Protect your legacy, provide for loved ones and see the impact of your philanthropy, with a trust created during your lifetime.
Each person’s goals for their legacy are unique, and trusts are versatile wealth and estate-planning tools to help people protect, manage and transfer their wealth. By definition, a trust is a legal relationship among three parties—the person who establishes it (the settlor), the trustee and the beneficiaries—and can be an effective way to control how your wealth can be shared.
Testamentary trusts are typically created through a Will and go into effect after the settlor’s death. In contrast, inter vivos trusts are set up while you’re alive, with assets like real property and money that are managed and distributed, either in whole or in part, during your lifetime.
“An inter vivos trust can also be a useful tool in some cases for incapacity planning,” says Tom Grozinger, principal trust specialist with RBC Royal Trust. “Because your assets are already in the trust, they can continue to be managed seamlessly following your incapacity, including paying for your health care and other expenses, as well as continuing with the trust’s investment strategy.”
Grozinger notes that it is still important to have a continuing power of attorney for property in place to address any assets that are not part of the trust.
Some may assume living trusts are only for those with substantial wealth, yet these arrangements offer benefits for estates of all sizes. In addition to incapacity planning, other benefits may include:
Inter vivos trusts, including “alter ego trusts” or “joint partner trusts,” do not require probate for the assets to be distributed according to the terms in the trust after the settlor passes away.
This is in contrast to Wills, which may require probate for the executor to collect your money from third-party financial institutions. “Inter vivos trusts can be a way to simplify administration of your estate to the extent that the trust assets will not be considered part of the estate,” says Grozinger.
A Will’s contents become public if the Will is submitted for probate. On the other hand, probate does not apply to an inter vivos trust. Consequently, such trusts provide a measure of privacy and confidentiality regarding their contents, which can include provisions for the distribution of your property following your death.
An inter vivos charitable trust can create opportunities for people to support the causes they care about and witness the impact during their lifetime. Certain charitable trusts may also offer tax benefits.
Inter vivos trusts can also provide long-term financial support to beneficiaries who have special needs—these are known as Henson trusts. In the provinces where Henson trusts are accepted, they can benefit your loved one without affecting their eligibility for government benefits.
Some individuals establish large-scale trusts to benefit their descendants over generations. Sometimes referred to as “dynasty trusts,” these trusts can last indefinitely in the jurisdictions where permitted, such as Manitoba, Saskatchewan and Nova Scotia.
For authors or artists, a living trust administered by a trustee with expertise in copyright can help with the administration of their intellectual property. Creators of works can gain comfort knowing that any copyright and associated royalties will continue to be administered seamlessly following incapacity or death.
Generally, living trusts are evidenced by a written instrument (where the trust assets consist of real property, a written instrument is required). Trust instruments can run for several pages and contain numerous provisions that include identifying the settlor, trustee and beneficiaries; describing how the trust assets will be distributed and detailing the powers conferred on the trustee, to name a few. It is important to seek the advice of a lawyer to assist in preparing your trust instrument.
Grozinger notes that, “A settlor cannot be the sole trustee and the sole beneficiary—this would result in no trust being created, as the legal and beneficial ownership merges.”
Contact one of our skilled RBC Royal Trust professionals to find out more about the right services for you.
Tax planning may be a consideration when people choose to set up a living trust; however, the tax considerations can be complex.
“For example,” says Grozinger, “Under the Canada Income Tax Act, if settlors retain control or benefit from the capital, they may be taxed on all income and taxable capital gains, even if the money stays in the trust. This rule catches many people off guard. You should seek advice from qualified legal and tax professionals when deciding to create a living trust.”
A key aspect of establishing an inter vivos trust is selecting a trustee—the person or entity that will be managing your assets, making the distributions to those you designated and ensuring the terms of the trust are followed.
If you’re considering appointing a family member or friend, ask yourself:
If you’re not sure your chosen trustee could fulfil their duties, an alternative is to consider appointing a corporate trustee. The benefits of selecting a corporate trustee is that they offer continuity and possess the experience and resources to administer inter vivos trusts, ranging from straightforward arrangements to complex multigenerational or charitable trusts, notes Grozinger.
For many people, a combination works best—a trusted family member paired with a corporate trustee. The family member brings insight into the family dynamics, while the corporate trustee ensures professional oversight and administration.
This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc. Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliated. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licensed representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc., Portfolio Managers who are employees of RBC Global Asset Management Inc., Trust Advisors and Will and Estate Advisors who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason.
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