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A question of trust

14 May 2024

What is a trust, when would you need one and how do you set one up?

By Andrew Chastney,

Canaccord Genuity Wealth Management

Imagine the scenario. You want to leave your estate to your three grandchildren, but they’re all young adults. If you die tomorrow and they inherited it all, would this sudden wealth send them off the rails? Would they spend it, frivolously, without an eye on provision for the future as you intended?

Or do you not really know who you might leave your estate to – you don’t have children so would it be your niece and nephew? You haven’t seen your nephew in three years, but your niece visits regularly – you just might be undecided who you might want to benefit and when you want them to receive the funds.

If one of these scenarios applies to you, setting up a trust may well be the way to deal with it. 

Trusts have been in use for hundreds of years and can be used for many reasons – from supporting future generations and paying school fees, to sheltering funds from beneficiaries who aren’t quite able to handle their finances yet.

In some places, tax planning has been an important factor in creating trusts because in some jurisdictions, trusts have different tax treatments.

But trusts can be off putting because they don’t have the best reputation – people often perceive them as overly complicated and tricky. 


So what exactly is a trust?

There is no one definition, but basically, a trust is the legal relationship between a person (or the ‘settlor’ in legalese) who puts their assets into a trust, the trustee – the person who manages the trust – and the beneficiary, who benefits from the trust. The trustee will manage the trust and, depending on the type of trust, ensure the beneficiary receives the assets at the most suitable time and for the right purpose. 

The role of the trustee is important. They aren’t called a trustee for nothing. Their role is to act in the best interest of the beneficiaries, so choosing the right one is vital. And it’s common to see professional trustees, such as a lawyer or a trust corporation, who can provide an impartial approach and deal with practical aspects. 


Why would you consider setting up a trust?

As mentioned in the examples above, gifting money to people isn’t always cut and dried. You might want to continue to exert a level of control or take steps to ensure your wishes are carried out after you effectively hand over the assets. There can be a number of reasons why people consider a trust.

One might be that you want to make a gift, but you don’t want to do that outright – you might want it to be phased over time, for example. Another reason is that your intended beneficiaries are not in a position where it is a good idea for them to receive funds directly – this could be down to a lack of mental capacity, or they might be too young. In this case, you can structure the trust to ensure beneficiaries can receive the assets at a certain time – or they could be released at certain life stages (for example, to pay for a house deposit, or for children’s school fees). 

Family circumstances might dictate that a protective arrangement is appropriate. You might be concerned if a family member can be trusted with funds – they might have a drug addiction, a problem with gambling or they might just not be very good at handling finances. They might have a partner who can’t be trusted, so you might want to provide some financial protection against a future relationship breakdown. Obviously, you would need some legal advice, depending on what jurisdiction you are in, but in a case like this, setting up a trust can be an effective way of protecting family wealth. 

Charitable trusts are useful if you want charitable causes that are close to your heart to benefit from a financial contribution or gift. It can mean your trust can benefit charities in the long term, rather than maybe just gifting to one or two charities now.

In a nutshell, trusts are a way to think ahead, of how they can benefit others in the future. 

The complexity of trusts – is it a misnomer? 

Well, it’s not really. Trusts can be very complex to set up and legal and tax advice is essential to ensure they are structured in the right way and managed properly. Depending on where you are, there are various international reporting requirements to be met.

Professional advice could well be worth the investment. Working with professional advisers can make this process much simpler, from deciding whether a trust is appropriate for your needs, to helping you wade through the paperwork and legalities. But even though they do have their complexities, it might well be the answer to how you want to pass on your assets – it’s not always as simple as making a will.


How do you invest them?

This is an area definitely best left to the professionals, as depending on the settlor’s intentions and the objectives of the trust, a bespoke investment strategy needs to be formulated. For example, the trust might need to pay income to defined beneficiaries, or it might be more flexible than that. You’ll need a professional to work with the trustees to ascertain the risk profile and investment profile of the trust. 

Trustees might also need to be supported in fulfilling their duties, including any ethical criteria they need to meet and tax considerations. It is also important that trustees are kept aware of the trust’s investment performance and any changes that are made to the trust’s portfolio. 

So even if they might be a little complex, if you are facing certain scenarios with your family regarding your assets or want your assets to be used for specific purposes, a trust might well be for you. Just make sure you get the right guidance, support and expertise to help you if you have a question of trust. 

Andrew Chastney is a technical specialist at Canaccord Genuity Wealth Management. The views expressed above should not be taken as advice.

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