Preserve Wealth and Reduce Taxes with a Family Trust

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By iA Private Wealth, April 27, 2021

High-net-worth families want to protect their wealth, and one proven way to achieve that goal is through a family trust. And while high-net-worth families may reap the greatest benefits from trusts, other families – especially those who own a business – can make good use of family trusts as well.

A family trust is a legal entity that allows family members to protect assets, control the distribution of assets, transfer wealth among family members and split income in a tax-efficient manner. Before we look at these benefits in more detail, it’s important to understand the three key parties involved in family trusts: settlors, trustees and beneficiaries.

The settlor is typically a family member or close friend who establishes and funds the family trust on behalf of the trustees and beneficiaries. Trustees are the people who manage and administer the trust, and are often parents or a reliable business advisor. Beneficiaries are the people who will receive financial benefit from the trust, and can be children, grandchildren, siblings, nieces, nephews, etc.

Family trusts may set up as either testamentary (e.g., arising after the death of a trustee) or inter vivos (e.g., implemented while the trustee is alive).

Why create a family trust?

Now that we know who’s involved in a family trust, let’s look at four of the most common reasons for creating one:

  1. Protect assets. A family trust can protect the beneficiaries from claims for payment made by creditors. Assets held in the trust typically cannot be seized in the event of a lawsuit or bankruptcy.
  2. Control the distribution of assets. Trustees decide which beneficiary receives what – and when – based on the factors they have documented. Also, let’s say a child is disabled or not careful with money. The family trust can distribute assets in a way that ensures the child has enough money to help meet their lifetime needs.
  3. Transfer wealth among family members. An estate freeze is a strategy that allows a business owner to lock in the value of their business at its current valuation as part of the family trust. Any future growth of the business is considered a capital gain and the beneficiaries can use their lifetime capital gains exemption to help shelter these gains from income tax. Estate freezes are also used in other tax-mitigation strategies and for certain estate planning and business succession purposes.
  4. Split income in a tax-efficient manner. A family trust allows trustees to distribute earned income to family members who are in a lower income tax bracket, so the income (e.g., capital gains, dividends) is taxed at a lower rate. By sharing income, the overall family tax burden is reduced, leaving more wealth available.

Family trusts offer many benefits, but may also be costly and complicated. We can help you determine if establishing a family trust is suitable for your family’s unique financial situation. Find out more by contacting an iA Private Wealth Investment Advisor.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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By iA Private Wealth, November 23, 2023 As we approach year-end, it’s a great time to assess your expenses with the goal of setting yourself up to be financially stronger. New year, fresh start. When expenses are under control and you’re in a position to build wealth instead of spiralling deeper into debt, it helps you work toward reaching your short-term and longer-term financial goals. So, how can you resolve to manage expenses at year-end? Here are a few tips to get you on your way. Create a wealth plan. If you don’t already have an advisor, here’s the first New Year’s resolution to make. Everybody has specific objectives to achieve, and a comprehensive plan can give you a head start on next year’s finances. A professionally developed wealth plan will account for your unique circumstances, objectives, time horizon and risk tolerance. It helps you save and invest wisely, manage debt obligations and be more tax efficient. Also, it can adapt to changing circumstances so your plan stays relevant at any life stage. Since it requires significant training, skill and experience to create and maintain a personalized wealth plan, it’s best to work with a qualified advisor. Maintain a budget. A key aspect of wealth planning is setting a budget. Basically, a budget tracks your sources of income and expenses over a given time period (e.g., monthly). It provides an ongoing snapshot of how well you’re managing money and where improvements might be possible. With holiday season in full swing, an increase in social outings and gift buying can quickly send your expenses into overdrive. This year-end, be mindful of expenses and mounting debt by setting a reasonable holiday budget and sticking to it. Consolidate debt. The amount you spend over the holidays is largely discretionary, but sometimes carrying debt is unavoidable. Many people have mortgage payments, car loans, home-related expenses, etc. An advisor can review your various debt obligations, working with you and your financial institution(s) to see if it’s advantageous to consolidate debt into one relatively lower-rate loan or line of credit. Consolidating debt is often a practical way to lower your overall expenses. Commit to saving. While reducing debt is important, the flipside is to increase your savings. A proven strategy is to “pay yourself first” by putting a set amount (e.g., 10%) of each paycheque into a savings and/or investment account. It’ll build long-term wealth while helping you avoid the temptation to overspend. Also, year-end is a great time to devote money to registered plans for the following calendar year. For instance, on January 1 you can begin making that year’s contributions to your RRSP and TFSA. Not only will it help curb expenses by “forcing” you to save, but you’ll also begin enjoying tax benefits sooner in the year. Another aspect of saving is putting away money for emergencies like job loss, major home/vehicle repairs, serious illness, etc. You never know when you’ll need immediate access to cash, so an emergency fund – many experts recommend a minimum three months of household expenses – is essential for financial preparedness and peace of mind. Although any time is a good time to get a handle on your expenses, the year-end period often sparks motivation for people to focus on their finances and make improvements for the year to come.
Time to Hold a Family Financial Meeting?

