Family Trusts

Family Trusts: What are they, and how do they work?

Many individuals question the use and benefit of Family Trusts, but what are they? And how can they benefit you?

A Family Trust is generally an inter – Vivos discretionary family trust and has the following attributes:

  • A trust is not a legal entity;
  • A trust is a relationship between trustees and beneficiaries;
  • A trust cannot, under law, acquire rights and obligations that are independent of the trustees and beneficiaries.
  • A trust cannot enter into contracts and thus cannot acquire the ownership of properties or incur liabilities;
  • A trust cannot enter into a legal relationship with partnerships;
  • Trusts are always created by a person transferring property to another person. The transferor is considered to be the “settlor,” and the person receiving the property is considered to be the “trustee” The trustee generally holds the property received from the settlor in trust for a third person who is the “beneficiary.”

So how can you benefit from a Family Trust?

  • Income Splitting

Trusts are often used for income splitting amongst various family members. If the steps taken to set up the trust are then carried out in an appropriate manner, the income spitting will not be questionable.

  •  Flexibility

Trusts are generally found to be more flexible than corporations or partnerships in that they allow for the following:

  1. Sprinkling of income amongst various beneficiaries;
  2.  Protection of Family Assets; 
  3. Beneficiary use of personal property owned by a Trust is not subject to the taxable benefit rules;
  4. Loans provided to a beneficiary by a Trust are also not subject to the taxable benefit rules.
  • Planning on Succession of a Business – without loss of control.

Trust can be set up to facilitate business succession with Children.

  1. Voting control can be retained by the original shareholder/parent;
  2. Children can be brought in as beneficiaries to allow participation in the business.

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