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Trust money is a great way to build wealth for people who will live in the future, but many new (people or businesses who give money to help start businesses) tend to shy away from them because they think they are only for the rich. Although trusts are usually connected with (a rich, powerful person) families and powerful persons, trust money can make a lot of sense even if you are, for example, a widowed grandmother who just wants to leave $30,000 to a (child of a child) to help them complete their education.

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This first webiste will show you everything you need to know about Trust Funds in Canada, it goes to show you, what is a trust, how Canadian Trust are different and Living or Estate Trust and how to work.

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A trust is a vehicle for holding and passing on family property. As such, it typically serves at least one of two purposes: It can reduce a family's taxes by shifting income to members in lower tax brackets, and it can provide for less fortunate (or more impulsive) members by controlling how their money is disbursed.

A trust is nothing more than a relationship. It occurs when one person, often called the settlor, gives property to another person, the trustee, to manage on behalf of still other people (the beneficiaries). Using the estate freeze, for instance, owners of a growing company convert their shares of the existing business into preferred stock calibrated to the value of the business and sell new common stock to the family trust that captures the company's future growth.

A trust is not a legal entity that can enter into contracts or incur liability. As such, trusts are not particularly difficult to establish-in fact, technically speaking, most trusts don't even require a founding document. But the tax law surrounding trusts is just as complex as one might expect. An individual interested in setting up a trust ought to talk to a lawyer first.

Because of the dividend tax credit and personal tax credit, for example, a Canadian without any other income-especially a student with deductible education expenses-could receive tens of thousands of dollars in dividends from Canadian companies tax-free. But while the family trust has a well-earned reputation as a tool for the wealthy, these benefits can reach deep into the middle class. For example, a special rule known as an estate freeze can make a trust indispensable for even modestly successful family businesses.

By locking in the current generation's stake at the company's current value, they can prepare for the tax liability when they die without worrying about having to sell the company. Meanwhile, the next generation can share in the company's profits through dividends allocated to the common shares.

There are fundamentally two kinds of trusts. Testamentary trusts are created as part of a will and take effect upon the death of the testator. Recent changes to Canadian law took away the tax advantage of setting up long-term testamentary estate trusts, making them less useful.

Any other trust, including one using an estate freeze, is a living, or inter-vivos, trust, established while its architect is still alive. A living trust can be established for a variety of purposes-the Canada Revenue Agency (CRA) has identified 31 different types of living trusts -for a variety of different beneficiaries.

Special rules allow an individualage 65 or olderto roll over assets into these trusts without having to pay capital gains on the assets first. Only the individual (and the partner, in the case of a joint trust) can benefit from the trust while he or she is alive. When the settlor (or surviving partner) dies, the trust pays tax on realized capital gains, but the property in the trust can be distributed to heirs without being subject to probate fees.

Though a Canadian trust is not a legal entity, it is under Canadian law a taxpayer-at the highest rates. That is why trustees try to pass on any income earned by trust property to beneficiaries, so they can pay the taxes at their own, presumably lower, rates. But in an effort to limit using trusts for tax avoidance, Canadian tax law attributes trust income to the person who transferred the property to the trust if the recipients are close relatives.

In general, these attribution rules apply when the beneficiary is either a spouse or under the age of 18, in the case of dividend and interest income (but not capital gains). The attribution rules do not apply when the beneficiary is an adult child (or grandchild, or niece, or nephew).

Other rules attribute the income to a transferor who can effectively control, or reclaim, the assets in the trust. There are exceptions, including alter-ego trusts and joint-partner trusts. But otherwise, the rules make revocable trusts increasingly common in, for example, the U.S., while difficult to use in Canada.

The attribution rules guide these decisions. Since a transferor can't control the property in a trust, she can't be a sole trustee. Usually, the person who is transferring the property that is to be put into trust asks someone else to be the settlor-a grandparent, perhaps, or close family friend.

There are times, however, when you must appoint someone else, such as a trust company, as a trustee. For example, if you want to establish a trust in another province, the trustee, or the majority if there are multiple, must reside there. Other times to appoint an outside trustee are when you want pure independence or anticipate conflict within the family.

