Legal Brief for September, 2020

What is a Living Trust?

I am often asked by clients when they are doing a Will with me whether they should also set up a living trust or a family trust.  These are terms that people generally have come across while doing online research using U.S.  based websites.  I respond to my clients by advising that these arrangements are not commonly used in Canada, and would likely only be of relevance if they were tremendously wealthy.  People tend however to be curious about what the concepts include, so here is brief overview of what is involved.

A "trust" in general terms involves someone owing property not for themselves but on behalf of someone else.  This can happen with something as basic as a bank account, when for example a parent sets up an "in trust account" for educational purposes for a child.  It can also occur in the administration of an estate, when an executor becomes registered as the owner of a property at the Land Titles Office.  That is a temporary status, and the executor eventually sells the property on behalf of the estate or transfers it directly to the beneficiaries of the estate.

A living trust (a family trust is just another way of stating the arrangement) involves a person taking some or all of their personal assets, such as their house, or other real estate properties, or their car or other chosen assets and transferring ownership to a person or institution that is acting as the trustee.  The trustee is then the party that controls what happens to the asset according to guidelines or directions provided at the outset by the person setting up the trust.

The living trust can be designated as a revocable trust, which means that changes can be made to the status of the assets while the person setting up the trust is alive, such as disposing of assets or adding or removing assets.  The trust can also be designated as an irrevocable trust, which means that the trust is "locked in" as far as the disposition of the asset and its ultimate destination or use cannot be changed.

It appears that the relative popularity of setting up living trusts in the U.S.  arises from a desire to save on probate fees that might otherwise apply to assets being distributed pursuant to a Will as part of an estate administration, or for tax reasons.  It is likely that many states in the U.S.  have significantly higher probate fees than apply in most Canadian jurisdictions, including Alberta.  My standard advice to clients asking if they should do something to try and avoid probate fees is that you will likely spend more money (and time) on your attempts to create a plan to reduce your probate fees than the actual amount of probate costs your estate would pay if you had not taken the "cost saving" steps.