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Nicole Garton 00:00:02 Hello and welcome to Your Estate Matters, presented by Heritage Trust. Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy. If it's estate related, we'll be talking about it. We're having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow.
Hello and welcome to Your Estate Matters. I'm Nicole Garton. When most people hear the word trust, they picture something for other people: old money, family fortunes, complicated arrangements in faraway places. So they decide quietly that trusts have nothing to do with them. Today I want to gently challenge that idea. A trust is simply an arrangement where one person holds and looks after property for the benefit of someone else following written instructions. That's it. And once you see it that way, you start to notice how many everyday Canadian families can use one to plan for incapacity to protect a spouse and children in a second marriage, to look after a child who needs extra support, or to keep a family cottage working for the next generation.
Nicole Garton 00:01:15 A recent decision from the B.C. Court of Appeal put it well: The court said that trusts vary greatly. They can be set up during one's lifetime or in a will. The trust property can be modest or enormous. There can be one beneficiary or many. The trustee can be a family member, a professional, or a trust company. That flexibility is exactly why trusts are such a useful tool, and why it's worth understanding what they can and cannot do. Our guest today is one of the people Canadian professionals turn to for exactly this question. Richard Weiland is a partner at Clark Wilson in Vancouver, where he co-chairs the estate and trust practice. He was called to the bar in 2002 and is a trust and estate practitioner with a society of trust and estate practitioners, and he advises business owners and their families, executors and trustees and charities. He's also taught the taxation of trusts and estates. At UBC's Allard School of Law. This past June, Richard moderated and spoke at a session at the Canada National Conference in Toronto.
Nicole Garton 00:02:19 Step again is the Society of Trust and Estate Practitioners, a professional body for lawyers, accountants, financial advisors and trust officers who work in this field. The session was called Innovative Use of Trusts for Complex Client Needs. The session looked at trusts in three ways. First, Familiar trust used in new ways. The trusts available to Canadians 65 and older. Family trusts and trusts that receive registered funds. Secondly, ideas from Quebec where trusts work a little differently under the Civil Code. And third, trusts built for a very specific purpose helping a business owner sell to employees. Keeping a family business on course across generations. Funding a charity or keeping housing affordable in a community. That session was built for professionals. Today we're going to take the parts that matter most for your family and bring them to the kitchen table. One quick note before we begin this conversation is general education, not tax, legal or financial advice. Trust in tax rules can vary by province and territory, and every family is different. So please speak with your own professionals about your situation.
Nicole Garton 00:03:29 Richard, welcome to Your Estate Matters and thank you for joining us from your office today.
Okay, Richard, before we get down to basics, tell us a little bit about the conference this year. You did a big presentation at a national conference. And why do you think they wanted a session on the new uses of trust this year. And what did you hear from professionals in the room about what's going on with trusts?
Richard Weiland 00:03:58 Yes. Thanks, Nicole. So I'm really happy to be here today. So STEP is the Society of Trusted Estate Practitioners. And this was the annual conference organized by the Canadian branch of that organization. They every year they run a large conference that brings together professionals across the country. So I was asked to moderate this session on innovative uses for trusts. I think, you know, I wasn't involved in the planning for the conference, but I think what was the driver for? The trust is a very flexible legal concept, and its uses keep changing and evolving.
Richard Weiland 00:04:32 And so this session was designed to generate discussion about some of the newer and more novel and unique ways that trusts are being used. From the perspective of practitioners. I think different people reacted to different parts of the presentation. There was a lot of interest in the concept of trusts serving different purposes over time, and those uses changing over time. There was also a lot of interest in some of the unique and novel kinds of trusts that we talked about in our presentation.
Nicole Garton 00:05:00 So say, say you're sitting down at someone's kitchen table, regular family say, you know, they've got a house, maybe some spouse, adult children. Like tell them in lay terms like, what exactly are we talking about when we say a trust?
Richard Weiland 00:05:17 Yeah, yeah. It's such a big question and it's such a basic question, but it's an important question. So like at its most fundamental, a trust exists anytime where the person who legally owns a certain property is not the same as the person who's intended to benefit from that property.
Richard Weiland 00:05:36 And so a trust really at its core, it's a relationship. It's not like a separate person, like a not a separate legal person, like a corporation, but it's a relationship that involves property. And it's property that's held by one person that's owned by one person called the trustee. And then there's another party involved that's called the beneficiary, and that's the person who's intended in some way to benefit from the property. And the underlying concept is that our courts will enforce those terms, like the terms that the property is held on if necessary, usually with a more formal trust. The terms of the trust are set out in a legal document. So that might be in something called a trust deed, or it might be set out in somebody's will.
Nicole Garton 00:06:23 So what do you think are the biggest misconceptions? Are these only for wealthy people? Are these tax havens like what are the misconceptions out there about trusts.
