A trust is an arrangement whereby property is managed by one person for the benefit of another. They often are set up for reasons of privacy (unlike wills, which are public), asset protection (protection from creditors), spendthrift protection (beneficiaries can only spend the money dictated by the terms of the trust), tax avoidance (legally reducing taxes), etc.
Some of the more common types of trusts are as follows:
- Inter-Vivos or LivingTrust: This type of trust comes into effect while you are still living. You determine the terms under which the beneficiary has access to the funds. They are often set up for spouses, minors, etc.
- Testamentary Trust: This vehicle enables you to arrange for the transfer of ownership of assets, through your will, to your beneficiaries) after your death. They have terms that determine how and when the assets are eventually distributed. In effect it enables you to control these assets from the grave. They are often set up for spouses and/or minors.
- Life Interest Trust: This enables you to confer enjoyment of an asset, but not the ownership of that particular asset, during a beneficiary’s lifetime. For example, if you have a cottage that’s been in the family for years, this clause ensures it will still be there for future generations.
Note: It is advisable to consult with a lawyer or notary, and meet with family members before implementing those plans with the help of a qualified financial advisor.