# How Many Trusts ?



## ca5ssivellaun4us (2 mo ago)

We have 2 grandchildren. They are going to be the beneficiaries named in our will. Our approach is quite standard - all educational expenses are to be paid out on their behalf and whatever is left is going to be split between them when they reach the age of 25. The question is - can 1 trust suffice for both kids or does each one require a trust of their own? I ask since it's obviously better to keep the trustee fees to a minimum.


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## Jimmy (May 19, 2017)

You can have both as beneficiaries from one trust which might be easiest too from an admin and taxation pt of view. I know a little being a beneficiary & a course awhile ago in Trusts and Estates.


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## Jimmy (May 19, 2017)

From another view an RESP would be best for taxation purposes for the education part if you dont already have one, they are allowable for grandchildren. Again income earned in Trusts is usually taxed at the highest tax rates (in ON anyway) and a return has to be filed each year plus fees for the trust manager .


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## AltaRed (Jun 8, 2009)

I agree RESPs should be filled where possible but they have limited financial room and are intended specifically for secondary education purposes. If one is bequeathing $1M to the two grandchildren, a trust is the only way to go until the beneficiaries reach at least adult age, or in this case 25 or so when they may be less likely to throw it away. Beyond that, the grandchildren may already be educated and on their own before the OP has the audacity to die as well.


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## ca5ssivellaun4us (2 mo ago)

<< income earned in Trusts is usually taxed at the highest tax rates >>

I'm exposing my ignorance here, but I was under the impression that as long as the money is in the Trust, no taxes are applicable. I thought that taxation only comes into play when funds are taken out of the Trust for - initially at least - educational purposes. In that instance, say the kid received 5000 for the year to offset education costs, that would be considered a part of his income when he files his tax return.

My second question concerns the income earned in the Trust. I would have assumed that the only income earned in the Trust would be on GIC's as with any other investment types there is a risk of loss and that's a risk that I wouldn't want to undertake.


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## AltaRed (Jun 8, 2009)

There are many forms of trusts. RESP is a specific type of trust (not unlike a RRSP/RRIF) where there are no taxes payable on income and capital gains until withdrawn (original contributions in a RESP excepted). 

Family and testamentary trusts are different animals entirely in that income and cap gains earned each year are taxable to either the trust or the beneficiaries depending on type of trust and/or how the trust is managed.

For a family trust Find out how tax works with family trusts


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## Jimmy (May 19, 2017)

to add as an ex

Trusts are taxed on income w rules similar to personal taxation. Say the Trust earns $100,000 and pays out $90,000 to a beneficiary so it has $10,000 in income . It has to file a return for the $10K . Beneficiary gets a T3 for $90,000 of income to declare.


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## ca5ssivellaun4us (2 mo ago)

OK thank you - that is quite clear now. As an aside, I am left wondering what goes into a trust of this type - i.e. one that is specifically for the grandkids such that their educational expenses are taken care of and where they receive what is left in the trust at say the age of 25. Stocks, bonds, GIC's? Do I make that choice in my will or is that a part of the fiduciary duty of the trustee?


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## AltaRed (Jun 8, 2009)

Your Will should contain a clause on the goals and objectives of the trust assets but not be specific on products. The trustee needs enough flexibility to respond to market conditions. The clause could be a 1-3 sentence IPS (Investment Policy Statement) along the lines of:
1. low cost (MER) broad based passive index portfolio balancing preservation of capital as a primary goal with growth at a reasonable price, such as a traditional 60/40 equity/fixed income balanced portfolio
2. no boutique or alternative investments

The statement above is powerful enough on its own. One could substitute "conservative" versus balanced, "growth" vs balanced, and/or a statement to emphasize "income focused to generate enough recurring income to meet a meaningful portion of annual disbursements".

You cannot be all that more specific because your portfolio size at time of death 20 years from now may look very different from what it is today when you write your Will and/or market conditions may demand asset allocation adjustments.

An Aside: Everyone should have an IPS providing "broad guidance" to a POA that may be called upon to manage one's affairs for many years if they become incompetent. The fiduciary duty on aset management is essentially the same in either case. The biggest danger is not providing any IPS guidance at all. The second largest danger is for DIYers to be too prescriptive. No one will (should) take on an obligation that is excessively prescriptive.

Edit: Spelling


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## ca5ssivellaun4us (2 mo ago)

That was terrific! Thank you! Just what I had to know. Do you think that limiting the trustee to investing in GIC's is "excessively prescriptive"? With the way that markets are today, I'm apprehensive that we might see a replay of 1929 and who wants to wait 10 years to recover from something like that? Should an event like that occur, it would defeat the whole purpose of the trust whereas going the GIC route allows you to sail through relatively unscathed. Of course I realize that the downside to this conservative approach is missing out on a potential bull market but that's a tradeoff I'd be willing to make.


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## AltaRed (Jun 8, 2009)

IANAL but I doubt any trustee would take on a fiduciary duty with those limitations. What if GICs return to an overall average of 1% interest rate? You need to have a discussion with the lawyer preparing your Will on what could be reasonable constraints/boundary conditions.


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