Holding Shares in a Family Trust
In a previous blog post, we discussed the general concept of a family trust and indicated that one way to use a family trust is to hold shares in a Canadian-controlled private corporation. Assuming that we are dealing with a discretionary trust in which only Canadian residents are beneficiaries and trustees, there are several benefits to holding shares in a family trust as opposed to holding the shares personally, some of which are:
1) The Trustees maintain control over the shares held in the trust. What this means is the trustees exercise any voting rights attaching to the shares, not the beneficiaries. Only the trustees are active in decisions relating to the corporation.
2) If any dividends are paid on the shares, those dividends may be paid to one or more of the beneficiaries.
3) If the shares of the corporation are sold, the proceeds from the sale of shares may be paid to one or more beneficiaries. If the shares qualify for the lifetime capital gains exemption, each beneficiary who receives proceeds can use their exemption if they wish (assuming they still have exemption room).
4) Generally speaking, the assets of the Trust do not belong to any beneficiary (the assets are owned by the Trustees). As a result, if a beneficiary is experiencing problems with creditors, those creditors would not be able to seize the assets of the trust to satisfy those debts in the ordinary course.
As we indicated in our previous post about trusts, there are a number of special tax rules that apply or can apply to trusts, depending on what the trust is used for, that should be considered when the trust is put in place. As a result, it is important to consult your tax and legal advisors if you are considering using a trust.
If you have questions or require further information about family trusts, please contact us and we will put you in touch with a member of our Taxation team.