Setting up a family trust can give a small business owner a multitude of planning opportunities with potentially large advantages, says J.P. McAvoy, a lawyer with Drache LLP in Ottawa.
In All In the Family: Use of Family Trusts for Business Owners (Ottawa Business Journal), he explains four of these advantages:
- Income Splitting - Dividends can be paid from the family business corporation to the trust and these amounts can flow out to family members in need (and in a lower tax bracket).
- Succession Planning - With a family trust, the business owner can manage increasing tax burdens while retaining control over the assets and their income earning potential.
- Eliminating Capital Gains - If the business is sold, the gain realized upon the sale of shares in the family owned small business corporation may be spread among all beneficiaries of the trust.
- Creditor Proofing - Creditor proofing is inherent in the very structure of the family trust.
Read J.P. McAvoy's article for details on using each of these strategies. His explanation of using an estate freeze to reorganize the shares of the corporation to shift the tax burden from the corporation to the family trust is particularly interesting.
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