The trust is a separate entity in which a person, called the settlor, transfers assets during their lifetime for the benefit of certain persons, called the beneficiaries. This entity is administered by trustees according to the rules established by the settlor.

This entity can be created for various reasons such as:

• to retain control over assets that the settlor decides to dispose of;
• to ensure the survival of a family business, notably by delaying the appointment of successors;
• to facilitate a smooth transfer of the trust's capital to the settlor's successors;
• to protect the trust's capital from economic risks (bankruptcy), legal risks, family conflicts (divorce, separation);
• to ensure the future financial security of the settlor's successors and the preservation of the assets;
• to provide certain tax advantages (income splitting);
• to avoid certain formalities related to guardianship or curatorship;
• to protect and provide income for a disabled child.

The trust is established through a notarized contract between the settlor and the appointed trustees. It is subject to the provisions of the Quebec Civil Code, which notably requires the appointment of a trustee who is not a beneficiary of the trust. The settlor may designate themselves as a trustee but must act alongside a trustee who is neither a settlor nor a beneficiary.

Some tax considerations also restrict the dual roles within trusts. The notion of control over the trustees' voting rights is important and may affect the rules for attributing trust income to the settlor.

A trust known as an "asset protection trust" differs from a testamentary trust in that it is created during the settlor's lifetime.

Trusts created during the settlor's lifetime, or "inter vivos" trusts, as well as trusts created through a will, are treated as individuals for tax purposes. Inter vivos trusts are subject to the current maximum individual marginal tax rate and are not entitled to any personal tax credits. Testamentary trusts can benefit from progressive tax rates and certain tax credits.

We invite you to consult a member of the Notaire-Direct team because:

• a notarized asset protection trust is easily identifiable, eliminating the risk of it being lost, ignored, or destroyed;
• the notary is a legal advisor and a specialist in contract drafting.

If you don't have time to consult us, visit our FAQ section.