Inter Vivos vs. Testamentary Trusts

Описание: Ken discusses the differences between inter vivos and testamentary trusts.

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Video Transcript:

There are two main types of trust arrangements, the one that most people are familiar with are trusts in their wills. These are testamentary trusts, last will and testament. The other type of trust is what's called an inter vivos trust between living people: inter vivos. And those are trusts that are set up and funded and administered while someone is alive, the set lord, the trustees, the beneficiary.

So there are tax returns to be filed but then there are advantages to inter vivos trusts and tax reduction, asset protection, those sorts of things. The testamentary trusts which are more common are set up in your will, they're drafted in your will usually five or six pages. They appoint trustees, they decide obviously who the beneficiary is, they determine who gets the residue of the trust when the beneficiary passes on decades later and until typically the parent who is. And until typically the parent, who is setting this up dies there is no administration, there are no expenses, there are no tax returns none of that. Inter vivos trusts are useful in my client's cases.

Firstly, I would think to hold properties, to be owned, to be principal resident, to be property zoned for a residence for the child beneficiary rather than putting a property into their own name. This protects it from matrimonial claims from the child selling it and then having proceeds, which would disqualify them from ODSP, all of those things. And if it's a testamentary trust and you leave a property that is owned perhaps by you for the child to live in while you're alive. Or if the trust purchases a home afterwards because the child's been living with you and then has to live in their own premises. The testamentary trust owning the home qualifies as a principal residence, capital gains exempt for the beneficiary.

So this can be a very valuable tax-free investment for one thing. Because when the child dies the house is sold the proceeds typically go to the siblings or the children of the siblings and it's a tax-free investment.