Can A Family Trust Run A Business In British Columbia?
Family trusts are popular estate planning tools in British Columbia. They help you provide for your loved ones and secure their financial future. A family trust lets you choose a trustee who will manage your assets and ensure that your beneficiaries receive their shares.
Let us quickly answer the title question first: can a family trust run a business in British Columbia?
The answer to this question is yes, it can. However, you should know that a family trust is not an independent entity. It is a legally valid relationship between you, your trustee, and your beneficiaries. You can hire an experienced estate planning lawyer in BC to help you prepare a family trust.
Before exploring how a family trust can run a business, let us get our basics clear about the estate planning tool.
What Is A Family Trust?
A family trust is a legal relationship that allows you to distribute your assets among your loved ones. It involves a grantor, a trustee, and one or more beneficiaries.
A family trust helps you safeguard your wealth during and after your lifetime. You can transfer your assets (including a business you own) to your trust and have a trustee manage them. The trustee will be responsible for distributing your wealth among the beneficiaries according to your wishes.
Why Should You Create A Family Trust?
The biggest reason behind setting up a family trust is to transfer your assets to your family members. A trust protects your assets and ensures that your loved ones receive the benefits from the same. You can make changes to your family trust throughout your lifetime with your lawyer’s help.
Creating a family trust also gives you and your loved ones tax benefits, especially if you own a business and want your beneficiaries to have a share of the same.
Another common reason to create a family trust is to avoid probate. After your demise, your family trust becomes the legal entity guiding your wealth distribution. Your family members will no longer need to go through the cumbersome probate procedure.
What Are The Different Types Of Family Trusts In British Columbia?
You can create different family trusts depending on your requirements and preferences. Here are the most common types of trusts you can prepare for your loved ones:
Bypass Trust
A bypass trust is created for couples to reduce taxes and provide for a partner and their loved ones when their spouse passes away. Preparing this trust saves your spouse from double taxation while giving them the benefits you planned for them.
Generation-skipping Trust
As the name suggests, this trust is prepared to transfer wealth to the grantor’s grandchildren, great-grandchildren, or the following generations. It skips the immediate generation and treats the following generation(s) as beneficiaries.
Living Trust
This is a trust that can be revoked and/or changed during the grantor’s lifetime. You can easily change its contents and structure while you are alive and mentally capable.
Spendthrift Trust
This trust is made with a provision that prevents your beneficiaries from selling the assets they receive. You can prepare this document if you want to protect your assets and want them to have a longer life. Many entrepreneurs choose this trust while passing on their companies to their family members.
Business Ownership Under A Family Trust
Many businesses in BC are owned by shares. If you want your family members to retain control over a business you own, you can transfer its shares to your family trust. Having said that, you should remember the nature of your business and family trust.
While your business (if incorporated) will be a separate legal entity, your family trust will just be a legal relationship. The trustee will shoulder the responsibility of transferring your business shares to your family members. You can also have them transfer your business profits to your beneficiaries.
What Are The Benefits Of A Family Trust Owning Your Business?
Now that we know how you can make your family members business owners through a family trust, here are the benefits of the trust running your company?
Safeguarding Business Assets
Including your business in your family trust helps you safeguard its assets. You can limit your company’s liability and protect your assets from creditors’ claims.
Tax Benefits
You can avoid estate and gift taxes when a trust owns your business. Both you and your family members can receive tax benefits by saving on the capital gains taxes before and after your demise.
Confirming Future Ownership
A family trust confirms your family members owning your business after your demise. It gives the court a clear roadmap for how your venture will be managed in your absence. It eliminates all confusion and ambiguity about inheritance and gives clear ownership to specific members of your family.
Avoiding Probate
A family trust owning a business ensures tax-efficient inheritance without probate. You can legally transfer the ownership and management of your company to your family members after your demise without them going through lengthy probate.
Understanding Interactions Between A Business And Family Trust
When you move your business into your family trust, you can distribute your company’s shares to your loved ones. Referring to the legal document, the trustee will be the ultimate decision-making authority. If mentioned in the trust, your trustee can also participate in shareholder meetings and have voting powers.
Prepare A Family Trust And Provide For Your Loved Ones With Cube Law
The estate planning lawyers at Cube Law know the British Columbia laws and regulations for creating a family trust. They will help you understand the tool, prepare the document, add the necessary provisions, and choose an ideal trustee for the arrangement. Cube Law guides you while making important decisions, especially if you plan to use your trust to run a business. Rest assured that we will assist you in providing your loved ones with their share of inheritance through a meticulous family trust.