Testamentary trust, what to do.

[muscou]

My late mother in-law gave money to her granchildrens. The conditions are the money can't be given to the grandchilden until they are 25 or if they require funds for schools. My wife and myself are the executors of the will.

From what I read, this is considered a formal trust. Should I setup one trust per beneficiaries or only one for all of them? I am thinking about setting up accounts at a discount brokers ( big banks or others). Any opinions?

The sum is not huge ($10K per children) so I want to make sure it does not get eaten in account setup fee or annual fees.

Do we need a lawyer to setup a formal trust or the will is good enough as a document?

Also, when filling the T3 for the trust, I understand you can elect to have the beneficiaries pay tax on the income itself or have the trust pay it, any opinions on this?

Do my questions even make sense? Any help would be appreciated as at this stage, I am slightly confused.

Thanks.

[ShopperfiendTO]

My late mother in-law gave money to her granchildrens. The conditions are the money can't be given to the grandchilden until they are 25 or if they require funds for schools. My wife and myself are the executors of the will.

From what I read, this is considered a formal trust. Should I setup one trust per beneficiaries or only one for all of them? I am thinking about setting up accounts at a discount brokers ( big banks or others). Any opinions?

The sum is not huge ($10K per children) so I want to make sure it does not get eaten in account setup fee or annual fees.

Do we need a lawyer to setup a formal trust or the will is good enough as a document?

Also, when filling the T3 for the trust, I understand you can elect to have the beneficiaries pay tax on the income itself or have the trust pay it, any opinions on this?

Do my questions even make sense? Any help would be appreciated as at this stage, I am slightly confused.

Thanks.

Disclaimer: THIS IS ADVICE/SUGGESTION FROM AN ANONYMOUS INTERNET SITE!

Do you think that the grandchildren's parents will question your managment of the funds? If there is even a slight possiblity of this (be realistic here), then you should keep a separate trust for each child, even if it is more cumbersome and costly (keeping in mind the costs could be allocated to the trusts), and I would put the initial amounts in more conservative investments.

I don't think you need a lawyer, although it would probably make it easier. However, I don't know if it would be worth it because the fees may eat up a significant amount of the trust funds (I'm assuming that there aren't 20 or more grandchildren?).

The election I think you're talking about is just a tax election, which lets you tax the trusts' incomes as if it were distributed to the grandchildren even though it wasn't (i.e., it was kept in the trust for that grandchild). I don't know if you're allowed to make the election if the trust doesn't allow access to the trust income until the grandchild is 25, but if you are, then it's just an arithmetic exercise... where will the income be taxed more, in the trust or in the grandchild's hands? Usually it's the grandchild as they will have little or no income at the younger age and have personal exemption amounts to rely upon (which the trust doesn't have).

[akira1971]

Normally, I would say one account is sufficient as you are the trustee. It's your job to manage the assets as a prudent investor, so unless you go ape-crazy buying penny stocks, the parents can't come at you even if the portfolio declined like 2008.

However, depending how good are your accounting skills, one 'problem' area for you could be the clause allowing early withdrawals for education.

Say there are 10 kids = $100,000 initial investment. Two years in and the portfolio is at $112,000, the oldest needs $3000 (or 26.8%) of his share of current portfolio. When he turns 25 and the portfolio is at say $130,000, you have to calculate his payout. If my math is right, he's only entitled to 7.32% of the remaining portfolio, or about $9,500.

To sum up: for investments, one account is easier and cheaper. For accounting, multiple accounts are easier to track.

[budfrogs]

Are you also the administrator of the trusts? I believe because you are the executor doesn't automatically make you the administrator of the trusts.

Instead of 1 or nothing. You could also make a trust of each family. That would allow the parents some input on investments without affect other people's money.

So if you MIL had 3 children each with 2 children open 3 trusts. This should make keeping track of early withdraws and figuring out who still has what easier.

[ShopperfiendTO]

Are you also the administrator of the trusts? I believe because you are the executor doesn't automatically make you the administrator of the trusts.

Instead of 1 or nothing. You could also make a trust of each family. That would allow the parents some input on investments without affect other people's money.

So if you MIL had 3 children each with 2 children open 3 trusts. This should make keeping track of early withdraws and figuring out who still has what easier.

If OP was appointed in the will as the person who gets the money to keep and manage in trust for the grandchildren, he IS the trustee and must administer the trust. He can get help, but is the one ultimately responsible for the trusts. I.e., unless the will states otherwise, the trustee IS the administrator.

Further, the MIL entrusted OP with the money, which includes how to invest and manage it. Although OP may be open to input from the parents, OP is not required to listen to them and follow their requests. OP has to think what is best for each of the grandchildren since it is their money.

[muscou]

My wife and myself are indeed the administrators. I'll have to read more on the tax election to see what can be done.

I like the ideas of one account per family. I can then invest my kids money more aggressively and be somewhat more conservatives for other families while limiting expenses. I can certainly handle the accounting for accounts with more than one child.

Thank you everyone for your advices.

[VivienM]

I like the ideas of one account per family. I can then invest my kids money more aggressively and be somewhat more conservatives for other families while limiting expenses. I can certainly handle the accounting for accounts with more than one child.

You may want to get some legal advice before doing that. The last thing you'd want is the parents of the other families coming after you because their kids were treated differently from yours.

Also, you may want to get legal advice about how aggressive you can be with investing. There are rules in the Trustee Act (for Ont.) and in the common law about that, IIRC.

Finally, one last point: if you're holding the money in trust for your kids, keep in mind they too can sue YOU for breach of trust/fiduciary duty if their high-risk investments go belly up. And yes, the courts are full of nasty nasty disputes over money between family members...

[muscou]

You may want to get some legal advice before doing that. The last thing you'd want is the parents of the other families coming after you because their kids were treated differently from yours.

Also, you may want to get legal advice about how aggressive you can be with investing. There are rules in the Trustee Act (for Ont.) and in the common law about that, IIRC.

Finally, one last point: if you're holding the money in trust for your kids, keep in mind they too can sue YOU for breach of trust/fiduciary duty if their high-risk investments go belly up. And yes, the courts are full of nasty nasty disputes over money between family members...

All interesting points. I read the trustee act a while back so I'll have to go trough it again. I wanted to be very aggressive with younger kids ( and even more so with mine) and less with older one, as most financial advisor would probably recommend, i.e. take more risk for longer term investment. In fact, I could probably hire one to tell me exactly that which might help with respect to potential lawsuit.