A testamentary trust is not only for wealthy individuals.
In general, the reasons given by a testator to create a testamentary trust are:
remarriage (blended family)
the transmission of heritage in trust offers the possibility to the testator, in the event he dies first to bequeath a property to the surviving spouse for his or her well-being, while ensuring that the latter will transmit it at his death, to persons of their choice (eg, children from his first marriage)
minor or incompetent heirs:
the trust allows a property administration adapted to the needs of children in the event of the untimely death of their parents. Indeed, it allows to meet their basic needs while avoiding the rules of guardianship and curatorship and preventing that a child who is not able to properly manage the funds to squander his inheritance, and, even if he is over 18 years.
financially independent heirs:
in the event that inheritance is important and that the legatees have already incomes, it is possible to split between the trust itself and the heirs, the tax revenue generated by the trust property, and thus reduce the amounts of taxes.
Since it is a separate entity from its beneficiaries, the trust offers benefits both in legal and tax terms.
In legal terms
- The protection of the estate is undoubtedly an essential element. Indeed, passing assets in trust ensures that they will be protected from creditors (they are generally exempt from seizure) in the event that the heir is in a difficult financial situation (insolvency or bankruptcy).
It ensures that the legacy will ultimately be given to people of his choice, while ensuring the material well being of a person and leaving the capital to someone else.
The trust also allows the testator to keep control, even after his death, dictating rules contained in flexible or rigid clauses (especially in the case where the heir has trouble limiting spending). By doing so prevents heirs who are not mature too quickly squander the financial assets of the estate.
The trust also avoids the rules of guardianship and trusteeship if the beneficiaries are minors or incapacitated. The task of the liquidator ceases upon the distribution of the estate to the heirs.
Regarding the heir who has not reached the age of majority, the task of administering his property lies with a guardian appointed by the court (the parent is automatically the guardian of their child, unless is deprived of his parental authority), if nothing has been stipulated for this purpose in the will.
If no trust is provided the guardian will manage the property with the powers conferred by law until the person reaches age 18, the age at which it will have the full enjoyment of the property it shall receive and it can spend as he wishes. The trust can grant powers over the property bequeathed and leave it to the testator to determine how their property will be given to the beneficiary.
income is paid to beneficiaries on a regular basis to cover expenses for their maintenance and education, but the capital is given gradually at fixed ages (eg, the first third at 25 years, second third at 30 years, and the last third at 35 years).
- The tax benefit is an important consideration because the testamentary trust is subject to progressive rates (as individuals, without personal credit, however). This allows to split income from bequeathed heritage and the income tax of the heirs, which in some cases could save an annual tax of between $ 1000 and $ 7,000 while maintaining (or recovering) some credits and government payments (eg pension of Old Age Security).
In addition, the testamentary trust may provide for a fiscal year end different from the calendar year as well as some other options for tax savings potential.
This means a reduction taxes on the investment income from the inheritance, and, for several years, since the income may be taxed at the trust rather than the heir, who will not see its fiscal revenues affected by those from the bequeathed heritage.
The implementation of a testamentary trust is only possible if the testator stated this at the time of writing his will, by an express statement to this effect (eg, “I bequeath in trust in favor of …. “).
In this regard, the drafting of a notary will, achieves the goal while generating savings that are generally interesting.