Benefits of Trusts to Estate Planning
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Trusts can be an extremely important legal instrument for estate planning, especially with complex inheritance scenarios and high wealth individuals, where a direct transference of their estate poses numerous consequential legal and tax concerns. A well formulated trust is capable of overcoming, or at least mitigating, many of the legal and tax challenges that would otherwise arise in the transference of one's inheritence upon their death. Among the more prominent benefits arising from the use of trusts as part of one's estate planning strategy:
A. Asset Control and Management
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A trust gives you a high degree of control over how and when your assets are distributed, even after you're gone. This is particularly useful for:
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Minor children or beneficiaries with special needs: A trust can ensure that a minor's inheritance is managed by a responsible trustee until they reach a specified age, or that a disabled person's assets are managed in a way that doesn't jeopardize their eligibility for government benefits.
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"Spendthrift" beneficiaries: If you have a beneficiary who isn't financially responsible, you can structure the trust to provide them with a regular income stream rather than a lump sum, preventing them from squandering their inheritance.
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Blended families: Trusts are often used in second marriages to ensure that a surviving spouse is financially provided for during their lifetime, while guaranteeing that the remaining assets will eventually pass to the children from a previous marriage.
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B. Tax Planning and Efficiency
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While tax rules for trusts have become more complex, they still offer valuable opportunities for tax efficiency in certain situations:
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Income splitting: A trust can be used to split income among family members in lower tax brackets, which can reduce the overall tax burden for the family.
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Estate freezes: For business owners, a trust is a key part of an "estate freeze" strategy. This involves transferring shares of a company to a trust to lock in the current value for tax purposes. Future growth in the company's value will then accrue to the beneficiaries in the trust, reducing the capital gains tax payable by the original owner upon their death.
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Lifetime capital gains exemption: A trust can allow for the multiplication of the lifetime capital gains exemption among multiple family members, which can result in significant tax savings when selling a qualified small business corporation.
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C. Privacy and Asset Protection
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Unlike a will, which becomes a public record during the probate process, the terms of a trust agreement are private. This allows you to keep your financial affairs and the distribution of your assets confidential.
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Additionally, assets held in a properly structured trust can be protected from creditors or potential legal claims against a beneficiary. Trusts are a critical tool in preserving generational wealth, such that one's inheritance is passed down to future generations without being depleted by poor financial management, divorce, or other life events. A trust can be structured with specific rules about how and when beneficiaries can receive distributions, preventing "spendthrift" beneficiaries from squandering their inheritance. It can also include provisions that protect assets from being subject to a beneficiary's divorce settlement..
D. Reduction in Probate
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Although in many other jurisdictions the financial costs attendant with probate can be significant, in Alberta, any costs added attendant with a greater portion of the estate passing through probate does not represent a serious financial consideration (with estates valued in excess of $250,000 having their probate fee capped at $525 (2025)).
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Similarly, the probate process in Alberta has become far more efficient in recent years, such that probate can be completed relatively quickly, while providing the executor with the benefit of having court paperwork in hand from the surrogate court, to effectuate the transfer of assets and money from the estate.
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Nevertheless, the advantages of privacy and asset protection that comes with keeping particular assets out of probate remains an important consideration.
Contact our law firm today to learn how our legal team can help you plan for the future, including wills, trusts, powers of attorney, personal directives and other estate planning documents, or deal with the legal demands associated with the passing of a loved one. Contact our law firm at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.
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