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Setting up a trust fund for the grandchildren

On Behalf of | Aug 3, 2022 | Estate Planning

Becoming a grandparent is one of the most amazing experiences in life. Once Ontario residents have raised their own families, the torch is passed on to their adult children, and when a grandchild enters the picture, grandparents feel a special kind of love. In estate planning efforts, many grandparents want to ensure they have something to leave their grandchildren after they pass away, and one of the ways of doing that is by setting up a trust fund. 

How a trust fund works 

A trust fund is one of the best ways grandparents can leave assets to their grandchildren. There are three people involved in a trust fund scenario – the grantor or the person providing the money for the fund, the trustee who looks after the money, and the individual receiving the money known as the beneficiary. In these instances, the beneficiary is always the grandchild, while the grantor is a corporation owned by the grandparent, and the grandparent is the trustee. These types of trusts do not need founding documents, so they are not legal entities unto themselves. However, the trust does have to pay taxes, and since this can bring many complications and complexities, the guidance of a lawyer can prove invaluable. 

Two different trust fund options 

In Canada, including Ontario, there are two types of trust funds grandparents can set up for their grandchildren. A living trust is executed while the trustee is living and can be grown by adding more money into it or by returning yields with the original investment amount. Testamentary trusts are included in wills and indicate how much money is left to grandchildren after the grandparents pass away. Trusts differ from Registered Education Savings Plans (RESPs) which have a cap of $50,000 and can only be accessed by grandchildren once they enroll in post-secondary education. 

Each of these options could have certain pros and cons for Ontario grandparents, depending on their unique circumstances. Fortunately, there is help and support readily available to those who are considering setting up a trust fund as part of a comprehensive estate plan. An experienced lawyer can answer all of one’s questions and concerns while providing guidance throughout the process of formally establishing a trust fund.  

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