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The trust in estate planning

Estate planning can be complex, but the concept is relatively basic — you want to leave clear instructions as to what you want to happen with your assets after you die. Of course, you really don't want to think about dying, but if you don't want to leave your loved ones in a mess when it comes to your worldly possessions after you depart this planet, taking some time to plan your estate is doing them a favour.

You might want to think about using trusts when fashioning your estate plan. There are two types of trusts in Ontario — testamentary and living. If you create a testamentary trust in your will, it takes effect when you die and it relates to the part of your estate that may be subject to fees or taxes. With a living trust, property ownership passes right to your beneficiaries. Since this happens while you're still alive, assets from the trust aren't considered part of your estate and aren't part of the probate process.

When a trust might be the way to go:

  • You have kids from a former marriage: In the event you remarry at some point, a trust will be able to provide for your spouse and can ensure any children from a previous union will inherit any assets that remain.
  • Your spouse isn't financially savvy: Many people just aren't that good with handling money and a testamentary trust will allow a trustee to manage the assets you left your spouse on his or her behalf.
  • You have a spouse or child with disabilities: You can leave a trust making sure that your disabled loved one gets the proper care and has enough assets to continue with such care after you die.
  • A gift to minors: If you want to leave something to minors like your children or grandchildren, a trust might be the answer. You can specify at what age you'd like your beneficiaries to receive the capital.
  • For tax planning: Income earned in either trust is taxable at the highest marginal rate. However, if your beneficiaries are in a lower tax bracket, the income is taxable at a lower rate. As of 2016, the tax laws regarding trusts changed.
  • Charitable gifts: When your beneficiary dies, you can stipulate that you would like the money remaining in trust to go to a charity of your choice. This is something you can make sure is part of your estate plan.
  • Sidestep probate: You can bypass probate with a living trust only for any assets held in the trust. This is a more private measure since probate records are public so anyone can get access to them.

Planning your estate can get involved. A lawyer with experience in wills and estate planning can guide you in the process. He or she will be able to answer any questions you might have and help you to create an estate plan by considering all of your wishes.

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