Benefits Of Family Trusts In British Columbia
While we all are aware of a Will and how it allows an individual to transfer their properties and other relevant rights to their family members and/or other beneficiaries, we often fail to include family trusts in the same conversation.
Creating a family trust may be an effective way for an individual to obtain tax benefits, protect their assets, and help younger generations reap the benefits of their properties. In most cases, these trusts are created by business owners.
Before understanding the benefits of a family trust in British Columbia, let us briefly understand what a family trust is.
What Is A Family Trust?
A family trust is a legal relationship between a settlor, a trustee, and one or more beneficiaries. Here, a settlor transfers their property/properties to a trust, where a trustee becomes responsible for managing it and ensuring that the beneficiaries receive financial and other benefits from the transferred asset(s). As the name suggests, a family trust allows an individual to transfer their assets to a responsible individual and ensure that their family members receive the benefits of the same.
Once a property is transferred by a settlor through a family trust, they no longer have rights over it. It then belongs to the trustee who ensures that the beneficiaries enjoy the property. The trustee manages the assets transferred to them according to the terms mentioned in the family trust.
A family trust can have one or more trustees. In most cases, trustees are the senior and mature members of a family. A settler may also name their financial (or any other professional) advisor as their trustee. The beneficiaries are often children, grandchildren, spouses, parents, and other valuable members of a family.
What Are The Benefits Of A Family Trust?
If you wish to set up a family trust in British Columbia, here are some of the most important benefits of this relationship:
- Seamless Wealth Transfer Planning
A family trust is an effective and seamless way of planning wealth transfer within a family. It lets you specify which member of your family receives what portion of your assets. The relationship also specifies the purpose for which your asset is transferred to a specific beneficiary. Unlike a Will, a family trust prevents people inheriting properties from frittering their inheritances away. As a trustee is responsible for managing the assets transferred by a settlor, matters always remain under manageable control.
- Safeguarding Your Assets
When you create a family trust, it holds your assets on behalf of your beneficiaries, protecting them from creditors. In the case of bankruptcy or a lawsuit, the assets held by a family trust cannot be seized. Having said that, it is important to note that you should create a family trust only when things are going well for you. Judges may allow your trust assets to be seized if they realize any foul play while your family trust is set up.
- Ideal Transfer Of Wealth To Children
Family trusts allow settlors to transfer their assets to the children in their families without simply handing over the assets to them. You can clearly establish rules in your family trust about how the children in your family should receive their benefits.
- Indirect Control
While a settlor loses direct control over the assets they transfer to their family trust, they still have some indirect control over important matters. They have the power to choose the trustee of their choice, specify the terms of the trust, and govern how the trust properties should be administered.
- Confidentiality
Family trusts, especially the inter vivo trusts (trusts created when the settlors are alive), give you more confidentiality than a Will. While anyone can access the records of a probated Will, this is not the case with a family trust.
- Protecting The Beneficiaries
Family trusts are some of the most effective ways of protecting the beneficiaries and securing their financial future. For example, a family trust can be used to protect the financial interests of beneficiaries who are mentally incapable of managing their finances. These trusts can also fund the education of children and generate income for family members who are disabled or incapable of earning themselves.
- Tax Deferral
Usually, when a person passes away, they are deemed to have disposed of their assets at a suitable market value. Taxes are payable on all capital gains. This is not the case with the assets held by a family trust. Here, capital gains are payable on a tax-deferral basis, reducing the tax burden on the deceased individual’s estate. However, it must be noted that a trust has to pay capital gains tax every 21st anniversary of its creation. This may or may not work for your situation.
- Easing The Tax Burden
In some special circumstances, family trusts can be used to distribute the dividends and income among different members of the family. One such use is in the case of an estate freeze. An estate freeze is usually done by the business owners who want to transfer the business to the younger members of the family. An estate freeze, as the name suggests, freezes the value of the business for the retiring generation. After that new shares are issued to the new generation. This ensures that any future growth of the company will be in the shares owned by the future generation, thereby optimizing the capital gains tax liability on passing away of the retiring generation.
Receive Personalized Help In Creating A Family Trust With Cube Law
If you wish to create a family trust to distribute your wealth and have it managed properly in British Columbia, Cube Law offers complete legal assistance to you throughout the process. Our legal professionals specialize in Wills and estate planning, relieving you from the burden of making all the tough decisions yourself!
(Please note that this content is for informative purposes only. Do not consider this legal advice from Cube Law.)