Family trusts aren't a new concept for business owners, but today, they're more valuable than ever. With tax rules tightening, succession planning getting trickier, and personal wealth protection at the top of your mind, a family trust can be one of the smartest strategies you can implement. Not only can it help you save on taxes, but it also strengthens your business legacy, keeps you in control, and helps secure a stronger future for your family.
Let's break down what a family trust really means, why more business owners are leaning into it, and how it could fit into your bigger plans.
What is a Family Trust?
At its core, a family trust is a legal setup where someone (the trustee) manages assets for the benefit of others (the beneficiaries), often family members. Think of it like a box you build: you decide what goes inside, who can eventually take from it, and under what conditions.
You can hold assets like:
- Private company shares
- Investments
- Real estate
- Cash or other financial tools
And the best part is you set the rules, making it a flexible tool that can evolve with your family’s needs.
Why Business Owners Are Paying Attention
Tax Planning Advantages
One of the biggest draws: Income splitting.
By allocating income to lower-income family members, you could reduce your family's overall tax bill. Of course, there are rules to navigate (like attribution rules and tax on split income or TOSI), but with the right advice, there are still plenty of smart moves you can make.
A Layer of Protection
Business ownership naturally comes with risks. Holding key assets in a trust adds a layer of protection against potential creditors or lawsuits. Instead of owning those assets personally, the trust holds them, helping shield what matters most.
Smooth Succession Planning
If you plan to pass your business down to the next generation (or even just want to keep your options open), a family trust can streamline the process.
Shares held in a trust are easier to transfer without triggering unwanted tax consequences or administrative headaches. Plus, you can maintain control over key decisions, even as you involve your children or other family members in the business.
Multiplying the Capital Gains Exemption
If you own a qualified small business corporation (QSBC), you’re likely familiar with the lifetime capital gains exemption (LCGE) - currently $1.25 million per person. A trust lets you multiply that exemption across several beneficiaries when you sell your business, unlocking some serious tax savings with the right planning.
Flexibility for the Future
Maybe you don't know today which child will eventually take over the business. Or maybe you want to leave room to accommodate future grandchildren. A family trust allows you to name a broad group of potential beneficiaries and decide over time how assets should be allocated, giving you room to adapt as life evolves.
When a Family Trust Makes Sense
- You're planning to sell your business in the next few years
- You're thinking about involving family members in ownership or management
- You want to create a legacy beyond just financial assets
- You're looking for protection against future legal or creditor risks
What to Watch Out For
Setting up a trust isn't "set it and forget it."
You need ongoing administration: filing annual trust tax returns, making thoughtful decisions about allocations, and ensuring you comply with evolving tax laws (which have gotten stricter in recent years).
It's also important to set it up properly the first time, with experienced advisors guiding the structure and documentation. A poorly planned trust can create more headaches than benefits.
Final Thoughts: Should You Explore a Family Trust?
If you're thinking about tax efficiency, asset protection, succession planning, or building generational wealth, a family trust might be one of the most powerful strategies you haven't fully tapped into yet.
We work with growing companies across Canada to create customized plans that protect what you've built and open new opportunities for the future. If you're curious about whether a family trust fits into your bigger picture, reach out - we'd be happy to walk you through it.
Coming Up Next: The Technical Side of Trusts
In Part 2 of this series, we’ll dive deeper into the mechanics of how family trusts work, including who can be a trustee, how distributions are taxed, what makes a trust living vs. testamentary, and more technical details business owners should know. Stay tuned!