A trust does not exist without some property being transferred, or as it's called, settled-the prospect or promise of making the transfer is not enough to create a trust in advance. Moreover, given the attribution rules, it may be unwise to settle a trust with the actual property that will provide income or capital to the beneficiaries, though the settling property should have some value.

If a trust's beneficiaries would otherwise trigger the attribution rules, the settlor or the individual with the real assets can avoid them by making what's known as a prescribed interest rate loan, a documented loan with an interest rate no lower than the CRA prescribed interest rate.

The trust can then use the proceeds of the loan to purchase the assets it will hold. For example, in the case of an estate freeze, a small loan of, say, $100, ought to be enough for the trust to buy the family company's new common shares at a nominal par value. The trust can repay the loan when it receives the first dividend check.

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Everything You Need to Know About Trust Funds in Canada

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A trust is a vehicle for holding and passing on family property. As such, it typically serves at least one of two purposes: It can reduce a family's taxes by shifting income to members in lower tax brackets, and it can provide for less fortunate (or more impulsive) members by controlling how their money is disbursed.

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So here's a picture breaking down the different regions of trust funds. It shows the Overall Trust Account Balance, % of Trust Account balance, Suspense Account Balance and % of Suspense Account Balance.

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I found this website very istersting because most people think that a Trust fund is only for "Rich People" but this goes to show how you get your Trust Fund set up.

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If you've heard of trust funds but don't know what they are or how they work, you're not alone. Many people know just one key fact about trust funds: they're set up by the ultra-wealthy as a way to protect passing on significant sums of money to family, friends or entities (charities, for example) after they pass away.

However, only part of the conventional wisdom is true. Trust funds are designed to allow a person's money to continue to be useful well after they pass away, but trusts aren't useful only for ultra high-net-worth individuals. Middle-class people can use trust funds as well, and setting one up isn't entirely out of financial reach.

To understand how a trust fund operates, let's look at an example. You've worked hard all of your life and have built up a comfortable savings cushion. You know that sometime in the future you're going to pass away, and you want your hard-earned savings to go to the people you love, or the charities or causes that you believe in.

Now, what about loved ones who are not as financially savvy as you? You could be concerned about leaving them a lump-sum gift because they might use it irresponsibly. Furthermore, you may even like to see your money carry over for generations to come. If this is how you feel, then you should set up a living irrevocable trust fund. This type of trust can be set up to begin dispersing funds when certain conditions are met. There is no stipulation that you cannot be alive when that happens.

You can place cash, stock, real estate or other valuable assets in your trust. You meet with an attorney and decide on the beneficiaries and set stipulations. Maybe you say that the beneficiaries receive a monthly payment, can only use the funds for education expenses, expenses due to an injury or disability, or the purchase of a home. It's your money, so you get to decide.

Although the trust is irrevocable, the money is not the property of the person receiving it. Because of this, a child applying for financial aid would not have to claim these funds as assets. As a result, there will be no impact on eligibility for needs-based financial aid. The trustor can also establish trusts for future generations of children, making the trust a lasting legacy for an indefinite number of generations.

Because it's irrevocable, you don't have the option of later dissolving the trust fund. Once you place assets in the trust, they are no longer yours. They are under the care of a trustee. A trustee is a bank, attorney or other entity set up for this purpose.

Since the assets are no longer yours, you don't have to pay income tax on any money made from the assets. Also, with proper planning, the assets can be exempt from estate and gift taxes. These tax exemptions are a primary reason that some people set up an irrevocable trust. If you, the trustor (the person setting up the trust) is in a higher income tax bracket, setting up the irrevocable trust allows you to remove these assets from your net worth and move into a lower tax bracket.

There are some downsides to setting up a trust. The biggest downside is attorney fees. Think of a trust as a human in the eyes of tax law. This new person has to pay taxes and the mechanics of the trust have to be written with an extraordinary amount of detail. To make it as tax-efficient as possible, it has to be crafted by somebody who has a lot of specialized legal and financial knowledge. Trust attorneys are expensive. A traditional irrevocable trust will likely cost a minimum of a few thousand dollars and could cost much more.

