Maximizing Estate Value Using Trusts

People often have a particular conception of what their will is going to include before they go to a lawyer to create one. Some people expect the estate planning process to be overwhelming, but most often people underestimate how complex their final estate plan will be. If you have paid off your mortgage, have no debts, and wish to pass your wealth to only your spouse and one child, you will have a simple estate plan, right? The reality for many people is that if they want the beneficiaries of their will to draw the maximum benefit from their estate when they die, extensive and detailed estate planning is necessary. In this blog we will consider how trusts can be one of the most powerful tools in an estate plan.

What is a Trust?

There are many different types of trust which we will detail later in this article, but first, what is a trust? What does it do? Unnecessarily complicated language in this area of law often convinces people that they don’t need trust instruments for their relatively simple estate plan. In reality, a trust (or multiple trusts) can be a simple tool that many people would benefit from employing in their estate plan.

While many people probably have heard the term “trust fund”, you can think of a trust as a type of account which can hold anything, including funds, real estate, even personal valuables such as jewellery or wine collections. The possibilities of what you can hold on trust are essentially endless. The ability to protect any type of assets and ensure their exact distribution even after death makes trusts a valuable part of many people’s estate plans.

The Basics of Trusts in Estate Planning

Let’s start with the basics. In estate law, the will writer who creates a trust is called the settlor. The settlor is the person who transfers the assets from their name into the trust. Then, they must appoint one or more trustees who are tasked with managing the trust and distributing its assets or profits to the beneficiaries according to the instructions of the settlor. The will writer decides the beneficiary of the trust. It can be nearly anyone they wish, they can even appoint organizations such as charities or schools. They can appoint one beneficiary, or several.

They can even designate a class of people as beneficiaries. For example, a will writer can identify all graduates from their child’s school in 2022 as beneficiaries of a trust. More likely however, will writers will use a trust to distribute assets to their family or close friends, and name which individuals are to benefit from the trust.

There are several different types of trusts which will writers can create, each having their own distinct benefits, and sometimes drawbacks, to the estate. Let’s look at the most common examples of trust instrument implementation in estate planning:

Private Express Trusts

This is the most common type of trust used in an estate plan. In an estate plan, will writers often use the trust to leave assets to their beneficiaries on certain conditions. For example, a will writer might put $50,000 in trust to benefit their granddaughter, stipulating that the money will be released incrementally to pay university tuition.

Will writers also often use this type of trust to ensure their loved ones have a secure living situation in the future. Parents can specify that their home shouldn’t be sold until all of their children graduate high school. Further, they can dictate how to divide the proceeds if they sell the house. Drafters most often write these wills to become official only upon the will writer’s death. Will writers should be aware that if they die with considerable debts in their name, there is a possibility that their trust will fail.

Inter-vivos Trusts

The inter-vivos trust is a particularly useful tool for those with high-value estates. The will writer creates the inter-vivos trust while still alive, which means they transfer the asset out of their name before their death, unlike with some other trusts in an estate plan. This type of trust has many distinct benefits. These can include:

• Increased control over the trust assets during the will writer’s life time
• Protection from creditors should the will writer die with significant debts
• Reduced estate taxes and probate fees, increasing the estate’s value for beneficiaries
• Greater privacy between the will writer and future beneficiaries of their assets

Further Benefits of Inter-Vivos Trusts in Estate Planning

Another great benefit of an inter-vivos trust is that the will writer can still control and use the asset while they’re living. However, once they die, the trust becomes irrevocable. This is a good option for many will writers as any assets they have put into an inter-vivos trust, usually high-value assets such as a house, are not subject to recovery by any creditors of the will writer. If you die while in debt, the trust protects the assets from seizure, ensuring your beneficiaries will receive them. One thing will writers will have to mindful of is that when you transfer assets such as a house into this type of trust, you may be subject to fees such as the property transfer tax, as you are transferring the property out of your name.

In this blog, we’ve barely scratched the surface of the various types of trusts and the unique benefits they can each offer to will writers in British Columbia. To be certain that you’re doing everything you can to protect your estate and pass you wealth effectively to your beneficiaries,  contact an experienced estate lawyer today.

Have a question about this topic or a different legal topic? Contact us for a free consultation. Reach us via phone at 250-888-0002, or via email at info@leaguelaw.com.