Richard Weiland 00:06:33 Yeah, there's a lot of things that people hear. There's a lot of ideas that are out there.
Richard Weiland 00:06:37 And I think sometimes these ideas get boiled down a little bit too much. So the one misconception would be that trusts are only for the wealthy, as you said. And in books and movies, you'll encounter this kind of trope of the trust fund kid, right? So when you think of the trust fund kid in a book or a movie, you think, oh, that's probably somebody who's entitled and who's spoiled and who gets whatever they want. And so, you know, to some extent, yes, it's true that trusts are used by wealthy families, but even then, very often what they're doing is they're using a trust more often, probably to keep assets away from a child rather than rather than in order to spoil the child, but also to, you know, cast the net more broadly than that. Trusts have many, many uses for, you know, for middle class and average Canadian people. So, you know, you mentioned earlier the average person with an RRSP. Well, most RRSPs are trusts.
Richard Weiland 00:07:37 So that's a form of trust. Now it's not the kind that we're talking about today necessarily. But trusts affect our lives in many ways. Another misunderstanding is a lack of understanding about the work involved in managing a trust. And so sometimes a misunderstanding can come up in the context of discussing who's going to be the trustee of the trust. You know, will the job fall to a family member who will be given the job to do it? And there can be a misunderstanding about how much work that actually is.
Nicole Garton 00:08:07 Well, do you want to talk about that? And because that's I think as practitioners, we've discussed the dangers of drafting beautiful trusts and then they're not administered correctly. Like what do you see as the biggest pitfalls around that?
Richard Weiland 00:08:22 The thing that's often misunderstood, you know, when you're thinking about a trust, for example, that's going to be holding property for the benefit of a family member. Perhaps this is a young person who can't legally hold money yet, or maybe it's somebody who is an adult but can't be trusted with large sums of money.
Richard Weiland 00:08:41 And so you're thinking about the trust in terms of this fund will need to be managed for a long period of time, and important decisions will need to be made about how to use the trust funds for the benefit of the beneficiary. Well, you know, if you leave that job of managing that trust and making all those decisions and the administrative role that comes along with that, if you leave that to a family member, it can impose a significant burden on them. And, you know, that may work okay or may work even well in some circumstances. If you choose your trustees wisely, and particularly if they have the ability to, if they have both the time and the inclination to manage such a trust. Often when I suggest to people that they perhaps should consider engaging or hiring a professional trustee to manage the trust like a trust company, the first thing that will come out of their mouth is, yeah, but a professional trustee will charge a fee for doing that. So what my clients sometimes misunderstand at first is that all trustees are entitled to charge a fee, and even a family member will probably charge a fee for acting as trustee.
Richard Weiland 00:09:49 The question is, how good of a job will they do right? So with a professional trustee? Yes, they charge fees, but they also know what they're doing.
Nicole Garton 00:09:57 So maybe a warning to our listeners who might be googling uses of trusts. Do you want to just talk about there's a lot of American terminology about irrevocable living trusts. And they've got a really different legal and tax regime. Do you want to just sort of give people the coles notes of why that doesn't apply to us, and how to be warned not to get misled?
Richard Weiland 00:10:20 Yeah, that's a great question. And it's very important because people do, of course, look on the internet for answers to their questions. Some degree that can be okay and it can get them a certain way. But you do have to be very careful with that. You know, the trust is a very flexible concept in different jurisdictions. It takes on different forms. Trusts are adapted to their circumstances, and those circumstances include tax laws.
Richard Weiland 00:10:46 So in certain states in the US, the probate process is experienced as highly cumbersome and very expensive. For example, attorneys in some states are entitled to charge fees for helping with an estate that is based on a percentage of the assets of the estate, and so that can get quite expensive. And so in addition to that, the US tax code makes it quite easy for a person to create a trust over which they retain full control. And that trust, if it's structured that way, it's essentially ignored for US tax purposes. So that combination, the cost of probate and the ability to easily create a tax neutral trust has meant that in the US, this idea of a revocable living trust has become a very common planning tool. In Canada, we have an entirely different set of rules. Our tax rules are different. One of our tax rules is that when a person transfers property to a trust, unless there's an exception that applies, that transfer will be considered a transfer at full fair market value. And so if there's a capital gain that's accrued on that asset, the transfer to the trust will result in tax becoming payable when it's transferred.
Richard Weiland 00:12:07 That's entirely different than the US circumstance. So for that reason those revocable living trusts that are very common in the US, they simply don't work in Canada. Where that's important is if you have Canadians who own the US property, and if they go to an attorney in the US and ask about how to deal with the asset, the attorney may tell them that they should use a revocable living trust because they're so common down there. But the attorney may not know about the Canadian tax rules. So the important thing there is don't take us planning advice with respect to US properties for Canadian persons, unless you're working with a cross-border advisor or the US advisor is also coordinating with their Canadian advisors.
