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Thread: So what is the point of leaving money to someone "in trust"?

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    Default So what is the point of leaving money to someone "in trust"?

    I have to assume this somehow makes financial advisors a pile of money.
    Have an elderly relative, who is not wealthy, setting up trust accounts for the great grandchildren. Literally what's the point of that? Wouldn't a cheque for an RRSP contribution be simpler?

    What is the point of trust accounts?
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    Leaves the money to them, for when they are of age, vs letting a 10 year old make it rain at toys 'r' us or 15 year old at the apple store?

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    ^more or less.

    It can basically include a set of rules. Can only be spent on certain things (eg post secondary costs), only certain amounts withdrawn over a period of time, etc etc.

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    It's a way of giving money with limitations. Let's say you want to give your nephew a 100k. Chances are you give him a cheque for 100k and he's going to blow it all on stupid shit. Car, vacation, toys, etc.

    But in a trust you can structure it so the funds are released in different ways. In some instances the money can only be used for school costs until he hits 30 years old then the remainder is available to him in case he didnt go to school or instead you pay him 5k a month until the trust is gone so that he has stable income to pursue his art career without worry and you know that he'll have ~5 years of income regardless of what happens.

    RRSP are great but if they are grand children then chances are they have no RRSP room and a RESP is great but it also has flaws/limits on usage depending what career they pursue.

    If someone wins the lottery or a massive inheritance the absolute best thing they can do is set up a trust fund, even for themselves. Win 10 million -> put 7.2 million in a trust that pays you out every month/quarter/year regardless of what happens then at least if you blow the remainder on stupid shit you'll still have a gravy train for the rest of your life.
    Last edited by pheoxs; 03-12-2021 at 11:08 PM.

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    The easiest way to think of it IMO is just a more flexible way to distribute inheritance. You can put conditions on it.

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    Quote Originally Posted by ExtraSlow View Post
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    I have to assume this somehow makes financial advisors a pile of money.
    Have an elderly relative, who is not wealthy, setting up trust accounts for the great grandchildren. Literally what's the point of that? Wouldn't a cheque for an RRSP contribution be simpler?

    What is the point of trust accounts?
    A trust is extremely important if the trustees are not fully mentally competent. Often the parents of developmentally delayed children will leave them a trust to take care of the said adult child for the rest of his/her life after the parents pass.

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    There are many reasons to set up a trust, and they don’t need to be set up just when someone dies.
    -control the asset, control distributions, avoiding probate, tax savings, managing the asset

    Just to name a few!
    These opinions are entirely my own and do not represent any other person or organization.

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    Also, I don't think money in a trust isn't considered in the case of divorce. That greedy batch can't get half of it.
    Edit: not sure the how the cost/benefit falls with all of it. Interested to know
    Last edited by arcticcat522; 03-13-2021 at 07:01 AM.

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    The trust is a good tool for funds to be managed.

    For example. If both parents die in a car crash. Then the children stand to inherit funds/assets at 18. Or the surviving parent may have injures that impede their mental and cognitive ability. At that point thy may not be able to make prudent decisions.

    You may want the funds held in Trust by the children's aunt or uncle. Better still you may want the funds held till the children are 25/27 years of age. Or have the funds distributed slowly out for the children's education. On average with my own experience with clients. Unless there is strong parental guidance. People don't have good fiscal literacy till 27 years or older. Then at that point they tend to have a lot of junk debit that they are working out of.

    The children may also have disabilities which may need short/long term care.
    Also if the parents are divorced. If one parents passes away and the other parent has mental/drugs/spending issues. The Trust is a good way to protect the funds being wasted away if the child is manipulated by the existing parent.

    The trust is a good tool to ladder out the funds. As a example. If a child is 5 years old. Both parents die. The money is held by trust by aunt/uncle. The funds can be placed in trust and invested for 20-25 years. A small amount can be released for the childs education.
    For example. It also may be the parents wishes that the education is paid for so long as its one of the five main occupations(Medicine, Law, Education, Engineer and IT) and not a liberal arts degree. So part of the funds are released at 18-27. Then the remainder of the funds released at age 35. I know it sounds funny but these are real conversations I have had. Every family is different.
    Or have funds invested for 25 years and then have the dividends distributed(taxed I think) but the principle remains. Im not a accountant, so someone else may want to chime in on that one.

