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    Types of Trusts: Do You Know What They are?
    Posted: 2012-07-16 05:00:28

    If you live in Canada and want to set up a trust for your children or other beneficiaries, you need to know what kind of trust to set up. The main reason has to do with Canadian tax rules. Different taxes apply to different types of trusts. This is especially helpful to know when you have to fill out tax form T3.

    There are generally two main types of trusts: Testamentary Trusts and Inter Vivos Trusts.

    A testamentary trust is a trust that is created on the death of a person. It is a personal trust that is established by a will or as per a court order. As a result, a person may draft a Will that says that a trust has to be created on her or his death for the benefit of her or his children/grandchildren/etc. a person may specify more than one trust.

    An inter vivos trust is often created during the lifetime of a Settlor (i.e. the person that specifies that a trust is to be created). An inter vivos trust does not have to be a personal trust. It can be a mutual fund, a non-profit organization, employee trust or a life insurance fund. A testamentary trust can become an inter vivos trust if the property under the testamentary trust is not allocated according to the terms of a will. For example, a testamentary trust can become inter vivos if the trust becomes indebted to a beneficiary (which can be a person or a partnership).

    For more information, it is best to seek the advice of a tax professional who will be able to inform you about the details of the rules.

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