Nicole Garton 00:12:52 And in the conference, one of the themes was that trusts are often set up for one reason, but often end up serving a very different purpose for families. Can you enlighten us on how that works?
Richard Weiland 00:13:07 Yes, absolutely. And I just want to at this section, I want to give props to my co-presenter in that session, Kirk O'Brien, because this portion of the presentation was really his work that put this together.
Richard Weiland 00:13:19 So what he was alluding to in this portion of the presentation is that, you know, again, trusts are a very flexible tool, so they are usually set up with a fair degree of ability within them to change the trust or to make changes. When circumstances change. So to give an example, there's certain kinds of trust that I think we'll be talking more about later, like a joint spousal trust. Now, this trust may be set up initially with the primary purpose of reducing probate fees that would be payable on death. So that might have been the initial motivation for setting up the trust. But then over time, the trust continues. The circumstances change. Maybe this was set up by a couple, but then one spouse dies. Now the surviving spouse may be left in a vulnerable position. Perhaps people may be taking advantage of them. So now we look at this trust that we set up originally for one purpose and we say, well, how can we use this now for a different purpose as a protective tool to help the family protect this surviving beneficiary? Maybe we bring in a family member as a co trustee to keep an eye on things.
Richard Weiland 00:14:32 So that's the idea, is just to think about how maybe the original purpose for the trust is still relevant, but maybe there are other purposes that can also be achieved.
Nicole Garton 00:14:42 So let's expand on that. So a common trust that families set up is what you referenced. I think it came out in around 2000 under the Income Tax Act. People are allowed to set up an alter ego or a joint partner trust, which has to be 65 or older. It's somewhat of a will substitute. Do you want to tell listeners what they are generally and what their fundamental uses are?
Richard Weiland 00:15:10 Yes. So I had mentioned earlier that in Canada there are tax consequences to setting up a trust and transferring property to the trust. And specifically if you have property like real estate that has appreciated in value since you bought it, so there's an accrued capital gain on the property if you then transfer that property to a trust. Generally speaking, that will trigger the tax. These types of trusts, alter ego trusts, and joint partner trusts are exceptions to that.
Richard Weiland 00:15:41 If they're set up within the parameters that apply to these trusts as set out in our tax rules, then you can transfer property to these trusts on a tax deferred basis. So essentially the property goes in at the tax costs. You don't have to pay tax when you set it up. The recognition of the capital gain won't happen until the person who set up the trust passes away. Or in the case of a joint partner trust at the time when the settlor is the person who created the trust and their spouse both pass away. And so essentially these are trusts that enjoy certain tax advantages. What they allow for is the assets that are put into the trust no longer form part of the estate of the individual or individuals who created the trust, and so they allow for planning to be done for the passing of those assets after the death of the person who created the trust, but without them going through their will and under their state. And there can be a number of benefits to that.
Nicole Garton 00:16:48 So what are those benefits?
Richard Weiland 00:16:50 Yeah.
Richard Weiland 00:16:50 So there's quite a number of them, you know, because the assets are not passing under the will. That means that they don't have to go through the probate process. And the probate process is essentially the process by which a will is proved by the court. But there's time involved in getting a grant of probate. And there's also in some provinces, like in B.C., there are probate fees that are payable in order to get a grant of probate, and those are charged as a percentage of the value of the assets. So that is essentially a tax. And if your assets are not going under your will, then you don't have to pay those probate fees. Generally speaking, these trusts are faster to deal with after the death of the person who transferred the property. They're easier to administer after death. They also provide more privacy. When you submit your will to probate, you have to list and disclose to the court all of the assets of the person who died. Well, that becomes a public document.
Richard Weiland 00:17:51 Anybody can search that in the court registry, and they can find out a lot of information about the person's assets. That's not the case with these trusts. So it increases privacy. Another major consideration is that, again, not in all provinces, but in some provinces, including here in British Columbia, we have legislation that allows for certain parties to challenge the terms of a will if they feel that they haven't been adequately provided for it. Our laws allow that to happen for the spouse of somebody who died and the children of somebody who died. And so that particular law allowing a challenge of a will does not apply to a trust that's set up. And and therefore, this planning can be used in order to prevent or to avoid such challenges where they're anticipated. So there's a lot of different possible benefits for these types of trusts.
Nicole Garton 00:18:45 So I'm hearing privacy. I'm hearing probate fee avoidance and also avoiding the time consuming task of doing that. I'm hearing creditor protection against potential spouses or children that aren't happy with the distribution.
Nicole Garton 00:19:01 But yeah, I think one of the things we've all noticed is clients don't always love these trusts, though, right? So like I think what we see when we've been practicing a long time, particularly as people get older, people like their life simple. They don't like a layer of administration. You know, they can be expensive to set up. Like what? When people are doing a cost benefit analysis about whether this makes sense for them? What are the downsides? And also do you want to talk about in BC we have a property transfer tax issue about getting assets in and we can't put registered assets in. So do you want to, I know this a lot, but do you want to maybe tell people what your downsides are?
