A trust is a relationship – one party (the trustee) holds and manages property for the benefit of another party or parties (the beneficiary or beneficiaries). This means that although the trustee legally owns the property, they must administer the property in the best interests of the beneficiary, and do so in accordance with the terms of the document creating the trust and the applicable law. In Alberta, trustees may have statutory powers – such as investment powers – unless these are modified or restricted by the trust document.

Trusts may be created during a person’s lifetime (inter vivos trusts), or through a person’s will (testamentary trusts). Testamentary trusts are a critical part of many estate plans – these trusts, created through a will, are funded with assets of the deceased person’s estate, and do not come into effect until the death of the will maker (the testator).

Testamentary trusts are commonly used where a testator wishes to control how and when a beneficiary receives their inheritance. This may be the case where, for example, the testator has a minor child. In Alberta, a minor cannot legally inherit funds directly, and unless there is a trust established to manage funds to be inherited by a minor, the funds will be held by the Public Trustee to manage until the minor comes of age. To avoid the government’s involvement in managing the minor’s funds, we use a testamentary trust. This structure allows the testator to choose the trustee, determine when the funds are to be paid to the beneficiary, and how the money can be used while it is held in trust (for example, to pay for the beneficiary’s education).

Testamentary trusts may also be used in situations where the testator has a disabled family member, a family member with substance abuse issues, a beneficiary who lacks financial experience of savvy, or any number of circumstances that may necessitate adding structure and parameters around an inheritance. Each of these situations come with unique challenges and requires careful consideration of the law, the personal circumstances at play, and the financial realities. Proper drafting is important to ensure the trust operates as intended, clearly defining the trustee’s powers, the beneficiaries’ interests, and the conditions for distribution or termination of the trust.