FAMILY TRUSTS : THE BASICS

In order for a trust to operate, three roles must be filled: the settlor, the beneficiaries and the trustees:

1. The settlor: The settlor may be anyone. The role of the settlor is to constitute the trust. Generally,

the settlor is neither the trustee nor the beneficiary.

2. The beneficiaries: They are the recipients of the income and capital of the trust, at the trustee’s

discretion. They have no right to the capital nor can they make claims for income from the trust.The

following people are generally beneficiaries: the current or future spouse, children born or unborn,

grand children born or unborn, grandparents, parents, brothers and sisters.

3. The trustees: They are named in the trust document and are responsible for the administration of

the trust. Trustees generally fit into two categories:

- The trustee-beneficiary: an individual who is both trustee and beneficiary;

- The independent trustee.

An incorporated individual is usually a trustee and a beneficiary. Lawyers, accountants, colleagues or family members who are not beneficiaries will usually be asked to fill the role of the independent trustee.

Each professional order determines which individuals may be named as independent trustees. For example, should a dentist wish to establish a trust, only other members of the Ordre des Dentistes or specific family members can be considered as an independent trustee. It is important to be well guided when deciding on creating a family trust in order to conform to the regulations of your professional order.

CHARACTERISTICS

  1. A trust is a distinct legal entity;

  2. It has its own patrimony. In other words, it may open its own bank account, own property and contract in its own name;

  3. It is created by drafting and executing a private document (non-notarized contract); and

  4. It must file its own tax return each year.

CREATING A TRUST

1. Drafting the legal instrument: Trusts may be private writings, meaning they do not have to be notarized.

2. The settlor gives property to the trustee(s): TUsually this consists of a token sum of money such as silver coin or a five dollar bill bearing a serial number.

3. The trust is constituted:

  • The trust agreement does not need to be registered with the Registraire des entreprises du Québec;

  • We recommend you keep the trust agreement somewhere safe, like a safety deposit box.

4. An annual income tax declaration must be filed: Unlike a corporation, it is not possible to choose the financial year end of a trust:

a. December 31st: Financial year end date;

b. March 31st: Deadline to file annual return.

5. Open a bank account in the name of the trust: A cheque book may be issued in the name of the trust.

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