An inter vivos trust (otherwise known as a living trust), is a legal document that allows an individual (often known as the settlor) to move their assets into a trust during their lifetime. They are used extensively in the United States, but are much less common in Canada for tax reasons.
Key Parties in an Inter Vivos Trust
The three main parties involved in an inter vivos trust include the settlor, the trustee, and the beneficiaries. The settlor transfers their assets, such as property, investments, bank accounts or personal belongings into the trust and designates a trustee to manage and administer those assets to the beneficiaries in accordance with the settlor’s instructions.
Roles and Responsibilities of the Settlor and Trustee
Not only does the settlor have the authority to define the terms and conditions of the trust, but they can also name themselves as the primary trustee so that they can retain control over their trust assets while they are still alive. While the settlor may serve as the principal trustee initially, a successor trustee may be appointed to take over management of the trust in the event of the settlor’s incapacity or death.
Who Can Be a Beneficiary of an Inter Vivos Trust?
The individuals who will receive the trust assets are named as beneficiaries. Typically, beneficiaries can include the settlor themselves, their spouse, children, grandchildren, or any other person or organization the settlor chooses; however, some inter vivos trusts, such as alter ego and joint partner trusts, restrict who can be the settlor, trustee, and/or beneficiary.
Corporate Owners: Family Trusts
Many owners of private companies choose to implement a type of inter vivos trust called a family trust. This has a few benefits, the best of which is it allows the owner to multiply the capital gains exemption, which could save millions in taxes owing when that company owner sells the company or dies. Our corporate and tax lawyers can set up a family trust in your corporate structure.
Special Considerations: Alter Ego and Joint Partner Trusts
Alter ego trusts and Joint Partner Trusts are basically the same thing, but Alter Ego is for one person and Joint Partner Trusts are for spouses. They both require the settlor to be a Canadian resident over the age of 65 and that the settlor be the only beneficiary of the trust, or the settlor and their spouse in the case of a joint partner trust. They commonly have large investment accounts in them. There are some complexities with adding real estate to Joint partner trusts and Alter Ego Trusts.
Benefits of an Inter Vivos Trust in Estate Planning
One of the primary purposes of creating an inter vivos trust, like an alter ego or joint partner trust, is so that probate can be minimized or avoided. By placing assets in an inter vivos trust, they can be transferred directly to the beneficiaries upon the settlor’s death. This can allow for a higher level of privacy and a smoother transfer of assets as probate is often a matter of public record and can also be a pricey and time-consuming process. The probate tax in BC is 1.4%, so you can avoid $14,000 in probate fees for every million you have in trust.
Additional Advantages: Privacy and Incapacity Planning
Additionally, inter vivos trusts can be used to help protect your estate from wills variations claims under the Wills, Estates and Succession Act and act as a form of incapacity planning. BC’s wills variation law only allows judges to reallocate assets passing through a will, trust assets are excluded. That said, judges can take into account assets passing outside of a will while reallocating assets that pass through the estate (the will).
Next steps
While an inter vivos trust can be a useful estate planning tool in some instances, it is important to consult with an experienced trust lawyer before implementing one in your estate plan. A professional will ensure you understand the potential benefits or possible implications of a living trust based on your individual circumstances and goals. Book in with our experience estate planning lawyers in Vancouver today to learn more!