Richard Weiland 00:19:46 Yeah, exactly. And these are the discussions that we have with our clients when they're considering this. Right. We have to weigh. So I ran through the list of all the potential benefits we also have to run through.
Richard Weiland 00:19:57 Well, what will this mean for your life and what are some of the costs and the downsides. So yeah, one of them is the initial cost to set up the trust. So establishing a trust like this, it means you have to work with your lawyer to create the trustee to get the terms right. Then you have to actually take steps to transfer the properties that you want in the trust to the trust. And it's more involved than making a will and therefore it costs more so it can, you know, the cost of setting up a trust like this can increase the cost of estate planning, sometimes by two, three, four times. And so that's the initial cost. Then once the trust is set up, the trust, even though it is tax neutral in terms of the transfer of assets to the trust, is considered a separate taxpayer under Canadian tax law. And therefore it does have to file a separate tax return every year. In addition to those things, there are, depending on the types of properties that you're putting into the trust, there can be additional costs.
Richard Weiland 00:20:57 You mentioned Nicole, the property transfer tax. So if you are transferring a real estate into the trust and you're going to register it in the trust, then there may be property transfer tax payable. And again this is not in all jurisdictions. But this is something that we do have here in BC. And Ontario has a transfer tax. It may or may not apply depending on the circumstances, and there may be ways around it or ways to plan around it, but it is a consideration. Absolutely, yeah. In addition to that, if the client's estate plan includes any charitable donations, making charitable donations on death is much easier and more flexible in a will as opposed to under one of these trusts. And so that's just another consideration that has to be worked into the mix.
Nicole Garton 00:21:46 And what about registered funds.
Richard Weiland 00:21:48 Yes. So if a client has a registered account like an RSP, a Riff, a TFSA, those types of accounts cannot be transferred to a trust while the client is alive. And so, you know, that requires, then, separate planning again to deal with those assets.
Richard Weiland 00:22:05 It is possible to, under those plans, to designate a beneficiary. And it is possible to to set up a trust like this, and then to designate the trust as the beneficiary of those funds on the death of the individual who owns those funds. But there are significant tax consequences to work through on that. And also designating a trust as a beneficiary is a little bit more complicated than designating an individual. And therefore financial institutions and or brokers may not be familiar with that process. And so it's probably something you'll need a lawyer to help with.
Nicole Garton 00:22:42 So let's talk about blended families. So as we know, blended families are where there's a couple and there are children that are not mutual children. So children from one or both earlier relationships. And we know as practitioners that blended families have much higher levels of disputes, incapacity and death. Let's talk about the risk in blended families and the spouse that dies first. If they leave everything to the surviving spouse and the surviving spouse decides to disinherit the children of the spouse that died first.
Nicole Garton 00:23:21 They don't necessarily have standing to vary that under our legislation, I think that's one of the risks. What do you use these trusts to address those issues? Do you use joint partner trusts? Do you use mutual will agreements? Do you use spousal trust? What do you do for blended family risk management?
Richard Weiland 00:23:41 Yes. It's a challenging scenario to deal with. You know, because most married couples or or common law couples that have been together for a long time, they will primarily want to benefit each other in their estate planning. But if they do simple wills that just leave all of their assets to each other, then you end up in a situation where, well, the the surviving spouse now is left with all of the assets of the couple, and their own children may have rights in respect of their estate, but the children of the spouse who passed away. Would not have rights, so that if the surviving spouse disinherited them, those children may not have any remedy. So yeah, the joint spells of trust can actually be a really great tool to address that.
Richard Weiland 00:24:30 It has to be approached with care and with caution. And but essentially the way that it would work is that you would have both spouses transfer their assets into the joint spousal trust. This is assuming that they're both over the age of 65. So they both transfer their assets into this trust. And then the trust is going to provide that as long as both spouses are alive or one of the spouses remains alive, the trust will be for the benefit of their spouses. And then it will say, then on the death of the second spouse to die, whatever's left in the trust at that point will now be divided between probably the children of both marriages in the shares and percentages that are set out in the trust itself, so that that gives now assurance to the spouses that whomever dies first, whichever the spouses dies first, they will have assurance that their children will be will not be cut out of the estate planning. You know, it does require that that care be used in structuring the trust, for example, that the remaining spouse can't just simply change the terms of the trust and take everything out to themselves.
Richard Weiland 00:25:38 So you'd have to put protections in there in order for it to achieve that goal.
Nicole Garton 00:25:42 So how would you contrast that to the other methods we talked about, like a spousal trust and a will or, or a mutual will agreement, which I know can be controversial with practitioners.
