^Blog Trusts & Estate Planning: What You Need To Know

Estate planning is essential for families who have built significant wealth, and particular attention needs to be paid when there is a family trust involved. Many assume that trust assets will be handled according to their will, but this is not the case. Understanding the role of trustees, how assets are distributed, and the importance of clear instructions can help ensure your wealth is passed on as intended.

Understanding the Role of a Family Trust

A family trust is a structure that holds assets for the benefit of its beneficiaries, with trustees managing those assets. Many families set up trusts to hold shares in an operating company and holding companies, and the assets in the holding company may be such things as buildings, residential rental properties, market-based investments, etc. However, it’s important to remember that you do not personally own trust assets, the trust does. This means that if you pass away, trust assets are not governed by the terms of your will.

By contrast, assets you hold personally, such as your home, non-registered investments, or vacation property, are distributed according to your will. If you want your personal assets to go to your spouse first and then to your children in specified portions, you can outline that in your will. However, trust
assets require a different planning approach.

Why Trustees Matter

Since your will does not control your trust assets, having the right trustees in place is critical. Trustees make decisions about asset management and distribution, and without proper guidance, their decisions may not align with your wishes.

One way to address this is to create a document specifying who appoints trustees after you and your spouse pass away. If there is no clear process, confusion and conflict can arise among beneficiaries. Ensuring a smooth transition of trustee responsibility helps protect the trust’s integrity and purpose.

The Importance of a Letter of Wishes

A Letter of Wishes is a non-legally binding document that provides guidance on how you want trust assets handled. While not enforceable, it serves as a roadmap for your trustees, helping them understand your intentions. For example, you may specify that you want trust assets distributed in a way that aligns with your will’s instructions, ensuring consistency in wealth transfer.

Without a Letter of Wishes, trustees might make decisions based on their interpretation, which may not reflect your true intentions. Having clear instructions can prevent disputes and keep your estate plan intact.

Estate planning is more than just writing a will. If you have a family trust, it’s crucial to have the right trustees in place, a clear trustee appointment process, and a Letter of Wishes to provide guidance. Without these steps, your trust assets could be managed in ways that don’t align with your goals.

Three60 Wealth, we help families navigate these complexities to ensure their estate plan is structured effectively. If you’d like to learn more about how to optimize your estate plan, visit Three60wealth.ca or listen to our Family Office Insider Podcast for more insights.

Authored by: Jason Nagel, at Three60 Wealth