You have probably heard the term ‘family trust’ many times, perhaps without knowing exactly what it is. A family trust is a legal entity created to hold assets and enter into agreements and contracts with third parties. From a legal standpoint, once assets are transferred into a family trust, they are no longer the property of the person who transferred them. Instead, they belong to the trust, which is then administered for the benefit of the trustees or nominated beneficiaries, who are usually members of the relevant family. Read on for all the basic facts about family trusts and some advice on why you should consider having one.
What is a trust, and how does it work?
A trust is a legal arrangement in which the grantor or settlor sets aside a portion of their estate and appoints a trustee or group of trustees to manage it. The settlor places assets into the trust – either all their assets or selected ones – and the trustee then manages those assets for the trust’s nominated beneficiaries. The trustees have a legal and fiduciary responsibility to administer the trust as the grantor has directed so that the beneficiaries can receive the fullest possible benefit from the included assets.
Why bother with a family trust?
If you are looking for an effective way to preserve your wealth and transfer it to the next generation, a trust is an excellent tool for that purpose. Through a trust, you can specify who gets what, when and how. In Addition, you can ensure that there are no disputes about the division of your assets once you have passed on. Trusts also offer tax benefits and, if managed well, can facilitate the growth of your wealth, as well as its protection.
Do you need a family trust?
A family trust is not the only way you can manage, protect and grow your wealth while also preparing it to be transferred to your heirs, but it is one of the most efficient and useful. If you are a high-net-worth individual with highly valued assets you plan to leave to your heirs and would like to transfer in the most tax-efficient manner, then a family trust is probably for you. Don’t forget that you can also enjoy the benefits of a trust during your lifetime with the tax and investment benefits they offer.
NPW Wealth Advisors are committed to helping high net-worth individuals and families manage their wealth, grow their assets and plan their estates for an efficient tax transfer while lowering costs. For more information on family trusts in Canada, as well as all the other tools at our disposal to help you protect and grow your wealth, contact us today.