Sometimes when my husband and I talk to each other about work, I see a glazed look in his eyes. This is generally followed by repeated nodding and several ‘Uh Huhs’. I am never surprised if someone has a similar reaction to the subject of Trusts – Trusts predate many of our modern legal concepts, and the language of trust law is unique.
Too often though, lawyers, accountants and other planning professionals let such reactions slide, leaving clients to wonder whether they truly understood everything they were advised of. To avoid this, I’ve put together a pocket dictionary on the subject:
Trust – A Trust allows the owner of an asset (the Settlor) to deliver legal title of the asset to another person (the Trustee), so that the asset can be held and managed for the benefit of a third party (the Beneficiary).
Settlor – The Settlor is the person who owns the asset to begin with. This person settles the asset (gives legal title to it) upon the Trustee.
Trustee – The Trustee holds legal title to the asset, but this role does not give him or her a beneficial interest in the asset. The Trustee must hold, manage and use the asset for the Beneficiary.
Beneficiary – The Beneficiary is entitled to the use or benefit of the assets, but only in accordance with the terms of the trust document; he or she does not hold the assets in his or her own name.
Inter Vivos Trust – This is a type of trust set up by an individual that takes effect during his or her lifetime.
Testamentary Trust – This is a type of trust set up by an individual through their will, to take effect after his or her death.
Joint Partner Trust – This is a type of trust set up by an individual who is (or whose spouse is) over age 65. During the lifetimes of the Settlor and his or her spouse, they are the only two people entitled to benefit from the assets of this type of trust.
Disability Trust – This is a type of trust set up to protect the assets of an individual who suffers from a disability. Use of a Disability Trust can prevent disabled individuals from losing government benefits in the event they inherit money or settle a lawsuit in their favour.
Discretionary Trust – This type of trust permits the Trustee to determine, in his or her absolute discretion, when and to what extent assets of the trust will be distributed to the Beneficiaries. The Trustee cannot be compelled to pay anything to any Beneficiary if he or she does not choose to.