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Creating and Designing Your Family Trust

A trust is created when a settlor transfers a specific item of property to a trustee to hold for the benefit of identified beneficiaries. It is best practice that a trust arrangement be recorded in writing, but it is possible to create a trust by conduct.

Each province in Canada has different rules about things like the duration of the trust and whether or how long a trust may "accumulate" income inside the trust before it must pay out that income to beneficiaries. For example, in British Columbia, a family trust may have a maximum life of 80 years. In other provinces, the maximum life is 21 years.

The Province of Quebec, as the only civil law jurisdiction in Canada, has rules that are very different than those of the other provinces when it comes to creating and maintaining family trusts. Advice from a Quebec lawyer should be obtained before setting up any family trust in Quebec.

In designing a family 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 what portion of trust income or trust capital a beneficiary is entitled to. Both kinds of trusts have their place. But in practice for reasons of flexibility a discretionary trust is most commonly used.
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