Cash Control


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Cash Control


If you don’t want your offspring to spend your inheritance all at once, consider setting up a testamentary trust.

Choose a trustee who’s trustworthy, diligent, responsible, can make good decisions and is organized and discreet.

While most people would like to leave a little bit of an inheritance to the next generation, not every child or grandchild may be ready to receive a lump sum of cash. Fortunately, there are ways to pass down assets while maintaining some control over how those funds are used.

When writing up a will, consider creating a testamentary trust. It allows people to give assets, such as stocks, cash and real estate, to their offspring without handing it over to them to use right away.

We spoke to Christine Van Cauwenberghe, Assitant Vice-President of Tax and Estate Planning at Investors Group, to find out just how a testamentary trust works.

Christine Van Cauwenberghe
B.Comm (Hons), LL.B, CFP, is Assistant Vice-President, Tax & Estate Planning, with Investors Group

  • What are some uses for testamentary trusts?

    They’re a mechanism to provide for the distribution of your estate in a more controlled manner. Think of situations where one spouse predeceases the other, or both spouses die in an accident. Most people would prefer to leave their estate in a way that provides for a structured or staggered distribution. For example, I leave my estate to my three children equally, but if one of them is under the age of 30, then it’s to be held in trust for them, and they get the money in stages until they are 30.

     

    Also, if you have a beneficiary who suffers from a disability and they can’t manage a large sum of money, you could leave it to them in trust and a trustee would have the power to manage the money. Often, the only way disabled beneficiaries qualify for various forms of social assistance is if they have very minimal assets, so this is a commonly used strategy.

     

    Here’s another use. In a blended family a person might say, “I’m going to leave my house to my new spouse in trust, and he or she can live there in his or her lifetime, but when he or she dies, or sells the house, then the proceeds go back to my children from my previous marriage.”

  • How do you set one up?

    You need to speak with a lawyer who is well-versed in estate planning, preferably with the Trust and Estate Practitioner (TEP) designation, who creates the trust in your will. The will should designate a trustee who manages the assets and it should set out what that person can and cannot do.

     

    It’s also important to make sure that the assets go through your estate. If you make your children or spouse direct beneficiaries on your RRSPs or life insurance, then that money will go directly to them and not into the trust.

  • Who should be the trustee?

    The trustee is often the executor of your estate, but it doesn’t have to be. You want to choose someone who is trustworthy, diligent, responsible, can make good decisions, will file the right documentation and is organized and discreet. It’s a big job and could be a long-term one. Make sure that they have the time – and ask them first.

  • Are there any drawbacks?

    Some people think that setting up a trust is going to allow them to maintain control forever. But say you put the family cottage in a trust so everyone can share it – the beneficiaries still have to figure out how that’s going to work. It may have been better to sell the cottage at the time of death and distribute the proceeds. It’s always a good idea to talk to an advisor, who can help you decide what to do.

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