Richard Weiland 00:25:55 To start with the last one there. So mutual will agreement is the concept that each spouse makes a will, the benefits the other, and then benefits all of the children of both relationships. And then they have an agreement with each other that after the first spouse dies, the second one will not change their will. That type of planning is very inflexible because it means that after the first spouse guys, the second spouse essentially can't change their will, except perhaps with going and getting the agreement of everybody. So it really is quite inflexible. And there's also some, some legal, you know, the legal circumstances around that arrangement with the mutual Wills agreement is subject to challenge. And it creates uncertainties, in other words, that that almost invites litigation.
Richard Weiland 00:26:50 So it's not something that I like to use with my clients. I find that the trust that holds all the assets is a much more certain structure. The other one that you mentioned is one of the spouses can in their will say, “I'm leaving my assets to my spouse, but not for them to do whatever they want with. I'm creating a trust under my will for the benefit of my spouse, and then when they pass away, whatever's left in that trust now passes to my children, or maybe to all of our children,” so that that kind of spousal trust in a will can work. Well, I would say maybe I would say it really depends on the circumstances, but that spousal trust in a will might work better where one spouse has more of the assets, whereas the joint spousal trust can work well when the spouses are maybe on more or less equal terms. But there's of course a lot more factors to bring into the mix, including the probate fees and some of the other things that we talked about.
Nicole Garton 00:27:49 So my husband and I have a blended family, and I wanted to just use a mutual agreement because we're not old enough yet for the joint partner trusts. And I got a lot of pushback. I was finally able to prevail to get my practitioner to agree. But there was an advocacy period where I had to argue our case, why we felt that that was an appropriate remedy.
Richard Weiland 00:28:17 It tends to be something that practitioners feel strongly about one way or the other. So that doesn't really surprise me. I will say that I've been doing this for 25 years plus now, and I have not so far in my career created mutual wills in planning. I'll never say never, but so far I haven't found the right circumstance for it.
Nicole Garton 00:28:38 Wow. Okay, so let's talk about incapacity. So, you know, a lot of people think, oh, I need to get my well done. But as we know, as lawyers, it's just as important to have a power of attorney and a health care agreement in place.
Nicole Garton 00:28:52 But trust can also be an effective vehicle to deal with incapacity. Do you want to chat about that?
Richard Weiland 00:28:58 So, the trust can be a really great tool to deal with incapacity. So if you have one of these trusts that we're talking about, like the alter ego trust or the joint spousal trust. You've got this. These assets have been transferred into this trust. The person who set up the trust is often the first trustee. But if something happens to them where their health is declining, maybe they need some assistance in making decisions. The flexibility is there to maybe first add another trustee so they could have maybe one of their children or another trusted family member join them as a trustee or maybe a professional, trust company, become a co trustee with them. And that way they still have some power over decision making, but they're getting the assistance that they need. And so this can work really well alongside other tools like the power of attorney to assist clients who are maybe in that stage of losing capacity or they've fully lost capacity.
Nicole Garton 00:29:57 Let's talk about the many families who have vulnerable beneficiaries. So maybe Somebody's got a significant developmental disability or mental health diagnoses, or maybe they've got substance use disorder, or maybe they're just wild spender. Or maybe there's a concern that their marriage might be rocky. What are some strategies, some trust strategies people can use to deal with those issues?
Richard Weiland 00:30:26 The concept of a trust works really well for those situations because, you know, again, it's separating who owns and controls the asset from who gets the benefit of them. So it enables in these situations, you know, the child that maybe has the disability or that is having difficulty managing money. It allows a structure to be set up where they can receive the benefit from a gift or from funds without putting them in control. And so, you know, typically in those sorts of scenarios, what you're looking at is a what we call a discretionary trust where the trustee has some decision making discretion to determine when and how much money they pay out of the trust for the benefit of the beneficiary.
Richard Weiland 00:31:12 In cases where the beneficiary is somebody who has a disability, and particularly if they're receiving provincial disability benefits, the trust can be set up in such a way that it can be there to benefit them and to provide supports for them, but it won't diminish their entitlement to to receive those provincial disability benefits, as those rights would be diminished if they held the assets themselves so that it can provide a further benefit in those cases.
Nicole Garton 00:31:41 Let's talk about another big area of contention, like the family cottage. People often have, you know, a lot of emotion around this. Parents often have a dream that this will be held in the family by generations. Maybe that is or isn't realistic. What's your perspective on that and how trust might be a vehicle to help families?
Richard Weiland 00:32:07 Yes, like a trust can be a great vehicle to use for something like the family cottage where again, you're trying to separate who's going to own or who's going to control and manage the asset from who's going to benefit from it. The thought that that structure is going to prevent you from all problems and disputes relating to the property or to the assets that are in the trust is, of course, to black and white.
