Getting Money and Assets out of a Trust part 1

Ultimately the Trustee is in control of what happens with the assets of a trust. We’ve already discussed assets and money going into a trust. A trust may retain the assets or the income or it may distribute the assets and income to beneficiaries at the trustee’s discretion. Many people use family trusts to flow through income to beneficiaries while holding assets such as shares or real estate.

A trust is very effective in flowing income through to beneficiaries. When income is distributed to beneficiaries it can typically retain the characteristics of the way it came in. For example if the trust receives dividend income, then the trust may flow dividends to the beneficiaries. If the trust receives capital gains income, it could also flow capital gains to the beneficiaries. Since this income is not retained by the trust the trust will not be taxed on the income. The income distribution is reported on a T3 Slip and the tax is calculated on the tax return of the beneficiary. This is of course very beneficial for tax planning!

A trust may also give loans. In many cases a trust would not loan to a trustee or beneficiary of the trust, as always consult with professionals when considering major transactions. Loaning funds to and from a trust can be an effective strategy. A trust that has capital may provide a mortgage to a corporation to buy a property. A trust that has capital may provide a loan to another entity to make an investment. There are many effective examples of trusts providing loans to build more Wealth.

If a trustee wanted money from the trust they may charge a Trustee’s Fee for overseeing the affairs of the trust. This, as with everything else the trustee does, should be in the best interest of the beneficiaries as the trustee has the fiduciary responsibility to the beneficiaries. A trust may also pay for tuition and education for the benefit of a beneficiary who is a minor and it will be considered a payment from the trust to the beneficiary.

In my next blog we will look at more ways to get money and assets out of a trust.