Testamentary And Incentive Trusts

In Ontario, beneficiaries are entitled to take their inheritance when they turn 18.

If you’re leaving large gifts to children, you may not want them to have a large sum of money at age 18. In this case you can set up a testamentary trust in your will that says they only inherit at age 21 or 25 for example. You designate your trustee or your executors to be responsible for managing those funds, setting aside the bequest in a separate investment. Instructions would be set out in the will as to how to manage the trust.

Usually it is discretionary in terms of how much income they should pay out, although they can’t hold on to income forever. There are laws in Ontario that don’t allow you to accumulate the interest for more than 21 years. You can also give the trustees discretion on how to use the capital or the principal funds of that trust during the child’s life before they reach the specific age, in case the child needs the money for education or for other purposes for his or her benefit.

A testamentary trust is a way of ensuring that your children are reasonably mature before they inherit an estate. There are also tax benefits to having the trust set up. Because the trust is a separate taxpayer, there are income splitting opportunities between the trust and the beneficiary. You can split the income earned by the trust and the beneficiary can save quite a bit of tax.

Sometimes clients want to use an incentive trust in their will. Perhaps, they have a child that they feel is not living up to his or her potential. It could be an adult child who dropped out of school or is having trouble getting a career going. The client wants to be able to say, “You know, we’re going to leave you this sum of money but we’re not going to give it to you right away. We’re going to leave it within a trust, but if you reach a particular goal then you’ll get the money.” The courts will recognize this form of trust provided the conditions made on the beneficiary are reasonable and not contrary to public policy.
If you, or someone you care about, is dealing with estate law issues in the Markham, Ontario Region, contact Charles B. Ticker for a consultation.

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This article is taken from a May, 2009 interview with Charles B. Ticker, Estate Lawyer with Charles B. Ticker Law Office, a Markham, Ontario Wills and Estate Law Firm. This article and website provide general information on legal and related matters and should not be relied upon as legal advice. If you require legal advice, you should consult and retain qualified legal professionals in your area to advise you about your particular situation and the law in your jurisdiction as laws vary from province to province, state to state and country to country.