Considering setting up a family trust to protect your assets? It may be one of the wisest decisions you ever make. A trust can give you the power to deal with future financial risks and give you full control of your assets. Additionally, a family trust can also be used to take advantage of income splitting and corporate structuring opportunities. Let us show you the five components of family trusts you need to know about to gain the most benefits.
Trusts Require Three People
In order to create a family trust, you’ll need to have three people to fill the roles of Settlor, Trustee, and Beneficiary. The trustees will control the family trust assets, the beneficiaries will reap the benefits from the assets, and a settlor will set up the trust.
Trusts Don’t Need to Be Registered
Unlike other instruments, a family trust does not need to be registered anywhere. Instead, they are created by written deeds or trusts that are valid as soon as they are signed. This provides some privacy because it is not made public upon your death. A will, on the other hand, is on record and will make all your transactions and distributions visible to the public.
Trusts Allow You to Divide Assets as You Please
If you have shares in a company that you would like to leave to your children, a trust can give you the control you desire over how the assets are divided amongst your kin. For instance, with a discretionary trust, the trustees have the power to decide which beneficiaries are entitled to receive the capital of the trust and which are only entitled to receive the income earned on the trust.
Trusts Offer Potential Tax Benefits
Although trusts are taxed at the highest federal rates, plus a provincial rate, there are some potential income tax benefits of having a family trust as part of your corporate structure. They are particularly useful when you wish to take advantage of the tax splitting. Any income, capital gains, or dividends earned by the family trust can be allocated to one of the beneficiaries at their respective marginal tax rate. If you have adult children or a spouse who is in a lower tax bracket than the trust, you can income split to save thousands of dollars each year. Trusts can also be used to multiply your eligible capital gains exemption if you decide to sell your business.
Trusts are Useful When You Own a Business
Every person gets a one-time Capital Gains Exemption (CGE) in their lifetime to shelter up to $813,600 of capital gains. This relates to the sale of Qualified Small Business Corporation shares in an active business owned in majority by Canadians. By allocating the family trust as a shareholder in your business, the capital gains related to the shares owned could be allocated to the beneficiaries if the shares were sold. Each beneficiary in return could use their CGE and shelter the capital gains from taxation.
When you’re ready to create a wealth strategy to protect your assets and ensure your family is taken care of in the future, contact us at The Beacon Group of Assante Financial Management Ltd. We’ll set you up with one of our financial advisors to provide you with all the information you need and to outline the applicable rules for each province. We’re here to help you keep more of your money and grow your wealth well into the future.