Lucke Barth Law | Family Trusts

Family Trusts

Family Trust

Our office has prepared family trusts for many of our clients. Typically we have dealt with newly formed corporations, which have nominal share valuations. In the event your company has been around, it will be necessary to complete an estate freeze and issue the trust shares.

There are 2 main reasons to establish a family trust: 1 Asset Protection, 2. Income Splitting.

 

1) Asset Protection:

·         Wealth Protection

·         You have worked and built an asset base that can be utilized to serve your family for years to come.

 

2 OPTIONS TO SHARE WITH YOUR FAMILY

A TRUST OR THE ALTERNATIVE

 

·         Alternative- Corporation, give your family member shares in your company.

·         No differentiation in Classes of Shareholders... if one gets a dividend, all get dividend.

·         OR......if your family member is involved in a failing marriage, under current laws, either the whole of his shares are matrimonial property, OR any gain from the point the family member had become “married” under today’s laws.

·         In the event of issuance of shares to the family member, the division is easy, have the corporate accountant provide a valuation of the shares, and divide by 2.

·         PRESUMPTION: the family members former spouse and their lawyer like the valuation the corporate accountant established!!!

·         If not---then open u the books for the family members ex-spouse and their lawyer to have another evaluation done by their appointed accountant.

·         So much for the sanctity of the Canadian Controlled Small Business FAMILY Corporation!

 

NOW......

 

·         IN a Discretionary trust its different.

·         Being a discretionary beneficiary under a trust provides no entitlement!

·         So whats the value in being a beneficiary in a discretionary trust.... Whatever the trustees decide! If the family member is acting up, no need to penalize other shareholders or reward the acting up family member...as we would have has to do in a corporation with the equality amongst classes of shares.

·         So while the family member and their spouse are happy and well, the family member receives whatever the trustee decides, in the event of the family members marriage failing, the Trustee can honestly assert that the family member owns nothing, as shares have not been issued, and all is at the Trustees Discretion.

·         We have now protected your asset base from attack from outside sources.

·         NO real sustainable challenge, no audit of your company, no exposing the books to others, your Family Corporation remains a family corporation.

·         You can still provide a benefit to the family member even while involved in the divorce, but you are not risking your corporate existence!

 

THE REAL KEY TO THIS BENEFIT IS THE TRUST DOCUMENT!!!

 

ALL POWERS ARE DERRIVED FROM THE TRUST DOCUMENT.

 

NO OUTSIDE INFLUENCES.

 

IMPORTANT FOR DOCUMENT TO SET OUT ALL TRUST CAN AND IS TO DO.

 

ALSO HOW TO REPLACE TRUSTEES ONCE DECEASED OR INCAPACIATED...SUCCESSION PLANING IS IMPORTANT.

 

2) Income Splitting:

No class structure in a Trust.

All can be paid out as best needed at both the Trust Level, and the Individual level.

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