Trusts have been used to manage property, land and other assets for hundreds of years. As far back as the crusades in 11th century England, landowners used trusts to avoid paying feudal taxes when they passed property to their heirs. Since then, the use of trusts has grown exponentially for businesses, individuals, and families. Businesses commonly use trusts to hold investments, facilitate transactions, and for syndicated loans or administering pensions. Personal use of trusts also has expanded to include a myriad of assets beyond real property—everything from antiques to vintage car collections, loans, insurance policies, patents, and even dairy quotas.

Housing Affordability

The lack of affordable housing, worsened by higher mortgage rates and low inventories, has been widely covered by the media and is gaining more attention from legislators. This phenomenon is especially acute in large urban centres such as Vancouver, Toronto, and Montreal.

As the ability to participate in the housing market becomes more limited, new and innovative ideas are coming to market. Businesses are experimenting and launching new concepts, including fractional and co-ownership arrangements. On the other end of the spectrum, reverse mortgages allow existing homeowners to sidestep the real estate market by tapping into the increasing equity of their homes and generating an income stream. There are even startups which will purchase a fraction of your home in exchange for any appreciation of the home’s value over a pre-determined number of years. Everywhere you look, new and interesting approaches to owning a home are surfacing.

Many of these new market solutions focus on helping first-time buyers get into the housing market or allowing existing homeowners to leverage their existing homes. However, given the dwindling affordability and supply issues, trusts might serve as the perfect vehicle for current homeowners to retain and pass down residential homes to future generations.

Trusts are often used to hold other forms of real property such cottages or other vacation properties. At other times, trusts are used to purchase properties on behalf of individuals who are vulnerable, spendthrifts or have some form of disability. But there is not widespread use of trusts to pass down homes among family members. Homes in large urban centres are now routinely priced at millions of dollars, which can prevent younger family members from starting to climb the property ladder. Is this a use for trusts that should be considered more seriously? Instead of bequeathing a home outright, would a trust give the current owner more control over its use in the future?

A New Twist on an Old Custom

In North America, the historical norm has been for one family at a time to occupy a home. In other cultures, however, it is common for multiple generations to live in a house together, sharing living quarters and expenses. As the cost of living in large urban centres continue to climb, people with different relationships, beyond the traditional nuclear family, are sharing homes. Is a trust a way to expand on this concept?

The uniqueness of a trust lies in its ability to offer different people different types of entitlements or ownership interests in the same asset over different time periods. In the same way trusts hold other types of real property, trusts for family homes could set out certain conditions such as who is eligible to live in the house, how the home will be maintained, who pays for what (homeowner’s insurance, utilities, etc.) and what happens if one beneficiary renounces their entitlement. What are the triggers for selling the home, for example, if there are insufficient funds to pay for upkeep and repairs? If the home unexpectedly becomes vacant, what are the provisions for maintenance?

A well-crafted trust document can account for various scenarios and outcomes, allow for adaptability to accommodate new tax laws or family circumstances, and introduce a mechanism for resolving any disputes that might arise. This is a relatively novel approach, but it is also one that trusts are perfectly capable of bringing to life for your family.

Practical Considerations

If this concept piques your interest, careful planning is required before creating or funding any type of trust.

Housing is a complicated asset class. It is viewed as both a basic human right and an investment holding that can generate profits. It also receives special tax treatment in the form of the principal residence exemption, which allows homeowners to sell their home and to potentially eliminate any capital gains tax that would otherwise be owed.

Family dynamics also can be complicated. If you are fortunate enough to have a close-knit family that rarely experiences any type of conflict, it might be tempting to simply allow a level-headed family member to manage the arrangements and carry out your wishes for a home. But keep in mind that family dynamics change. Sharing ownership of a valuable piece of property can have a dramatic effect on individuals and even the closest of relationships. In all but the rarest of circumstance, we recommend spelling out your wishes in writing, consulting with trust and tax lawyers, and leveraging the impartial guidance of a trustee (ideally a professional trustee with all the necessary resources at hand).

Over time, trusts have consistently remained a popular tool for individuals and estate planning professionals to transfer wealth efficiently and to protect assets for future generations. Whenever someone has a specific objective in mind for an asset and wants it to be managed for the benefit of other people, trusts should be considered.

The legacy you leave behind will serve as a testament to your thoughtfulness and generosity.