What is a Family Trust?
The use of a Family Trust, which is a trust that becomes effective during one’s lifetime, rather than on death, is a planning tool that may be a practical consideration to explore further in consultation with your estate planning lawyer, corporate lawyer and accountant.
The Income Tax Act currently allows for the use of family trusts to enable several advantages for tax and estate planning, including probate avoidance, income splitting in limited circumstances, multiplication of the capital gains exemption, creditor protection, business succession planning, privacy and flexibility. These trusts are often suggested for successful small business owners as a way to transition wealth to the next generation, especially when a business succession plan is not yet in place.
Timing is a crucial consideration prior to establishing the family trust, as there is a deemed disposition every 21 years of all capital property held in a family trust meaning all capital gains are then payable. Twenty-one years from the date of establishment of the trust is often the time the trust structure is designed to change, to avoid this taxable event. In planning the optimal time to implement a family trust, you will want to consider your age and the ages of the trust beneficiaries and add 21 years.
If you think a Family Trust may be the right solution for you or someone you care for, please get in touch.