Q&A

What is family trust in Canada?

A family trust is a legal relationship between trustees, who control the family trust’s assets, and the beneficiaries who benefit from the family trust’s assets. A settlor, who is usually a family member or close friend who will not be a trustee or beneficiary, sets up the family trust.

Are family trusts legal in Canada?

Mind the Attribution Rules Though a Canadian trust is not a legal entity, it is considered a taxpayer at the highest rates under Canadian law. That is why trustees try to pass on any income earned by trust property to beneficiaries, so they can pay the taxes at their own, presumably lower, rates.

Who controls a family trust in Canada?

People: To create and maintain a family trust in Canada, you’ll need people to fill three main roles — settlor, trustee, and beneficiary — and in some trusts, a fourth role — protector — is added. It is possible for the same person to act as settlor, trustee and even beneficiary.

What is a family trust company?

A private trust company, also known as a family trust company, is an entity that provides trust and fiduciary services to a single-family group. It is a state chartered, regulated entity and, as such, is prohibited from doing business with the general public.

What are the disadvantages of a family trust?

Cons of the Family Trust

Costs of setting up the trust. A trust agreement is a more complicated document than a basic will.
Costs of funding the trust. Your living trust is useless if it doesn’t hold any property.
No income tax advantages.
A will may still be required.

What are the disadvantages of a trust?

Drawbacks of a Living Trust

Paperwork. Setting up a living trust isn’t difficult or expensive, but it requires some paperwork.
Record Keeping. After a revocable living trust is created, little day-to-day record keeping is required.
Transfer Taxes.
Difficulty Refinancing Trust Property.
No Cutoff of Creditors’ Claims.

What is the downside of a trust?

One of the primary drawbacks to using a trust is the cost necessary to establish it. Therefore, there is often a cost to establish a trust and to create a pour-over will that deposits any remaining assets into the trust at the testator’s lifetime. Additionally, administering the trust may also add expenses.

Who you should never name as beneficiary?

Whom should I not name as beneficiary? Minors, disabled people and, in certain cases, your estate or spouse. Avoid leaving assets to minors outright. If you do, a court will appoint someone to look after the funds, a cumbersome and often expensive process.

What should you not put in a living trust?

Assets that should not be used to fund your living trust include:

Qualified retirement accounts – 401ks, IRAs, 403(b)s, qualified annuities.
Health saving accounts (HSAs)
Medical saving accounts (MSAs)
Uniform Transfers to Minors (UTMAs)
Uniform Gifts to Minors (UGMAs)
Life insurance.
Motor vehicles.

What are the benefits of a family trust?

One of the benefits of a Family Trust is that is permits a trust grantor to shelter assets for beneficiaries of the trust who are within the family group. These assets may include automobiles, heirloom property, wedding bands, antique furniture and collectible art.

Are family trusts taxable?

Income distributed through a family trust is not taxable up to $6,000 per year, but above that, it counts as income, and is taxed at the individual’s marginal tax rate. In addition, income to the trust that is not distributed by the end of a financial year is taxable.

How do family trust funds work?

A family trust fund is a legal entity that holds assets and property to be passed on to other family members or beneficiaries. Establishing asset protection in the form of a family trust provides benefits to the person who sets up the arrangement, known as the grantor, as well as to the beneficiaries.