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Benefits of Family Trusts

The main benefits of having a Canadian family trust are:

  • Privacy: Trusts are created by written agreements, known as deeds or trust settlements or even simply trusts. They usually don't have to be registered anywhere. They're valid as soon as they are signed.
  • Asset Protection: In a sense, a trust arrangement allows you to have your cake and eat it. Because a trustee is only a legal owner of the trust property, he can say "I don't own it". And because the trust document does not necessarily give the trust property outright to a beneficiary, the beneficiary can also say "I don't own it, either". This sort of benefit is directly useful for asset protection.
  • Control: In addition, a trust can give you control over how assets are divided among your family members. For example, if you own shares in a company that you want to leave to your children, you can set up a discretionary trust so that it falls to the trustee to decide which child will receive all, or none, of the shares, depending on how the children turn out and their interest in the business.
  • Tax planning: In general, in Canada trusts are not a great vehicle for tax planning in the sense of paying less income tax, because they are taxed on income at the highest marginal rates (29 percent federally plus varying provincial rates, ranging from a low of 10% in Alberta and up). But trusts can be used, usefully, for income splitting to a spouse or adult children, if those family members are themselves in a lower tax bracket than the trust. Because of the "kiddie tax" passed in Canada in about 2000, it is generally not worthwhile to income split with minor children.
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