    When someone dies, people are not aways in the best frame of mind to make financial decisions. Or they may be in a life stage where they don't have the maturity to do. So the Trust is a good sort of HOLDING tool that can be used for the long term interests of a person.

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    I mean, I've heard of the concept, just always assumed it made more sense for wealthy people than "us normies". I actually know one properly wealthy person who has some low 7 figure amount in a "family trust" and that made a little sense since their kids are in elementary school.

    The person who set this up, well obviously I don't know their finances, and we don't talk more than once or twice a year. Kinda weird they didn't mention anything, and the bank doesn't tell us anything, aside from the fact an account has been set up. I suppose I don't really need to worry about it for my financial planning or taxes, although, if it's intended for education, I would/could stop contributing to the RESP I guess. or if I have no information, I guess I don't need to do anything or change my financial planning if my kids may get some amount from a trust.

    No experience with any of this. When my dad died I inherited $780, lol.
    Last edited by ExtraSlow; 03-13-2021 at 10:12 AM.
    Quote Originally Posted by killramos View Post
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    Are we doing that thing where we just repeatedly say the same thing that the first person said?

    A trust allows you to give money away with a set of rules on how it’s spent or managed.

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    Quote Originally Posted by cjblair View Post
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    Are we doing that thing where we just repeatedly say the same thing that the first person said?
    we certainly can! That's one of our favourite games.
    Quote Originally Posted by killramos View Post
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    You realize you are talking to the guy who made his own furniture out of salad bowls right?

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    Quote Originally Posted by cjblair View Post
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    Are we doing that thing where we just repeatedly say the same thing that the first person said?

    A trust allows you to give money away with a set of rules on how it’s spent or managed.
    We could try a lmgtfy?
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
    fact.
    Quote Originally Posted by Yolobimmer View Post
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    guessing who I might be, psychologizing me with your non existent degree.

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    I guess, here's a question, if my kid is getting money set aside in a trust, does that impact me, as the parent, in terms of my financial or tax planning?

    - - - Updated - - -

    I need my own subforum, "Dear Diary: ExtraSlow Edition".
    Quote Originally Posted by killramos View Post
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    You realize you are talking to the guy who made his own furniture out of salad bowls right?

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    Not really. But it can help in terms of how efficient you want to make you own financial planning if you know some details.

    Lets say your son is 5 years old. At age 18 inherits some cash. That cash can be used for his education. With that known, would you still contribute to his RESP?

    Lets say you are putting $200 a month into his RESP. Would you stop? Or that gives you a extra $200 into your own investment for 13 years($31,200). Compounding with growth that number will be much higher.

    Or you can use $100 of that cash, buy him a whole life policy. That rate will never go up for the rest of his life. When he hits 18 or 27. Transfer that policy to him. When he buys a home/starts a family. He wont need to buy as much life insurance as he already has some. By the time he is mid 40's. The policy can be paid up if he wants to. He will get dividends form that policy. Those dividends will grow and grow. So by the time he is late 50/60 years of age. He has a income stream from a life policy.
    Thats just a idea.

    It gives you options to be more efficient.

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    Whole life policies make me itch.
    Quote Originally Posted by killramos View Post
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    You realize you are talking to the guy who made his own furniture out of salad bowls right?

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    Somehow, trusting my estate to an insurance company seems like somewhere near the worst idea I have ever heard of.
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
    fact.
    Quote Originally Posted by Yolobimmer View Post
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    guessing who I might be, psychologizing me with your non existent degree.

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    Quote Originally Posted by ExtraSlow View Post
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    Whole life policies make me itch.
    As pure estate planning tools they can be an effective tax shelter.

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    Quote Originally Posted by Buster View Post
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    As pure estate planning tools they can be an effective tax shelter.
    I believe they have a purpose and a use. I am a really simple minded guy, and they are not a simple product, so they make me itch, and I won't buy them.

    I also am not doing any kind of estate planning for myself right now.
    Quote Originally Posted by killramos View Post
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    You realize you are talking to the guy who made his own furniture out of salad bowls right?

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    Quote Originally Posted by ExtraSlow View Post
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    I believe they have a purpose and a use. I am a really simple minded guy, and they are not a simple product, so they make me itch, and I won't buy them.

    I also am not doing any kind of estate planning for myself right now.
    All of these structures come with costs. So they suppose that you have enough excess capital to not need it before you die, and that you have enough capital that the management/setup costs are not prohibitive.

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