Trustees are often at the center of an individual’s succession planning. Trustees also have the responsibility of managing and distributing assets of the estate. In Ontario, establishing a trust is a way in which individuals and families can be provided with a sense of security and peace of mind in the event that the unexpected happens. While the concept of trusts may sound complex, this valuable financial instrument can be a straightforward and effective way to manage assets, protect your wealth, and ensure your loved ones are taken care of in the future.
Whether you’re a parent looking to safeguard your children’s future, a business owner seeking to protect your assets, or someone who wants to take control of their financial legacy, creating a trust is an option that offers various benefits regardless of your circumstances. This blog post will provide a high-level overview of the use of trusts and the responsibilities of trustees in the context of estate planning and administration in Ontario.
Originating from the English common law, a trust is a legal arrangement where one party (a trustor) transfers assets, such as money, property, or investments to another party (a trustee) for the benefit of specific individuals or entities (a beneficiary). It is not a legal entity, but rather a legal relationship whereby the trustee has certain obligations to the beneficiary or beneficiaries. However, it must be emphasized that the trustees are not agents to the beneficiaries; instead, they act as principals in their transactions with third parties, subject to fiduciary duties.
A trust may arise either intentionally (also referred to as an “express trust”) or by operation of law (also referred to as a “constructive trust” or “resulting trust”). In estate law, express trusts are the mechanism by which the trustor can ensure that their assets are safeguarded and managed according to their wishes after death.
In order to determine whether a trust is valid, it is necessary to examine whether the trust has the “three certainties,” specifically the:
- Certainty of Intention – This certainty requires clear evidence that the trustor intended to create a trust. As such, when drafting a will, its language must be imperative and transparent regarding the trustee’s intention to create a trust.
- Certainty of Subject Matter – This certainty demands that the assets or property involved in the trust are explicitly identified and described. The will must clearly describe the property subject to the trust.
- Certainty of Objects: This certainty pertains to the trust’s beneficiaries or “objects.” The beneficiaries must be clearly defined or ascertainable. If not referred to specifically by name in the will, the beneficiaries must be referred to by class, such a description must be sufficiently precise to determine who fits in the class.
These requirements are crucial for any trustor to follow. Otherwise, the trust they may have intended to form may not be valid.
The common law has developed several basic duties that all trustees must follow in order to satisfy their duties, which includes the:
- Duty of Care – The standard that a trustee must perform their duties is that of a reasonable and prudent business person conducting their own business affairs.
- Duty to Act Personally – Trustees generally cannot delegate their duties. They have been specifically named in the trust document or will, so it is their duty to dispense. This does not prevent a trustee from seeking advice, but the ultimate decision must be made by them.
- Duty to Avoid Conflict of Interest – Trustees must act for the benefit of the beneficiary or beneficiaries, which includes avoiding any conflict of interest.
These duties can be modified by any applicable legislation, which can impose stricter requirements and standards. The will may also create more stringent duties. As such, the above duties can be used as a guide to avoid inadvertent breaches, however, a careful examination of the will and the context of the circumstances is essential to understand the full scope of the trustee’s duties.
As a result of its characteristics, the trust is a highly useful legal tool in estate planning. The following are some common uses of trusts in estate planning:
- Managing Property for Minors – Legally, minors cannot own and manage property. The trust can be used so that the property that would typically be inherited upon the death of a parent can be kept and executed on the child’s behalf until they reach the appropriate age.
- Tapering Control of Assets – The trust can provide financial freedom for beneficiaries while postponing the granting of control over the entire estate.
- Providing Care – The trust allows assets to be set aside and used to tend to the care of individuals who are incapacitated and cannot manage their affairs.
- Spousal Care – The trust can provide for the care and maintenance of a spouse during their lifetime.
- Tax Planning – The trust can provide some control over an individual’s assets to prevent adverse tax consequences on the beneficiaries.
The trust is a very flexible and valuable tool in estate planning. If you are thinking of establishing a trust, it is important you are advised by lawyers with experience in understanding the operation of trusts in Ontario.
The trusted estate lawyers at Bader Law can help with a wide range of wills and estate matters, including drafting a will, updating a will, and establishing a trust to ensure that your loved ones are cared for in the event of your passing. With care and compassion, our team of estate planning and administration lawyers will ensure your will and other estate planning documents meet the needs of you and your loved ones. Contact us by phone at (289) 652-9092 or reach us online to schedule a confidential consultation with a member of our team.