be used in situations where you want to muddy the waters as to who actually owns an asset. If the trust has been structured properly and well ahead of time, trusts can also be used to protect assets in a divorce or separation or against other kinds of creditors.

In a business setting, a trust can be a partner in a partnership or a shareholder in a corporation. For business owners, a trust can also be used to set up a special pension plan for your business, kind of an RRSP on steroids.

Before setting up or using a trust, you'll want to obtain full income tax advice from a qualified adviser, as there are plenty of income tax wrinkles to look out for. And creating the trust agreement will involve some detailed legal work. INC Business Lawyers will be pleased to help in creating your particular trust structure. Give us a call or send us an e-mail today.