Family Trusts as Shields

Have kids? Yes? Well, it happens! You know it happens! You’re potentially worried it will happen! And… you SHOULD! The fear of it is ACTUAL and REAL! What exactly is “it”? 

“It” is the fear and potential reality that your adult kids will marry or cohabitate with someone, that relationship fails and the hard work and effort you put into building your estate is potentially lost to an unscrupulous in-law. This fear is not only of that potential. It can, and does, quickly become reality as Canadian courts find more ways to redistribute wealth in Canada.

Once your estate is distributed to your children there is a complete and absolute loss of control of how and where those funds will go. Trying to establish testamentary trusts (done in your Will) can be a challenge where those trusts are tied to issues around the ongoing and successful marriage of your kids that may or may not have happened yet. There is always the chance that a court will use any loose language as a way to step around that testamentary trust so there is a real and genuine risk associated with this.  

You might think this fear doesn’t apply to you and your family because you aren’t “wealthy” but we all tend to think short-term and, dare I say, incorrectly. “Wealthy” applies to far more of us than you imagine. 

There is a simple rule of thumb in investing, the 7 year/10% rule. If you return 10% on average net of tax your investments double every 7 years. If you have $250,000 now and you are 40, by 68 you would be looking at $4,000,000 in your estate. Is it realistic? Yes! Likely? That’s a different question but it highlights that today’s idea that there is no inheritance issue is not the reality. Now, add in $500,000 or $1,000,000+ of life insurance – the picture becomes much clearer – future you truly is wealthier than you imagine. 

You and your family face some serious questions in terms of ensuring that your children and grandchildren benefit from your life’s work. What can you do to counteract this? 

There are options and one of the most successful and most defendable is the use of a discretionary family trust. Family trusts have been traditionally viewed as the “playground of the wealthy” – though that has been the case, smart people with modest but substantial assets are now seeing the benefits of using a family trust as a weapon against government intervention in family matters. In fact, it isn’t always about what you have now in terms of assets, it is what the size of your estate will be at the time of your passing!

In its simplest form, a family trust essentially establishes a legal entity that is the holder of your assets on behalf of certain beneficiaries where a trustee is provided with absolute discretion and authority over capital and income distribution from the trust. Ultimately, the trust itself owns the assets and controls the distribution of those assets in the manner you choose and direct. Beneficiaries can and do normally include yourself and your spouse (if you set them up during your lifetime), your children, your grandchildren and anyone else that you intend. 

The key point is that your estate can be protected in a formal legal structure that can control your assets and legacy in that trust, how they are invested, how they are distributed, and who will be entitled to the receipt of them. 

Most importantly, structured properly, the assets in the family trust should never form the marital assets of your kids and so they can be exempted property from the effects of family law. Barring unforeseen overreach by governments, this is a structure that can provide security for you in knowing that your children and their children will benefit from all your hard work.

The ins and outs of trusts are a complex dance as between us, as your lawyer, and your accountant. If you don’t have an accountant, we can certainly direct you as needed. The key is to initiate the discussion to understand how a family trust can, and does, protect your hard-earned life’s work from unscrupulous partners of your kids so that your legacy goes to who and where you want: your direct family. 

Call us to get an understanding of how a trust may be a solution to your concerns, not only today, but for the future.