Protect generational wealth through tax reduction and estate planning strategies
Although most individuals and families will typically pass on wealth between generations through wills or gifts, in certain circumstances, trusts can be highly beneficial financial tool for tax reduction and estate planning.
Families and family-owned businesses commonly use trusts to:
- Control and protect financial assets for minor children or special needs dependents
- Protect wealth for family members who are not seen to be financially knowledgeable
- Lower the family tax burden through income-splitting
- Protect assets from claims against family law or marital regime claims
- Minimize probate taxes
- Achieve specific retirement and estate planning goals
- Maximize charitable giving
Your BlueRock financial advisor can work with your tax and legal advisors to determine what trust options are right for your financial, estate and tax planning needs.
How trusts work
A trust is a financial and legal framework used to hold property for the benefit of others (“beneficiaries”). Setting up a trust involves changing the legal ownership from the original owner (“settlor”) to the new legal owner (“trustee”).
Your role as settlor
When you set up a trust, you decide how it will be operated and create a trust document with all of these details. For example, you decide who the trustee(s) will be and how much power the trustee will have, as well as how long the trust will last. Your BlueRock advisor and a legal expert will work with you to draw up the trust document to ensure all aspects of its operation are clear and follow all applicable laws. You may set out the terms in your last will and testament or in a freestanding trust declaration or trust agreement.
The role of trustees
A trustee is obliged to make decisions and administer the trust in the best interests of the beneficiaries. In general, a trustee must:
- Deal with different beneficiaries or different groups of beneficiaries fairly, without giving preferential treatment to one beneficiary over another.
- Deal with the assets in the trust in a way that is in the best interests of the beneficiaries, even if the trustee would not normally do the same if the same option was available for his or her own assets.
- Take full responsibility for the obligations of the trustee role, which means that the trustee cannot allow anyone else to make decisions about the trust, unless the trust document specifically allows this.
Your trustee should be chosen with great care. The success of the trust arrangement will depend on the level of competence of the trustee, and the relationship that the trustee will be able to build and maintain with the beneficiaries. In most instances, the trustee will require the assistance of an investment advisor for asset allocation, as well as legal and/or accounting professionals.
Types of beneficiaries
You as the settlor can identify in the trust document three potential kinds of beneficiaries:
- Income beneficiary, entitled to the income of the trust in the form of interest, foreign or dividend income but no capital
- Capital beneficiary, entitled to any proceeds from the sale of trust assets, dividends that are part of a corporate capital distribution or the proceeds of a share redemption, as well as to any of the original trust assets
- A beneficiary entitled to both income and capital
Get expert help
Trusts come with a wide range of compelling benefits for tax reduction and estate planning, and there are many approaches you can take. However, once a trust is set up, it can be very difficult—and expensive—to make changes. It is vital that at the outset you obtain expert advice on all of the financial, legal and tax issues specific to the types of trusts you’re exploring to ensure your strategy is applicable, and that the trust document is worded correctly.
By working closely with BlueRock, you can have confidence that your team of professional advisors will help you implement a dependable plan that takes full advantage of trusts for your, your family and generations to come.