A trust is used to transfer assets to another person (art. 1260 C.c.Q.). There are many categories of trusts including inter vivos trusts (including family trusts) and testamentary trusts (following a death). In Quebec, there are three parties involved when a trust is created. Firstly, the settlor is the person who creates the trust, and they are usually not one of the beneficiaries. The settlor must dispose of property first and transfer it to a trust patrimony, separate from their own. The person or people entrusted with administering the property is named the trustee(s). They decide how it will be distributed amongst the beneficiaries in accordance with the terms of the trust document. The trustee ensures strict compliance with the provisions of the trust deed that protect the rights of the beneficiaries (art. 1278 C.c.Q.). In Quebec, the trustee cannot claim ownership of the property unless another person has been named independent trustee who is neither a settlor nor a beneficiary. The last party involved is the beneficiary. In the case of a family trust, it is often the members of the family who will be entitled to receive any income or capital held in trust.
Family trust can be used to generate wealth within the family. It will allow you to determine who will be able to receive the money, as well as what it should be used for. For example, grandparents can leave a certain amount of money in trust to fund university education for their grandchildren. A trust fund is established so that the child has a source of income needed to survive, in the event that their parents are not around to provide for them. This will prevent children from spending their inheritance in other ways, which is why wealthier individuals prefer to plan their estate with a family trust. This fund is also protected from creditors and therefore, cannot be seized as a result of bankruptcy. However, large amounts of money held in trust are taxed at the highest marginal rate.
The first step to creating a family trust is to draft the trust agreement with a notary or estate lawyer. The agreement or trust deed determines its intention and names the beneficiaries and trustees. The assets that can be included in a family trust include real property, vehicles, precious metals, artwork, bank accounts, shares, etc. The preamble of a trust deed is important because it demonstrates the intent of the parties at the time the trust was created. The trust deed will also include the age at which the child-beneficiary could claim the trust fund. This is normally an age where the child is financially responsible enough to spend the money on any medical or educational needs.
In Droit de la famille – 092188, amongst a divorce, parents disagreed on the payment of their children’s school fees culminating in an application by their father to have such fees paid out of trust accounts administered by their mother. This family trust was established by the children’s paternal grandfather by notarial Deed providing that it is for the benefit of the father and is to be administered by the father and his brother. The father of the children submits that the purpose of the trust is to provide for the children’s private schooling, while the mother contends that the funds were destined to cover the children’s university education. The mother then sought to get the Court to authorize that both parents be authorized to jointly manage the children’s trust account. When parents do not agree, the Court can intervene and make a decision in the best interest of the children.
Furthermore, if you are worried that your children will no longer receive the funds entrusted to them by their grandparents, the assets held in trust are protected. The Civil Code of Quebec states that the settlor, the beneficiaries or any other interested person may, notwithstanding any stipulation to the contrary, take action against the trustee to compel him to perform his obligations or to perform any act which is necessary in the interest of the trust, to enjoin him to abstain from any action harmful to the trust or to have him removed (art. 1290, al.1 C.c.Q.). He may also attack any acts performed by the trustee in fraud of the trust partimony or the rights of the beneficiary (art. 1290, al.2 C.c.Q.). The grounds for this recourse must be serious and not constitute a mere apprehension. Therefore, in order to protect your rights to a trust as a beneficiary, there is a possibility for recourse.
Family trusts are an interesting option for people wishing to set aside assets for their family members, particularly for the future of their children. However, its complexity requires professional advice from a lawyer and/or notary.
