A trust is an equitable obligation binding a person, who is called a trustee, to deal with property over which he or she has control for the benefit of persons called beneficiaries.
The person creating the trust is called the “Settlor”, the person who holds title to and controls the property is called the “Trustee” and the person for whom the trust is being held is called the “Beneficiary”.
A trust can be created by a written document, called an express trust, or it can be created by implication, called an implied trust.
A trust is usually created by:
- A written trust document created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or “living trust”);
- an oral declaration;
- a will, also called a testamentary trust; or
- a court order (for example in family proceedings).
To be valid a trust requires three certainties:
- There must be a clear intention to create a trust;
- The subject matter of the trust must be clearly identified; and
- The beneficiaries (objects) of the trust must be clearly identified, or be ascertainable
The use of trusts can afford the estate planner the following benefits:
- Centralized ownership and management of assets;
- Flexibility in determining the future method of wealth distribution;
- Enhanced asset protection from third party claims;
- Increased privacy; and
- Potential avoidance of probate procedure and probate claims.
There are numerous types of trusts used for estate planning purposes, including but not limited to:
- Spousal/Common-Law Partner Trusts
- Alter Ego Trusts and Joint Partner Trusts
- Multiple Testamentary Trusts
- Special Needs Trusts
Spousal/Common-Law Partner Trusts
A spousal trust is a trust under the terms of which the settlor’s spouse will receive all income of the trust during his or her lifetime and no one other than the spouse can obtain any income or capital of the trust during the spouse’s lifetime. The settlor and the trust must be resident in Canada at the time of the transfer. Spousal/Common-law partner trusts can be created either as inter vivos trusts (between living persons) or as testamentary trusts (in a will).
A benefit of a spousal trust is that it permits the deferral of taxable capital gains, allowable capital losses, recaptures of capital cost allowance and terminal losses until after the spouse has died. Further, a spousal testamentary trust can have an off-calendar taxation year and has the advantage of paying tax at the usual marginal rates applicable to individuals.
Spousal/Common-law partner trusts also have the advantage of avoiding probate fees and probate/administration delays since the assets would be held in trust, rather than being part of the estate of the deceased.
Alter Ego and Joint Partner Trusts
An alter ego trust is a trust created during the settlor’s lifetime after the age of 65, under which the settlor is entitled to receive all of the income of the trust for the balance of the settlor’s life. No person other than the settlor is entitled to receive or otherwise obtain the use of any of the income or capital of the trust prior to the settlor’s death. A settlor can transfer property to an alter ego trust on a rollover (tax deferred) basis. However, on the death of the settlor that settled it, an alter ego trust will be deemed to have disposed of any property it holds.
Joint partner trusts are similar to alter ego trusts except that they are created by married/common-law spouses and the trust is deemed to have disposed of property it holds on the last to die of the spouses.
Alter ego and joint partner trusts can serve as an alternate for a will. These trusts avoid payment of probate fees on the assets in the trust because the assets are not included in the estate of the deceased. Further, these trusts can potentially serve as substitutes for powers of attorney and as mechanisms for creditor protection.
Disability Trusts
At KMK Law, our specialization lies in the creation and maintenance of disability trusts for our clients. If you are an individual that receives the Persons with Disabilities (PWD) benefit, have disability status, or live in a special care facility, you may be allowed to set money aside in a trust and still receive PWD benefits. More specifically, the BC Employment and Assistance (BCEA) program provides that a person receiving disability assistance can have assets held in a trust, under certain conditions, without those assets affecting eligibility for assistance. Proper planning ensures PWD’s remain eligible to receive disability assistance.
Trends in British Columbia’s Disability Landscape
The Ministry (SDSI) will provide about $976 million in disability assistance in 2015-16, an increase of 162% since 2001-02. Funding of more than $5 billion a year is being allocated towards programs and services for people with disabilities. Moreover, the Government has set a goal of making B.C. the most progressive place in Canada for people with disabilities with the Accessibility 2024 plan.
Eligibility for Disability Assistance: PWD
BCEA for Persons with Disabilities (PWD) provides disability assistance to those who need financial or health support and are unable to to fully participate in the workforce. To be eligible, under section 2(2) of the Employment and Assistance for Persons with Disabilities Act (EAPDA), you must:
- Be 18 years old;
- Have a severe physical or mental impairment that is expected to continue for more than two years;
- Be significantly restricted in your ability to perform daily-living activities;
- Require assistance with daily living activities.
Policy Changes Affecting Disability Benefits December 1st, 2015
Key regulatory and policy changes introduced by BC Government in relation to income support for people with disabilities under the EAPDA: British Columbians receiving disability assistance are now able to hold significantly more assets and receive financial gifts and inheritances with no impact on their monthly assistance:
Prescribed classes for automatic PWD designation (Sept. 2016)- Shorter PWD application form confirming an applicant’s eligibility into one of the following classes:
- People receiving support and services from Community Living BC (CLBC)
- People enrolled in the Ministry of Children and Family Development At Home Program
- People enrolled in BC PharmaCare Plan P – Palliative Care
- People determined as disabled by the Government of Canada and eligible for the Canada Pension Plan Disability Benefit
Asset Limit Increases for PWD (Dec.1, 2015)
- $100,000 for a single, couple, or family where one person has the PWD designation (from $5,000)
- $200,000 for a couple where both adults have the PWD designation (from $10,000)
- Gifts, inheritances and trust payments exemptions
- A first in B.C., PWD’s will be able to receive cash gifts, inheritances and trust payments with no effect on their eligibility for assistance.
Earnings exemption (December 1st, 2015) – Annualized Earnings Exemption increase of $9,600 per year (formally $800 per month)
Child support payments exemption (September 1st, 2015) – CPP orphan’s benefit & WorkSafe BC benefit for a surviving child of a deceased worker.
Summary of Changes
| Before December 1, 2015 | From December 1, 2015 |
|---|---|
| A single person receiving PWD can have $5000 in assets. | A single person receiving PWD will be able to have up to $100,000 in assets. |
| A couple where both receive PWD can have $10,000 in assets. | A couple where both receive PWD will be able to have up to $200,000 in assets. |
| Recipients can only receive one-time gifts without affecting their eligibility. | Recipients can receive cash gifts with no effect on their eligibility. |
| Restrictions on use of trust money include a cap of $8000 per year for any item or cost that will help with independent living. | The annual cap on trust payments will be eliminated; people will have greater flexibility in how trust money is used to lead more independent lives. |
Why set up a Disability Trust?
- Funds in a trust are not treated as an asset of a person receiving disability assistance as the beneficiary continues to qualify for assistance.
- Trusts provide a way for PWD client’s and their families to transfer and safeguard their assets for meeting disability-related costs now and in the future while remaining eligible for disability assistance.
- Trust funds for a disabled beneficiary can be utilized without a deduction to the beneficiary’s monthly disability benefits for:
- Caregiver services or other services related to that person’s disability
- Education or training
- Home renovations necessary because of your disability
- Home maintenance repairs
- Medical aids
- Any other item the trustee/beneficiary considers necessary to promote the person’s independence*
- Effective December 1, 2015, there is now no limit on the amount of dollars that can be expended from the trust for this purpose. This gives greater flexibility for people receiving disability assistance to use that trust money to lead more independent lives.
