Trust funds were previously thought of as something only utilized by the wealthy. Recently, many investors have seen the benefits of using a trust fund to pass on wealth. Even with more people choosing to utilize trust funds as a means to providing for their loved ones in the future, there are still many who are unsure of what a trust fund is and how it can be used as part of an alternative investment strategy.
A trust fund is essentially a legal entity that holds property for a beneficiary. The property in a trust fund can range from stocks and bonds to real estate and art collections — anything with value. There are three main roles involved in a trust fund: the grantor (also called a settlor), the beneficiary, and the trustee.
The grantor is the person who sets up the trust fund for the beneficiary. The grantor sets up the terms of the trust fund with the trustee. The trustee then becomes responsible for overseeing the trust fund and making sure that the terms and duties of the trust are met. A trustee can be an individual, a group of chosen individuals, or an institution.
There are two main types of trust funds available: living and estate trusts. An estate trust, or testamentary trust, is created at the time of a will and takes effect upon the grantor’s death. A living trust, also called an inter-vivos trust, is established while the grantor is still alive. There are many types of living trusts, and each trust will be slightly different based on the desires of the grantor.
Under Canadian Law, trust funds are considered taxpayers at the highest rate. Due to this taxation, trust funds are commonly used to pass on income generated from investments within a trust fund to a beneficiary in a lower tax bracket. There’s a stipulation where if the person who transferred the property into the trust is a close relative of the beneficiary, Canadian tax law attributes the trust income to them to avoid tax avoidance.
A trust fund can only be created when there is property in it. This property can be any number of things. It is common to have investments within a trust fund that will provide a steady income to beneficiaries out of the investments within the fund.
By having investments in place, grantors can control how much money a beneficiary gets at any given time instead of passing investments over to them and giving them control of the accounts. A trust can stipulate how the income generated is paid out.
As with most investments, it’s a good idea to have a variety of types within the trust fund. Having some alternative investments blended with standard types within a trust fund allows you to safeguard the beneficiary against unforeseen drops in a market or specific investment sphere. Mixing long term investment strategies, such as bonds, with alternative investments, such as mortgage pools, is an excellent way of investing in a trust fund.
At Cooper Pacific, we use Central One as our trustee. We’re able to transfer existing registered plans from other financial institutions over to us. We utilize Central One’s documents and process the applications/transfers on the shareholder’s behalf with no fees. It’s never been easier to safeguard your investments for your future family and dependants.
Trust funds and trust fund investments were once thought of as being reserved for the upper 1%. At Cooper Pacific, we want to let you know that trust funds, and the alternative investments strategies employed by them, are now commonly used by many. If you’re ready to look at investing in mortgage pools and how you can pass on your investments, get in touch with Jordan at our office today with your questions and goals.