President and CEO
Alain.Roch@bluebridge.caThe principle of trusts, which dates back to the Middle Ages, enabled knights who rode off to wage battle to transfer their property to trusted individuals who held and administered those assets in the knights’ absence for the benefit of their descendants.
Still today, trusts play a key role in the wealth transfer process of numerous families in Canada and abroad, and several reasons may motivate them to implement such a strategy.
Basically, these families want to preserve their wealth and transfer it in a controlled manner.
You can use a trust while you are alive or create a trust by will in order to define the rules on the devolution of your wealth by granting, for example, income to your spouse while preserving the capital for your children and grandchildren.
In doing so, minor children, and ill, spendthrift, or disabled persons can be the beneficiaries of professionally managed trusts. You can also determine that your children will have access to trust income until they are 35 years of age and that the capital will not be distributed to them until after they reach that age. This flexibility means the trust is tailored to your wishes and your family’s characteristics.
In the case of a discretionary trust, the trustee is provided with all of this flexibility as they will be able to determine the amount and frequency of distributions and the recipients.
A trust estate may consist of securities, works of art, shares in private corporations, etc. In the case of a family corporation, a trust makes it possible, through an estate freeze, to transfer the corporation’s future growth to your descendants tax efficiently while retaining control over the corporation.
Establishing devolution rules in a trust or granting discretionary power to a trustee also significantly reduces the likelihood of contests and disputes among heirs.
Why are trusts so popular with individuals and families who have substantial capital?
As we’ve seen, transferring assets to a trust makes it possible to define the terms and conditions under which wealth is transferred over several generations by outlining family governance. Even professional assets – a company, for example – can be transferred to a trust in order to ensure the continuity of a business model or a vision, take advantage of professional management, manage the participation of family members, and resolve disputes.
Since a trust is recognized internationally, heirs can be geographically mobile for private or professional reasons without having to rearrange the family patrimony.
A trust’s ability to hold private or public tangible and intangible assets makes it easier to consolidate, analyze, and manage a complex family patrimony.
While trusts have a finite life (100 years in Canada, for instance), a beneficiary’s death does not open an estate of the trust property, as the deceased did not possess that wealth or no longer possessed it. This greatly facilitates international estates, among other things.
A trust also makes it possible to plan major gifts and to fulfil beneficiaries’ philanthropic wishes.
Lastly, the settlor’s and beneficiaries’ creditors cannot seize a trust estate if the trust was created without fraud and in compliance with legal requirements.
Apart from interpretations and beliefs, a trust is and will remain a wonderful standardized, proven, adaptive, and internationally recognized multi-generational wealth planning tool necessary to protect not only family wealth but also family values for several generations.
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