Author: Sarah Nadon - Law Student
Edited By: Ryan Carson
A trust is a legal arrangement which involves a settlor transferring legal title to assets to the trustee to hold for the benefit of one or more people also known as the beneficiaries. The beneficiaries may include the settlor. The terms of the trust are typically set out in writing. A trust imposes many duties on the trustee and failure to fulfil those duties may render the trustee personally liable. It is important to remember that a trust is not considered to be a legal entity, instead the trustee carries out the duties of the trust in his own name. Trusts are unique and set themselves apart from contracts and other legal relationships.
Trusts can be created during an individual’s life (inter vivos trust) or upon their death (testamentary trust). The terms of an inter vivos trust are typically set out in a signed document by the settlor. Within that document, it will appoint the trustee or trustees and provide directions on how assets should be held, managed and distributed to the beneficiary. Inter vivos trusts also allow for the settlor to explain any ambiguous provisions in the trust. A testamentary trust is typically set out in the will of an individual and only comes into effect when the individual who made the will dies.
Why do people create trusts?
Trusts are a mechanism for dealing with property and are flexible enough to be used in a wide range of circumstances including estate planning, business succession planning and charitable purposes. Trusts can be used to eliminate probate fees and can provide confidentiality between the settlor and the beneficiaries that otherwise might not have been achieved.
Formalities
Trusts are capable of being created in multiple informal ways. There is no official language that must be used when creating a trust however, a trust must be in writing.
Appointment of the trustee
The testator or the settlor has to appoint the initial trustee in the trust instrument. The trustee is required to have legal capacity, be the age of majority and be capable of owning property. Once the trust is settled, the settlor no longer has a say in who will act as the trustee. Under the Trustee Act, RSO 1990, c T23, no one is forced to become a trustee but once that role is taken on, they are responsible for executing the duties of a trustee.
Duties of a Trustee
The trustee is to manage the trust property and act in the best interest of the beneficiaries. The most important thing for a trustee to remember is that the assets do not belong to them and that they are being held in trust for the beneficiaries. It is also important to note that the trust assets should not be mixed with those of the trustee.
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