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What exactly does a family trust do?

If you have ever considered – or been advised to consider – setting up a family trust, you may wonder what exactly the point would be. What can a trust do for you? Family trusts have several benefits for you as the grantor and for your beneficiaries. Here are the three most important benefits of family trusts, which make them highly effective instruments for the preservation, growth and transfer of wealth.

1. Ensures that your assets are managed according to your wishes

The transfer of wealth to a deceased person’s heirs is all too often a messy and contentious affair. Wills help ensure that the assets are distributed according to the deceased’s wishes, but the process can still be problematic. In addition, you may have very specific stipulations about how your wealth is to be disbursed to your loved ones once you are gone. Trusts are perhaps the best means to ensure that your instructions are carried out. Trustees have a legal responsibility to follow, to the letter, the instructions you put in place when you set up the trust. You can specify who gets what, at what time, and what is required for them to receive their inheritance. In the meantime, the trust protects and manages your assets, keeping them intact when the time comes to pass them on.

2. Insulates assets from creditors

If you have concerns about creditors coming after your assets, either during your lifetime or after you have passed away, then a family trust is an ideal way to keep your portfolio safe. Once you transfer your assets into the trust, they cease to belong to you in the strictest legal sense, which means they are placed outside of the reach of any individual or organization to whom you may be personally indebted.

3. Minimizes estate taxes once the grantor passes away

Although a family trust is regarded as a separate taxpayer and is taxed at the highest marginal rates, it can still enable your estate to reduce its tax bills. It does so by deflecting personal liability away from your beneficiaries and using tactics such as income splitting, capital gains, tax exemptions and tax-difference through corporate beneficiaries.

NPW Wealth Advisors are committed to helping high net-worth families and individuals manage their wealth, grow their assets and plan their estates for a tax-efficient transfer while lowering overall 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.

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