Written by John Poyser, Inkster Christie Hughes
A Companion Advisor article

When trusts are used in tax and estate planning strategies it is almost exclusively through the use of a written and detailed document.

Last Will and Testament

Trusts are frequently established under the terms of a person’s last will and testament. This is the most common document used to create a testamentary trust.

Trust Agreement or Declaration

Trusts are often set using a trust agreement. A trust agreement is a contract between the settlor and the trustees in which both parties agree in writing to the terms of trust.

A trust declaration is much the same thing, but a trust declaration can be executed by a settlor only, and need not necessarily be executed by the trustees at the same time. The trustees then accept the trust later by taking the trust property into their names and indicating their concurrence in some fashion.

Trust agreements and trust declarations are more commonly used in setting up alter ego trust, estate freezes, and other trust arrangements then come in play while the settlor is still alive

Trust Created Without Documentation

Trusts are created without documentation from time to time, occasionally on an unwitting basis. Beneficiaries may not even be aware that a trust has come into existence, and the same can be said of trustees. This occurs in circumstances where a trust arises by the implication of law. When a person contributes a large sum of money to the purchase of a property, and that property is registered in the name of another person, a "resulting trust" can be found to have arisen at law. The person who contributed the money is said to have a beneficial interest in the property, although legal title is exclusively in the name of the person who actually signed the purchase papers.

Trusts can also be established by the operation of statutes. Pension benefits legislation, for example, will often impose a trust on an employer for any unpaid pension fund contributions. If an employer retains those contributions contrary to its obligation to remit them, a trust automatically settles on their assets to the extent of the unpaid contributions.

In most jurisdictions in Canada it is also possible to establish a trust by spoken words, not just by written words. However, they have no or limited purpose in context of tax and estate planning. They are normally argued when a fight breaks out, not used when parties structure their affairs for the future.

John Poyser is a member with the Winnipeg law firm Inkster Christie Hughes. John is the co-author of a text book for Carswell Canada entitled “Practitioner’s Guide to Trusts, Estates and Trust Returns” helping accountants and lawyers deal with income tax and planning issues arising out of trusts and estates, and is the author of two certificate courses for The Knowledge Bureau entitled Use of Trusts in Tax and Estate Planning and Taxation of Death.

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