If you don't want to set up a trust fund, there are other options, but none of these leave you, the trustor, with as much control over your assets as a trust.

Will: Writing a will costs much less money, but your property is subject to more taxes and the terms can easily be contested in a process called probate. Additionally, you won't have as much control over how your assets are used. If the will is contested, attorney's fees could eat up a large portion of the money that you wanted to see used in a way that would benefit others.

UGMA/UTMA Custodial Accounts: Similar to a 529 college-savings plan, these types of accounts are designed to place money in custodial accounts that allow a person to use the funds for education-related expenses. You could use an account like this to gift a certain amount up to the maximum gift tax or fund maximum to reduce your tax liability while setting aside funds that can only be used for education-related expenses.

The disadvantages to UGMA/ UTMA Custodial Accounts and 529 plans is that the beneficiary may be attending college, but using these funds for other expenses outside of your control. Furthermore, the amount of money in the minor's custodial account is considered an asset, and that may make him or her ineligible to receive needs-based financial aid.

For those who don't have a high net-worth but wish to leave money to children or grandchildren and control how that money is used, a trust may be right for you; it's not just available to high-net-worth individuals, and it offers a way for trustors to protect their assets long after they pass on.

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How to Set up a Trust Fund If You're Not Rich

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If you've heard of trust funds but don't know what they are or how they work, you're not alone. Many people know just one key fact about trust funds: they're set up by the ultra-wealthy as a way to protect passing on significant sums of money to family, friends or entities (charities, for example) after they pass away.

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A trust is usually set up to provide (related to managing money) security for children or other family members. It can contain some valuable things beyond cash and (ways of investing money), such as property. Trusts function differently than bank accounts, as the valuable things are deposited at once and (people who receive something valuable) usually only gain direct access when they reach adulthood. They also differ from wills as they aren't subject to probate.

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Some people are lucky enough to be born to well-connected families with vast fortunes, leaving those of us who rely on our wits and hard labour with rigid attitudes about the type of kids who benefit from trust funds.

Lately, the practice of leaving large inheritances may be increasingly falling out of favour - at least for celebrities.

Concerned about potentially ruining the lives of his six adult children, British musician Sting has been vocal about his decision not to share his estimated $300-million fortune. According to reports, the late actor Phillip Seymour Hoffman rejected his accountant's suggestion to leave a portion of his $35-million estate to his children because he didn't want them to be "trust fund kids."

"For a lot of very wealthy individuals, and I've dealt with them a lot in my career, their biggest stress is, 'Am I going to wreck my kids? Am I going to take the incentive away from them to earn a living and to be a productive member of society by even setting up a trust fund for them?"' says Cindy Crean, a managing director at SunLife Financial Global Investments in Toronto.

But a trust fund can be the right decision in certain circumstances, said Crean, even for average income earners.

A trust is usually set up to provide financial security for children or other family members. It can contain a number of assets beyond cash and mutual funds, such as property. Trusts function differently than bank accounts, as the assets are deposited at once and beneficiaries usually only gain direct access when they reach adulthood. They also differ from wills as they aren't subject to probate.

Trusts were traditionally used by high net-worth families as a hedge to protect relatives from the fallout of potentially ruinous life choices such as divorces, business ventures and court cases.

Wealthy families have long relied on trusts as a tax planning tool, says Tony Maiorino, head of RBC Wealth Management Services. It's also an option that's becoming popular with middle-class clients who want to provide money, for example, to their grandchildren.

"Family trusts are a great example of that," he says. "If you have kids 1 / 8or grandkids 3 / 8 in private schools or heavily involved in sports or other activities that are very costly, a trust can be used to fund those activities and provide the income to that individual at a more favourable tax rate than just simply giving the money."

Parents may also want to look into one as an option to practice income-splitting with children over the age of 18, he adds.

A time-honoured method of asset protection, trusts can play a critical role in planning for children with disabilities that may hinder their ability to provide for themselves as adults.