Richard Weiland 00:32:34 And so the question can come up as in if there's a family law claim against one of the beneficiaries of the trust, does the trust give 100% protection? Well, I always say in family law nothing is 100% in family law. You know, there's a lot of complications. And a court will consider all of the facts of the situation and make a ruling. A trust can provide perhaps some protection against claims in those circumstances, but it's hard to speak in absolutes about them. In addition, when you're speaking about things like a family cottage, often the issue is that you're going to run into conflicts between family members. So it almost doesn't matter what legal structure you put it in. You could still have fights over, like who gets to use it on Thanksgiving weekend.
Nicole Garton 00:33:23 As a trust company, we often are trustees of what you reference to our discretionary trust. So trusts for beneficiaries where the instructions say the trustee can release as much income or capital as it deems appropriate for the benefit of the beneficiary.
Nicole Garton 00:33:43 Often it's much preferred that there's an accompanying letter of wishes about how the settlor, the person who set up the trust, wishes that discretion to be exercised. What's your experience with Letter of Wishes and what do you think makes a good letter of wishes?
Richard Weiland 00:34:00 I love using letters of wishes. I love having my clients make letters of wishes. So the concept here is that the trust itself is going to give a great deal of flexibility to the trustees. It's almost going to say like, “pay out as much as you want, whenever you want to this person or to do anything for their benefit.” It's framed very, very broadly. So what the letter of wishes does is it doesn't narrow the scope of that discretion that can be exercised, but it gives guidance to the trustees as to, well, when the person was creating the trust, what did they intend? How would they want the trustee to approach decision making under that broad discretion that's been given to them? So the great thing about the letter of wishes is I let my clients draft it themselves in their own language.
Richard Weiland 00:34:50 Sometimes I'll edit it a little bit afterwards, but they could really put into their own words what's important to them, and they can express it in terms of values and what they would consider to be in the best interests of, let's say, their child or the other beneficiary of the trust, so they can get into the real nitty gritty about, you know, I would love to see the trustee provide assistance to my child in purchasing their first home. And, you know, I want the maximum to be used for that to be X or Y, whatever amount they say they can get into, like assisting the child with starting a business or education, like what schools they would prefer or what schools they would not prefer. They can get really very specific with them. And because it's not actually a legally binding document, it's just giving guidance. It's much more flexible in terms of how they can structure that document.
Nicole Garton 00:35:40 One of the things you talked about in your conference session was the gap between planning and implementation.
Nicole Garton 00:35:45 So, you know, lawyers often think about tax and flexibility, but then beneficiaries are living that later. So maybe that's the letter of wishes. But what do you do when a trust doesn't work anymore or circumstances have fundamentally changed?
Richard Weiland 00:36:03 Yeah, we do encounter this fairly frequently in practice. Sometimes the trust will be more specific and say, you know, for example, you know, on a certain date this has to happen. Or maybe all of the trust property must be distributed within two years or three years after I pass away. You know, that may have seemed reasonable at the time that the trust was being created, but then the circumstances have since arisen so that, you know, maybe it would be, you know, maybe there's now litigation that's arisen and it's slowed everything down, and now it's just not possible to distribute everything within that time period. And so, yeah, we do encounter it. You know, generally speaking, it is possible to build into trust some flexibility, for example, a power to amend the trust.
Richard Weiland 00:36:52 But you do have to be careful with that because you don't want that power to be too broad either. So it's hard to kind of answer fully like what happens in the circumstances. It's just a situation where advice is needed, essentially in determining what options are available in order to deal with the changed circumstance. Sometimes what happens is there's a power to amend the trust and it can be amended. There is also the court has a power to amend a trust, and so it's possible to make an application to the court to amend a trust. Or maybe something can be done with the agreement of all of the parties involved. It really depends upon the circumstances.
Nicole Garton 00:37:33 There's one occasion we had to do a credit application. It was a momentous decision scenario similar to Helen Lowe, a well-known practitioner, that sort of set the precedent with the trust for the actually the white spot family. But there was a fundamental decision that hadn't been contemplated and we had to go to court to get caught. I guess thoughts are put into that.
Nicole Garton 00:37:56 So there are things you can do, although, you know, it's expensive and time consuming to have to do that. The other thing I just want to mention is timelines with trusts. So they don't exist forever as we know. So you know, in BC we do have the rule of perpetuity. There's sort of the 80 year rule. There's the 21 year rule. Do you want to tell people what those mean and how they impact trusts?
Richard Weiland 00:38:22 So the one fundamental concept that you touched on there is that, generally speaking, a trust can't exist forever. So there is a limit on how long they can exist. That's governed by something called the log. It's perpetuity. It's old language. It's going to limit how long the trust can exist. Very often in trusts created in BC, you will see a maximum period of 80 years worked into a trust deed because that's what our law in BC says, that as long as everything is going to end within 80 years, then the trust is fine.
