Creating a trust to leave property – The Law

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Published: July 18, 2002

Q: We have a special grandson who has lived with us for several years.

We would like to leave him some property. His dad has a new

relationship and in our opinion his fiancée is not good to this boy.

Our concern is leaving property for this boy and having his dad and his

fiancée take control and use the property for their benefit. Is there

some way that we can achieve our goal?

A: There are two principles to remember. First, it is your property and

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you can do with it as you wish. Second, you can leave things for your

grandson without involving your son and his new fiancée. One way to

achieve this would be to create a trust. In a trust, property is held

by a third party, called the trustee, for the benefit of someone else.

Trusts are commonly used when property is left for young children.

You could decide what you want to leave for your grandson and put it in

trust.

To create a trust, you should have a formal document establishing it.

This should designate the property covered by the trust, who will be

the trustee, what powers the trustee will have and who is the

beneficiary of the trust.

For example, you leave $100,000 in trust for your grandson. You name AB

Jones as the trustee. Your grandson JD Jones is the beneficiary. Your

trust agreement should stipulate several things. One is what will

happen to the income earned by the trust. Will it be added to capital

or will it be used for the benefit of JD? If used for JD, will it be

paid to JD’s parents or guardians or will the trustee be given the

discretion to use the funds for JD such as paying for educational

excursions, tuition, music lessons and so on? How is a new trustee

chosen if AB is no longer able or no longer wants to continue as a

trustee? What happens to the funds if something happens to JD such as

dying of illness or accident? Will the capital at some point be paid

out to JD, for example, when he reaches the age of 21? Will the trustee

be compensated for his effort?

Funds held in trust

An alternative to creating a trust immediately is to provide in your

wills that if your grandson is under the age of majority, the funds

will be held in trust for him. Again the will should deal with the

issues outlined previously.

The trustee need not be the parents or guardians of your grandson. It

can be anyone you consider capable of performing this function. If you

create the trust by way of will, the trustee can be the same person as

your executor. You can appoint a trust company to act as a trustee.

Unfortunately, as with any matters involving money and land, there are

often income tax matters to consider and there are legal complexities

involved in creating a trust.

Every province has laws that place certain limitations on trustees and

give the public guardian or public trustee the right to step in to

protect assets of a minor. The rules vary so I recommend that you

consult a lawyer and accountant.

Don Purich is a former practising lawyer who is now involved in

publishing, teaching and writing about legal issues. His columns are

intended as general advice only. Individuals are encouraged to seek

other opinions and/or personal counsel when dealing with legal matters.

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