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Family Trusts at Jahanshahi Law Firm
A family trust is a legal relationship created to hold and manage assets for the benefit of specific individuals—typically family members. In Ontario, family trusts are commonly structured as discretionary inter vivos trusts, meaning they are set up during the settlor’s lifetime and give the trustee discretion over how and when to distribute income or capital to beneficiaries. This flexible structure makes family trusts a powerful tool in wealth planning, estate planning, tax minimization, and asset protection.
At their core, family trusts separate legal ownership from beneficial ownership. The trustee—often a trusted advisor or family member—legally holds title to the assets in the trust and is responsible for managing them according to the trust deed. Meanwhile, the beneficiaries—usually children, grandchildren, or other family members—hold equitable interests and may receive distributions at the trustee’s discretion.
Family trusts serve a wide range of purposes. From a tax planning perspective, they allow families to income-split by allocating trust income to beneficiaries in lower tax brackets (subject to rules like the Tax on Split Income or “TOSI”), defer capital gains, and potentially multiply the lifetime capital gains exemption (LCGE) on the sale of qualified small business corporation shares or qualified farm/fishing property. From an estate planning standpoint, they provide privacy and flexibility in succession, allow for the gradual transfer of wealth, and help avoid probate fees. They also offer asset protection against future creditors, marital breakdowns, or lawsuits—when properly structured and not used to defeat creditors.
While family trusts offer significant advantages, they require thoughtful planning, precise drafting, and ongoing administration. The rules governing trusts in Canada have evolved considerably, particularly with respect to trust reporting requirements (as of 2023), TOSI, and attribution rules under the Income Tax Act. As such, they are most effective when tailored to the unique dynamics of a family and coordinated with a client’s broader business, tax, and estate plan.
At Jahanshahi Law Firm, we advise high-net-worth individuals, professionals, and business owners on the strategic creation, implementation, and ongoing management of family trusts. Whether you are incorporating a trust into a corporate reorganization, passing wealth to the next generation, or protecting assets, we provide legal advice rooted in deep tax knowledge and practical business insight.
Benefits of Creating a Trust
Income Splitting and Tax Efficiency
Allocate income to beneficiaries in lower tax brackets to reduce overall family tax burden (subject to TOSI and attribution rules).
Potential to pay dividends or trust income to adult children or other low-income family members.
Can be used to strategically time distributions to minimize tax during key life stages (e.g., when a child turns 18 or attends university).
Multiplication of the Lifetime Capital Gains Exemption (LCGE)
If the trust holds shares of a Qualified Small Business Corporation (QSBC), multiple family members can claim their LCGE on a future sale.
This can result in hundreds of thousands of dollars in tax savings when selling a family business.
Estate Planning and Probate Avoidance
Avoids or reduces probate fees (Estate Administration Tax in Ontario), which are calculated on the value of assets passing through a will.
Allows for a smoother and more private transfer of wealth upon death, without involving the public probate process.
Can provide a mechanism to continue managing family wealth after death, without needing to rely solely on a will.
Asset Protection
Assets held in a properly structured discretionary trust may be shielded from claims by:
Creditors of the settlor or beneficiaries.
Spouses in the event of marriage breakdown (subject to family law considerations and not being a sham).
Legal actions or judgments against individual beneficiaries.
Offers long-term protection for vulnerable or financially immature beneficiaries.
Maintaining Control Over Distributions
The trustee maintains discretion over how and when beneficiaries receive distributions.
Protects against premature or irresponsible access to capital by younger beneficiaries.
Can be used to support family members without granting them full control or ownership.
Succession Planning and Business Continuity
Facilitates the gradual transition of ownership in family businesses without giving up full control immediately.
Helps maintain family control of shares and voting rights through structured shareholding.
Useful in multi-generational business planning to maintain stability and reduce conflict.
Preserving Family Wealth
Consolidates ownership of key family assets—such as a business, real estate, or investments—under one structure.
Encourages long-term thinking and governance around how family wealth is managed and distributed.
Can be combined with a family governance framework to support values-based wealth transfers.
Flexibility
Trust terms can be drafted broadly to give trustees significant latitude in managing investments and distributions.
New beneficiaries (e.g., grandchildren or spouses) can often be added through class definitions.
Adaptable to changing tax laws, family dynamics, or business conditions with proper planning.
Privacy
Unlike wills, trust deeds are private documents and not part of the public probate court record.
Keeps sensitive financial and family matters out of the public domain.
Planning for Minor or Incapable Beneficiaries
Ensures that a trustee manages the assets until a minor beneficiary reaches a suitable age.
Allows the settlor to appoint a trusted advisor to manage assets on behalf of a vulnerable or disabled family member.
How Trusts are Set Up in Canada
Setting up a family trust involves several legal and strategic steps to ensure it is properly structured and achieves the intended objectives. The process typically begins with identifying the key parties: the settlor (the person who creates the trust and contributes the initial property, often a nominal amount), the trustee(s) (who manage the trust property), and the beneficiaries (those who may receive income or capital from the trust). Once these roles are determined, a trust deed is drafted—this is the foundational legal document that outlines the terms of the trust, including the powers and duties of the trustee, the nature of the trust property, and how and when distributions can be made.
The trust is then formally settled when the settlor contributes the initial trust property and the trustee accepts the role. From there, assets such as shares in a private corporation, investments, or real estate may be transferred into the trust. Proper legal and tax advice is critical at this stage to address any deemed disposition rules, attribution rules, and potential tax filings, such as Form T3 for trust income and new trust reporting requirements. At Jahanshahi Law Firm, we guide clients through each step of the trust setup with attention to legal compliance, tax efficiency, and alignment with long-term family and business goals.
Why Work With Jahanshahi Law Firm
At Jahanshahi Law Firm, we take a strategic and forward-thinking approach to family trust planning. Our practice is rooted in a deep understanding of corporate, tax, and estate law—allowing us to design trusts that are not only legally sound, but also aligned with your broader financial, business, and succession objectives. Whether you’re a business owner looking to multiply the capital gains exemption, a professional seeking tax efficiency and asset protection, or a high-net-worth family planning for generational wealth transfer, we provide tailored solutions with clarity and precision. As a boutique firm, we offer highly responsive service, direct lawyer involvement, and a practical, results-oriented mindset. Our founder is in the process of earning his TEP (Trust and Estate Practitioner) designation and brings over a decade of experience advising clients on complex legal structures. We don’t just draft trust deeds—we integrate family trusts into your overall legal and financial roadmap.
Let’s Build Your Legacy Together
At Jahanshahi Law Firm, we are dedicated to helping you build a lasting legacy. Contact our business law team today to learn how we can assist you in creating a trust that serves your objectives and provides peace of mind for you and your beneficiaries.