Richard Weiland 00:38:54 But there's another date that you also reference, which is the 21st anniversary of the trust. And now this doesn't apply to those alter ego and joint spousal trusts that we talked about before, at least not initially, but other types of trusts. Every 21 years, they're going to be considered to have sold and then repurchased all of their assets at fair market value. So this is a forced payment of capital gains tax essentially every 21 years. And so if clients have a trust that was created, you know, 15 plus years ago, they should ensure that they're getting advice as to: does this rule apply to our trust? What would happen if we didn't do anything? And is there any planning that we can do in order to minimize the tax impact?
Nicole Garton 00:39:43 Let's do a lightning round of cool and unusual trusts. Tell us what an employee ownership trust is. Why would somebody use one of those?
Richard Weiland 00:39:51 This is fun. The employee ownership trust. This is a new kind of trust that was introduced in our tax legislation a couple of years ago.
Richard Weiland 00:39:58 What it allows for is for a business owner to sell their company to the employees of the company and the employees, rather than owning it all in their own names. It's held for the employees under a trust, and there are some exciting tax benefits that are available for the structure, including a $10 million exemption on capital gains. So this can work out very well for the business owner, who's looking to get out of their business and pass on the ownership to the employees of the business.
Nicole Garton 00:40:29 So I understand it's more common, I think in the UK, maybe even in the US, but relatively new here. Is that right?
Richard Weiland 00:40:37 Yeah, exactly. The legislation to provide for these trusts in Canada, it came into effect in 2024. Originally it was temporary in terms of the tax benefit. Now it has been made permanent. And so there is definitely growing interest in these trusts here in Canada.
Nicole Garton 00:40:52 Okay. So what's a family governance trust?
Richard Weiland 00:40:55 Oh family governance trust. This would be a trust that you would see definitely more often in wealthy families.
Richard Weiland 00:41:01 So this would be a trust in a family that has a number of operating companies and businesses that is typically going to sit above the businesses and is going to provide for voting control of all of the businesses, but not necessarily deal with the value of the business. So what a family governance trusts provides for is a decision making structure that ensures that whatever happens, if the founder of the business passes away, that there will already be a robust structure in place to allow for the succession of decision making with respect to the underlying businesses. And so a trust like this will often be accompanied by, you know, a more complex advisory board structure. There might be a letter of wishes that accompanies it that sets out, you know, a lot of the permutations where if this happens, then I want this to happen and and so on and so on. So they can be quite involved, but they can be a really useful tool for succession planning.
Nicole Garton 00:42:09 So when there were sort of the big succession issues with the Rogers family, they were in litigation with each other.
Nicole Garton 00:42:17 I wrote a blog post on that. And one of the sort of downsides of litigation is people are allowed to pull pleadings and things. And one of the cool things I was able to pull from the Ontario registry was Ted Rogers. When he passed away, he actually had seven different wills, and one of his wills was actually the governance structure of Rogers Communications. Like this multi-billion dollar company. And Scotia Trust is actually the trustee, and it sets out the parameters of a board of directors, which actually has control over this extremely valuable public company. It was very interesting to do that public record. So there you go.
Richard Weiland 00:43:04 There you go. Yeah.
Nicole Garton 00:43:05 Downsides of litigation. Other people can find out about your business and write about it on the internet. Okay. So, two community trusts: what's a charity business trust and what's a community land trust?
Richard Weiland 00:43:18 A charity business trust is a structure that allows a registered charity to essentially benefit from a business and receive the income from the business, but still stay within the restrictions in our tax Act that say that a registered charity shouldn't carry on most businesses directly.
Richard Weiland 00:43:37 So that's the charity business trust at its core. A community land trust is a structure that typically holds land for some greater community benefit, like keeping housing affordable. And so it might be working in association with co-ops. But essentially at its core, it's designed to hold land and kind of keep it out of the market in order to keep land affordable for Quebec.
Nicole Garton 00:44:03 Co panellist Andre Barrette. He mentioned an assisted living trust. I think it's an idea. I don't know if it exists yet but what is that?
Richard Weiland 00:44:12 Andre talked about that in our presentation, and I understand that it's a concept that is gaining traction in Quebec where he's from. And although I haven't encountered one of these myself, the idea is that it's a trust to set up for the specific purpose of providing funding for a senior who's going into an assisted living residence. I think there's maybe some different ways that it can be set up, but that's at its core. It's funds set aside to fund the costs of assisted living.
Nicole Garton 00:44:41 So can I leave money in trust for my cocker spaniel, Henry?
Richard Weiland 00:44:45 Maybe. Maybe is my answer. So usually in most jurisdictions, if you're thinking of leaving financial benefit for your pet, it's done in a more simple way that doesn't involve a trust. So typically what you're doing is making a gift to the person who is going to be caring for the pet. Because a pet is not a person who can take money into their, you know, they can't open a bank account, right? There is a possibility of creating what's called a non charitable purpose trust. That could be for the benefit of animals, but they have a limited lifespan and there's some complexities to setting them up, so they're not often used. Although I have heard of them existing where there's larger sums of money being left, for example, for the care of horses.
