If you have family members who depend on your income, you may worry about their finances, especially after you’re gone.

But how can you make sure they’re looked after going forward?

Well, setting up a trust fund might actually help!

Contrary to popular belief, you do not have to be rich to establish a trust fund. A trust can be created by anyone who wants to safeguard the future of their family members or the causes they support.

Trust funds help you in two ways. If you suddenly pass away, or if, due to any reason, you lose your ability to make key decisions for yourself and your family. Trust funds allow you to continue providing for your loved ones in all such unfortunate events of life. If you have young children, this is especially crucial because a trust fund can allow money to be released to them at specific ages or milestones. Because of this, setting up a trust fund is a powerful method to provide for your kids long after you are gone and establish the groundwork for their future.

This also helps to ensure that no one or even the beneficiaries don’t spend the money carelessly or all in one go.

What is a Trust Fund and What Does it Do?

A trust fund is a type of legal entity that saves assets in order to benefit another person (called a beneficiary). The person who establishes a trust is called a Grantor. The grantor is in charge of making all the transfers of money and assets to the trust. Additionally, the grantor chooses a trustee to administer the trust and distribute the assets to the designated beneficiaries in accordance with its conditions.

Trusts have many advantages. They can help your successors to prevent the probate process in Canada or the US. And they also help in preserving the privacy of you and your loved ones. A trust fund can be established to guarantee that your possessions are managed in accordance with your desires until your successors can receive them. You may also establish conditions, or “rules,” for the distribution of trust assets through the use of trust funds.

How do trust and trust funds differ from one another?

Although the phrases “trust” and “trust fund” are sometimes used interchangeably, there are some minor distinctions between them.

To distribute assets and funds after the grantor’s demise, a trust is a formal legal arrangement used in estate planning.

The grantor of a trust typically appoints a trustee. They can choose themselves, someone else, or another entity to administer the trust and the possessions included therein.

Contrarily, the actual legal body that is in charge of holding the trust’s assets is a “trust fund.”

How can you set up a trust fund?

When creating a trust fund, there are a number of vital measures to take and numerous important considerations to think about. There are certain steps that you can take to set up a trust fund:

1. Set objectives for the trust:

First off, it’s important to understand your motivations for creating a trust fund. You can choose the conditions of the trust. And the possessions that you want to be included in the trust fund. This trust fund is something that you want to set up to support your family members and their futures. So, you need to be mindful of your aims.

You can choose which of your collection of assets should go to each child of yours. You can also specify a particular use for the money, such as covering your children’s college expenses or assisting them in purchasing a property in the future. Or maybe you want to make sure that nobody touches their rightful property and assets until they reach a specific age. 

2. Choose the type of trust:

In Canada, there are primarily two types of trusts: testamentary and inter vivos.

Testamentary Trust

Usually, a will or a court decree establishes this type of trust after a person passes away. Several examples included in this category are:

• Lifetime Benefit Trusts are meant for the support of a particular family member with a mental disability.
• Trusts for the spouse or a common partner: This type of trust ensures that the surviving spouse or the common-law partner receives all the revenue of the trust.
• Qualified Disability Trust: This type of trust ensures the funding and continued support of a disabled beneficiary. But there are various conditions that need to be met.
• A “life insurance trust” is one in which the life insurance death benefit is the trust’s property. A life insurance trust is most frequently testamentary since the benefit necessitates the death of the insured.

Inter Vivos Trust:

This is a trust created during someone’s lifetime. This kind of trust is aptly referred to as a “living trust” or an estate trust. It’s basically anything that isn’t a testamentary trust. The majority of trusts fall under this heading, including:

• Revocable Trusts: They can be revoked by the individual who established them.
• Alter ego/ Joint Partner Trusts: An Alter ego trust ensures continued support for one person, mainly the surviving spouse who is a beneficiary. On the other hand, A Joint Partner Trust supports the beneficiary and their spouse too.
• Mutual Fund Trusts
• Public Investment Mutual Fund Trusts on a public stock
• Real Estate Investment (Mutual Fund) Trust
• A way to save for retirement or education is through Registered Education Savings Plan (RESP) and Retirement Savings Plan (RRSP) Trusts.
• Life insurers provide investment funds based on Insurance-Segregated Fund Trusts. 

These two categories can be used to group all trust types.

3. Create a contract

Once the goals are established, a formal trust arrangement is created by legal personnel or legal authority. The trustees and beneficiaries of the trust are named in this agreement, along with information on the assets of the trust, how those assets will be managed, and the procedure for transferring property into the trust. Depending on the complexity, additional terms and conditions are often given.

4. Determine the assets of the trust.

The trust’s property is a grant made by the grantor or the settlor. This grant cannot be revoked. It could be cash, gold, real estate, a house, or another item.

5. Create a trust account/fund and transfer the assets:

The next step is to open a bank account(s) in the trust’s name.

Now it’s time to finish the procedure.

The transferring of funds into a trust account (s) or renaming the owner of real estate needs to be done. To make sure there are no unfavorable tax repercussions, you should conduct these actions under the direction of a tax practitioner.

Conclusion:

The time and cost of setting up a trust fund depend on the complexity and terms and conditions. It also depends on your trust’s main objective, the lawyer’s experience, etc. In general, it costs at least $1,500 to create a trust in Canada.

But remember that a lawyer will typically bill you on an hourly basis. So, the actual cost may vary. 

A trust is an effective tool that aids in wealth management, tax reduction, and estate planning for Canadians. To understand all the appropriate trust laws and legal frameworks, you will require the assistance of a legal expert. However, the advantages and the asset protection that a trust fund offers are worth all these costs.