Photo of Dennis L. Nerland, QCBy Dennis L. Nerland, QCJuly 05 2017
Tax & Estate Planning

Creating an Effective Trust

Click here to view in PDF.

The most important decision you will have to make about your trust is the choice of the trustee(s). A trustee’s powers begin when the settlor transfers property to the trust, creating financial resources on the trust’s balance sheet. The trustee’s powers remain in force until the trust is dissolved.

Whether you choose an individual or corporate entity to be the trustee, the trustee’s character and experience can spell success or failure for the trust and its stated objectives. The trustee must have unquestioned integrity and a genuine understanding and concern for the welfare of the beneficiaries. There must be an absolute willingness to serve. The trustee must also be available most of the time. Such an office requires its servant to have a broad life and business experience, as well as being untarnished by possible questions concerning past neglect of duties or incompetence.

Who exactly is the best person to administer your trust? This is usually a very personal decision. Who is better served to be a trustee – a relative, a friend you know, or an officer of a professional trust corporation?

Many say that an individual personally known to you, who is empathetic and understanding, is the best choice. A family member or a personal friend may possess all the needed qualifications, including investment expertise, accounting skills, and tax know-how. The choice of someone close to both the settlor and beneficiaries often means a trustee with personal knowledge of the beneficiaries’ individual idiosyncrasies, needs, strengths, and weaknesses.

On the other hand, professional trustees absolutely know the intricacies of trust management, and therefore what works best in each situation. They are motivated and spend time on your investments and the general management of your property. Because they are unlikely to be swayed by emotional requests made by beneficiaries, being insulated from the personal side of life allows them to make decisions on a strictly professional level, often benefiting the trust’s balance sheet in the long run.

Unlike a professional trustee, a personal friend may carry out a trustee’s duties for little or no payment, but these “savings” are worthless if the individual is unqualified or harbors a hidden agenda. Although personal knowledge and opinions about beneficiaries can be a great help, it can also result in prejudicial decisions.

There are two strong reasons in support of choosing a professional trustee. They are regulated by a statute. With the company’s reputation at stake, a professional trustee is unlikely to mismanage your money and investments. A range of trustee duties require a depth of knowledge and expertise of investing, accounting, and law. These are the skills a professional trustee is able to provide immediately, as he or she will have ready access to professional investment advice.

Any established trust company has trained staff members who combine skilled advice with a sympathetic ear, rendering detached judgements that are unclouded by personal bias. A professional corporate trustee offers continuity, stability, and reliability with ongoing availability.

One possible drawback to using a major trust company is the sheer size of such institutions these days. You don’t want your trust to be just another file in some rarely-seen filing cabinet. However, there are ways to minimize such problems. If participation of a family member in the trust management is considered important, you can name a relative or friend as co-trustee alongside a professional trustee. Three trustees are generally recommended to help ensure independence and prevent conflicts. A surviving spouse can be named to serve in that joint capacity as well.

Invitation for Discussion:

If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Tax group at Nerland Lindsey LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

Related Insights

  • Canadian Companies Need to Assess Their “Foreign Private Issuer” Status for SEC Reporting Purposes
  • CSA Staff Says Most Coin/Token Offerings Are Securities
  • Letter of Credit Security and the “Autonomy Principle”
  • OSC Provides Guidance on Hostile Take-Over Bids
  • Trust Residency Post-Fundy
  • Coming Soon – Mandatory Privacy Breach Reporting and Record-Keeping
  • A Reminder for D&O’s re: Civil Liability for Secondary Market Disclosure
  • Canadian Disclosure Requirements for US Marijuana Issuers