When to set up a trust for inheritance purposes

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Alex
Posts: 47
Joined: Sun Jan 22, 2012 9:05 am

When to set up a trust for inheritance purposes

Post by Alex »

As dual resident in CDN, I want to have a trust for my dual citizen CDN resident kids in case I pass away before they grow up.

My question is about when to set up the trust. For example, should I:

1. Hire someone to set up the trust now even though my health is good and then have assets transferred to the trust at my death?

2. Hire someone to specify all details of the trust in my will now, but not have it become a trust until I pass away.

3. Specify the broad contours of the trust in my will instructing my executer to hire someone to set up the trust and attend to the details after I pass away.

Currently, I have used option 3, because I am healthy and don't want to spend lots of money hiring someone that might never get used. Is that a reasonable option while my health is good or could that open up big problems? For example, would my executer be able to act on those instructions?

Thanks a lot for any help or suggestions you can give me and thanks also for your patience in reading all my questions.
JGCA
Posts: 754
Joined: Thu Nov 18, 2010 3:05 pm
Location: Montreal, QC Canada

Post by JGCA »

If you transfer anything to a trust right now while alive its an inter vivos trust you will be deemed to have sold everything at fair market value you will need to set up a trust with a beneficiary (ies) and executor and you would be the settlor the one establishing the trust. If you are also the executor that means you control the trust all the income will be taxed back in your hands. This rout is very complex an taxed at the highest rate if income is not distributed to beneficiaries.

I recommend you sipmlpy leave a clause in your will stating on your death you wish to estatblis a trust for your bebeficiaries this way your will will estatblish the trust for the beneficiaries you want to get the property you wish to bequest unto them. The tax you pay on deat will be the same as that when you transfer to the trust.

Another simple solotion is tha you instruct your executor to simply set a testamentary trust to simply allocate the assets to the beneficaiaries onm your death this is technically like a trust biut its not it simply will leave everything ibn the trust for up to 3 years max at the graduated tax rates them simply transfer the property to the benefiiciarues this is a new tax ruling in Canad 3 year at the graduated tax rates.

In conclusion you need only specify that you want a trust set up on your derath that is all you need to do now do not transfer anything while your alive to a trust for others this will resukt in immediate tax and loss of control of the assests if yo only want to do this on death simply say so in the will.
JG
Alex
Posts: 47
Joined: Sun Jan 22, 2012 9:05 am

Post by Alex »

A long overdue thank you for your helpful reply!

I think my children may too young for a testimonial trust followed by asset transfer. They may need a relative or family friend to oversee see things as a trustee until they are old enough to manage things on their own.

My children are USCs living in Canada. So am I. And, so are many of the people I would have in mind as trustees.

Do you suggest I ask the executor to set up the trust as US or as a Canadian trust? Or should I leave it up to them to decide at the time?

Thanks again!
JGCA
Posts: 754
Joined: Thu Nov 18, 2010 3:05 pm
Location: Montreal, QC Canada

Post by JGCA »

On your death you have no choice all your assets are sold at FMV in Canada and you have to file an Eastate tax return also in the US taxes paid in Canada can be used to offset tax in the US sionce you are a USC. THis is entirely dealt with by your will in it determiones who is a beneficiary if the children live in Canada then under the will a trust Can be set up for them in Canada it will of course be taxable in Canada and the US for any income that is allocated to the children its far to complicated for me to discus in detail but in essence both govt will tax the children on the income not the capital that was their inheritance from you . Do not forget by you selecting to leave assets to the children instaed of your spouse if you have a spouse you are triggering capoital gains tax in Canada because no rollover at cost is allowed to children only to a spouse just like the estate tax issue yioyu will have in the US if you are over $ 5M is assets.

Nut shell leave instructions in your will as to whom you want to be your executor and they will then set up trusts in Canada if the children live here still
JG
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