Estate Planning

A trust fund is designed to hold and manage assets on someone else's behalf, with the help of a neutral, trusted third party. Its function is to defer taxes while protecting your beneficiaries from themselves or others by placing explicit limits on how, when, and by whom your assets may be accessed. Trusts can be set up during your life or through your estate to take effect at death. They are one of many tools we may recommend to give you greater security and peace of mind. Trust funds include three parties: a grantor, who funds the trust; a beneficiary, for whom the trust fund is set up – often a child of the grantor; and a trustee, who manages the fund’s assets and executes the trust based on the grantor’s direction. This trustee is often a family member or a financial institution. Your BMO Private Wealth professional can introduce you to a trusted and specialized professional from BMO Trust Company or they can also help you allocate your assets in the best way.

Trusts have several benefits. A lifetime trust removes assets from your estate so they are not subject to probate. It may allow you to carry out philanthropic wishes, can reduce or defer income taxes, protects assets from marital property division in a divorce, and protects your beneficiaries from themselves or others by placing explicit limits on how, when, and by whom your assets may be accessed. Testamentary trusts set up in a Will can provide lifetime income and financial security to one or more beneficiaries. In short, they offer a way to protect your money in the long term and ensure it flows to the people and causes you intend to support.

Registered assets (e.g., Registered Retirement Savings Plans (RRSP), Tax-Free Savings Accounts (TFSA), etc.) and life insurance contracts that designate a beneficiary other than your estate will be transferred directly to the designated beneficiary on your death instead of forming part of the assets governed by your Will. You’ll want to consider the tax and liquidity implications of registered assets that are taxable on death. If the beneficiary of the registered account is not the same as the beneficiaries of your estate assets, your general estate beneficiaries will end up paying the tax on your designated registered account from their share. Your BMO Private Wealth professional will help you determine your estate tax liquidity needs. Registered assets (e.g., RRSPs, TFSAs, etc.) and life insurance contracts that have a designated beneficiary other than your estate will be transferred directly to the designated beneficiary on your death instead of forming part of the assets governed by your Will.

Also, certain assets that you co-own with one or more others might not form part of the assets governed by your Will, depending on the nature of your ownership interest and how your intentions have been documented. Restructuring the ownership of an asset may trigger immediate taxation and have other implications (e.g., control, creditor exposure, family law issues, etc.). So, it is important to consult with an estate planning expert before making any changes to the beneficiary designations or ownership structure of your assets.

Your child and their spouse may execute a prenuptial agreement or other form of marriage contract or you may provide a loan to them. If providing a loan to them, it is important to obtain proper legal advice to ensure the loan will be legally enforceable. Another option is to place the house in a trust with maintenance funds for your child’s benefit, although this requires careful structuring and may have additional administration annually.

Having an up-to-date power of attorney for property in place goes a long way to protecting you and your money if you lose capacity. Always appoint someone you trust completely and who can get along with your other decision-makers. Your attorney has control and access to your money and is expected to use your assets only for your benefit and best interest. It’s easy to think your power of attorney document will never be needed or acted upon but, when it is, careful planning pays off. One option is to consider a professional from BMO Trust Company who is experienced in managing financial affairs for individuals and corporations, including setting up trust accounts, where the only agenda on the table is yours.

While there are various rules and formalities that must be followed to create a valid Will, there is no requirement that it be prepared by a lawyer or professional. Although it may be tempting to use a template Will kit or try to draft a Will yourself, there are potential pitfalls of preparing your own Will and advantages of having BMO Private Wealth estate planners help with the process. Preparing a Will requires knowledge of estate and family law, tax, and real property and also calls for experience in dealing with other matters such as business succession, family relationships, and financial analysis. We will help you through the entire estate planning process to help maximize your estate value, minimize risk and taxes, and develop a strategy to help you attain your legacy goals. Although the costs of retaining a lawyer may be a deterrent, the cost of litigation, interpretation, or rectifying mistakes in your estate down the road often far outweigh the cost savings achieved by preparing your own will.

The terms of a testamentary trust are defined in your Will and only comes into effect upon your death. This estate option holds an inheritance for your intended beneficiary in separate ownership rather than paying the inheritance to them directly. This allows you to protect the inheritance and your beneficiary from harm and to control the timing and dispersal of estate assets. The assets held in the trust are invested and managed by an individual or financial institution you appoint in your Will to be the trustee for the trust. The trustee’s role is to distribute the income and capital over time to your beneficiaries according to your wishes as outlined in your Will.

Different types of testamentary trusts exist for different objectives, such as a spousal trust, qualified disability trusts, minor child trust, among others. Your BMO Private Wealth professional can introduce you to a Trust Officer at BMO Trust Company to determine if a testamentary trust could help you attain your estate objectives.