Nicole Garton 00:45:33 Someone's at home and they're listening to this, and maybe they've got a blended family or disabled child. How do they find the right professional to advise them and help them set up a trust?
Richard Weiland 00:45:45 Yeah, I think, you know, it really depends on where they are and what their circumstances are.
Richard Weiland 00:45:50 Most people have some connection to some professionals. Right. They may have an accountant. They may have a financial advisor. They may have a lawyer. So I would start with the people that you know and then start asking questions and then ask for recommendations to other professionals where you run into the limits of what your existing professionals can provide for you. I think that's probably the best way to go about it. Generally speaking, the people that you work with are going to be glad to connect you with other knowledgeable professionals.
Nicole Garton 00:46:20 Do you want to mention the STEP directory? That's another thing people can do.
Richard Weiland 00:46:24 Yeah, yeah. Thank you. That's STEP, as we had mentioned that organization before. And it's an organization that both you and I, Nicole, give some of our time to. And if you go on the internet and go to step.org, there's a tool on there that will allow you to search in your area for people who have this designation as a tip or trust an estate practitioner.
Richard Weiland 00:46:49 And it's a good way of kind of if you don't otherwise have people that you know in your area, maybe you've just moved, it'll get you a starting point in terms of people who are knowledgeable on trust in the States.
Nicole Garton 00:47:02 And they make you jump through a lot of hoops to get that designation.
Richard Weiland 00:47:06 So yeah, usually you can be quite assured that if somebody has that designation that they will know what they're talking about, and they will also be connected with other like minded professionals.
Nicole Garton 00:47:17 So this is, you know, a complex topic although it has potential benefit for many, many people. Is there. Is there a takeaway you want to leave for people, something concrete that they can remember.
Richard Weiland 00:47:32 Yeah, I guess I just want to convey that, you know, I think people know this at some level, but your estate planning is just so crucial to protecting your family, protecting your legacy. And there are so many different options and tools available, including, like we've talked about today, trusts of all kinds.
Richard Weiland 00:47:50 And they can all be customized to like, fit your circumstances. Exactly. So I guess what I would really say the takeaway is please don't rely on – you could start with – but don't rely on estate planning advice from your neighbor, or from Google or from ChatGPT work to find qualified professionals who will work with you, who will try to understand your situation and then really recommend to you the the exact planning that will fit your needs in your circumstances.
Nicole Garton 00:48:20 yeah. We refer to that as the Tim Hortons Coffee Time. Yes. Be careful with what you might hear over coffee and Tim Hortons. It may not be correct or apply to you always. Particularly before you put adult children on title to anything. Don't let someone at Tim Hortons tell you to do that. Make sure you get legal and tax advice.
Richard Weiland 00:48:40 Yes, take it with a grain of salt or a packet of sugar, as the case may be.
Nicole Garton 00:48:46 Richard, thank you so much. This has been incredibly comprehensive and helpful, and we really appreciate your time.
Richard Weiland 00:48:52 My pleasure.
Nicole Garton 00:48:57 Richard. Thank you. You took a session built for professionals and made it useful for families at the kitchen table, which is exactly what we hope for. Here's what I hope our listeners carry with them. A trust is not a status symbol. It is a set of instructions and a person you trust to follow them. It can protect you if you become incapable. It can protect a spouse and a second marriage. It can protect a child who needs extra support, and it can carry your values forward long after you've signed it. but a trust only works when it fits your goals, fits with the rest of your plan, and is kept current. The structure is not the starting point, clarity is. Decide what you want your plan to do and then let the right structure follow. You can find Richard Weiland at ClarkWilson.ca. We'll include his contact details and links in the show notes.
Nicole Garton 00:49:52 And if you would like a clear place to start on your own plan, our free
Peace of Mind Estate Planning Starter Kit is at estateclub.ca/starterkit. It includes a checklist of core estate documents and a worksheet to help you get clear on your values before you meet with your professionals. And thank you to our listeners for joining us on your estate matters. If you found this episode helpful, please share it with someone who may benefit from it and join us next time for another practical conversation about estate planning, estate administration, and legacy in Canada. This episode is for general education only and is not legal, tax or financial advice. Rules vary by province and territory. Please speak with your own lawyer, notary or tax professional about your situation. This podcast is for informational purposes only and should not be considered individual, legal, financial or tax advice. Make sure to consult the advisor of your choice to advise you on your own circumstances.
Nicole Garton 00:50:49 Thank you for joining us for this episode of Your Estate Matters. If you like this podcast, make sure to follow it on your podcast platform of choice.
Nicole Garton 00:50:57 Whether you're planning your own estate or you're acting as executor for somebody else's heritage, trust can help partner with Heritage Trust to protect your family, your assets, and your legacy. If you'd like more information about Heritage Trust, please visit our website at HeritageTrustCompany.ca.
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