"A lot of people don't think they have a lot of money but, let's say, you have husband and wife or partners who own a house and have some insurance, for example, and something happens to both of them...there would probably be more money than they think. So you really have to think that through, and think what would fall into your estate, into your kids' hands, if something were to happen to both of you. There may be more money than they think," says Crean.

But how to prevent your beneficiaries from blowing it all?

"It takes careful thought," says Crean. "That's where it's really important to sit down with an estate planning professional, a lawyer who has experience in estate planning and talk to them about what your wishes are, what your concerns are, and they can help you to draft up an appropriate trust, be it a trust that you set up while you're alive or a trust that you set up through your will."

The way the money is distributed depends on the type of trust and the conditions set out, she adds.

Testamentary trusts are incorporated into wills and prevents your beneficiaries from accessing the money until after your death. An inter-vivos trust is considered "a gift" and allows beneficiaries to access the fund while you are still alive.

An incentive trust may be the best option for people concerned about children or grandchildren's spendthrift ways. Beneficiaries will only see a pay out if they earn a degree, for example. Or, alternatively, "For every dollar that they earn, the trust will pay them a dollar. So they have to be earning money before they get any money from the trust," says Crean.

It all comes back to what you teach your kids while you're alive, she notes.

"No trust is going to fix them while they're already kind of spoiled. So just raising your kids to be financially responsible and giving them the impetus to work, even if you do have the money to provide for them."

The fees associated with running a trust, however, may be enough to put people off. A trust is considered separate legal entity and is taxed on its income annually and new legislation passed in this year's federal budget means that by 2016, taxes on testamentary trusts will no longer be adjusted to the beneficiary's income level and will be taxed at the top marginal rate, Maiorino says.

Corporate trusts also charge to manage the fund. And lawyer fees will always be an ever-present reality.

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Consider a trust fund for your kids even if you're not rich

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Some people are lucky enough to be born to well-connected families with vast fortunes, leaving those of us who rely on our wits and hard labour with rigid attitudes about the type of kids who benefit from trust funds. Lately, the practice of leaving large inheritances may be increasingly falling out of favour - at least for celebrities.

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This is a short video showing that Trust funds aren't only for the richer people and that anyone can do it as long as they know what they're doing

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The second video here shows how trusts can help to protect family assets.
I chose this video because it has very great detail on how to protect family assets, and it basically shows you how to get a trust started up for your soon to be kid and get their life started off on the right foot.

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How trusts can help to protect family assets

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For this video its going to go over 5 advantages of a family trust and why its a good idea to set one up ASAP
I chose this video because I covers 5 important things that make a family trust worth it.

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In many countries (especially the UK and US), trust money is a great way for a family to grow wealth for the younger generations. In the past, trust money have been connected with (a rich, powerful person) families that have a big amount of wealth. But that's changed over time; trust money is now also attractive to middle class families who want, for example, to secure/make sure of their (child of a child) receives a quality education.

I chose this last website because this has the 4 facts about trust funds and can really break down and show you if its something for you or not.

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Four Facts to Know About Trust Funds and Onboarding Modern Clients

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In many countries (especially the UK and US), trust funds are a great way for a family to grow wealth for the younger generations. In the past, trust...

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This last video goes to show the simple version of all the other trust fund videos and it breaks it down in the best way possible to understand.
I chose this video also because it shows how you can send your money over to you family the best way, and it can reduce the tax.

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This picture here is a basic way to show you the order it goes in and what it basically is, this is probaly one of the best and quickest ways to understand how it works and what it does for you.

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1: What did you learn about your topic that surprised you the most?
Honestly with this topic I didn't really know what a "Trust Fund" was but after further resasrch the thing that surprised me the most was that basically anyone that has enough money can get started on a trust fund.
2: Provide a real-life example of how this topic is relevant or  interesting
for you.
A real life example that is interesting to me is that I've only really known about a tax free savings account and I've been putting all my money there my whole life. But now that I know about trust I might have to start looking into that and try putting some money down in there so I have something for my kids in the future.
3:If you could pass on your knowledge to a family member or friend, what
do you think is the most important thing to pass on?
I would most defiantly pass on the fact to start as early as you can and start planning for your future because honestly if you don't is going to affect you tremendously.