Trust Basics

A trust is an arrangement whereby one or more persons (trustees) hold legal title to property for the benefit of other persons (beneficiaries). The person who creates the trust by transferring property to it is called the settlor.

Their are several different types of trusts whose terms are often defined by a document called the trust deed. Trusts are usually taxed as seperate legal entities unless the terms of the trust exclude them under certain provisions of the Income Tax Act. The tax rates which trusts are taxed also depend upon the type of trust. Trusts are often created by a settlors will and are taxed at the same marginal rates of an individual. Other trusts are taxed at top rate. However, their are certain exceptions which make trusts an extremely usefull tool to accomplish certain objectives.

Trusts are used to save taxes in many ways:
-income splitting among family members
-duplicating the ,000 capital gain exemption among family members
-Intra-famly share sale
-Estate freezes
-Avoiding probate fees
-Family owned business succession

The non-tax reasons to use trusts are:
-To protect assets against claims of creditors
-To protect assets against claims in divorcem marriage breakdown, or upon death
-Family trusts can provide an effective vehicle for childrens education savings
-Can provide a safe way to provide for disabled children