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By iA Private Wealth, October 11, 2023 When thinking about family gatherings, you might focus on special occasions like holiday meals, birthday parties and anniversary celebrations. These are all good reasons to bring generations together, but there’s another gathering that’s equally important: the family financial meeting. Granted, discussing your health care needs and estate plans can be difficult and uncomfortable, but it benefits the entire family when everyone’s on the same page regarding your intentions. Financial matters can be emotional and contentious, so a transparent discussion may reduce misunderstandings, disagreements and conflict. In turn, you’ll gain peace of mind knowing your legacy wishes have been fully and effectively shared. Topics to discuss You know best how your family dynamics tend to play out, so take them into consideration when deciding who should attend the meeting. It makes sense to include all the children, but whether their spouses/partners and children are invited is your decision based on best judgement. The frequency of financial meetings depends on the circumstances, but it’s often valuable to hold one whenever there’s a significant change, such as retirement, death in the family or a notable monetary event like a business sale or recent inheritance. Below are seven topics commonly broached at family financial meetings – they might not all apply to your situation, and you may have others not listed here: Living arrangements (e.g., aging in place; downsizing; staying with family; moving to another city, province or country; residing in a seniors community/nursing home) What to do with the family cottage or other properties Your choices for executor and power of attorney, along with the reasons why Intention and directions for potential incapacitation, end-of-life care and funeral proceedings Wealth distribution as part of your estate plan (e.g., how you want to divide your assets and special possessions, whether grandchildren are included, your philanthropic goals); provide a rationale for these decisions so your loved ones understand the “why” If you own a business, what’s your succession plan? Will family members be involved? Will you sell? If you have insurance coverage, inform your loved ones about policy details The family meeting is also an opportunity to discuss the “softer side” of finances, such as your views on money, the struggles you may have faced when building wealth, and how you envision loved ones managing their own finances. Imparting wisdom you’ve gained over the years is a great way for family to learn from you and engage in meaningful dialogue about money and financial responsibility. What makes a successful family meeting? Emphasize that this isn’t a typical gathering, although a social component could be added once the formalities conclude. Try to strike a balanced tone: it’s a serious financial meeting with weighty or emotional topics, but it doesn’t need to be sombre. Investment Advisors, lawyers and accountants usually don’t attend, but they can be involved in meeting preparation, especially helping to explain technical terms or complex concepts you may need to address. Give people enough time to digest all the information. Since you might not resolve everything in one go, book a follow-up meeting if needed. In-person conversations are ideal because it’s easier to “read the room” and communicate effectively, but if some people can’t attend, a virtual or hybrid meeting may work. You could hold the meeting at your home for familiarity’s sake, but anywhere that’s comfortable, reasonably free of distractions and conducive to open discussion will suffice. Create and distribute an agenda in advance so participants are aware of the subject matter and can prepare questions or comments. Also adhere to basic “rules of engagement,” such as not interrupting speakers and not making personal attacks, so the meeting proceeds smoothly and the conversation stays respectful – even when objections are being voiced. When your meeting ends, summarize the discussion, share next steps and assign required roles and responsibilities. Be sure to keep your advisor and related professionals abreast of decisions emanating from your family meeting, so they may continue advising you in the best way possible. <!-- We can help you with a wealth plan that addresses tax efficiency, so contact us today. -->
Paying for Post-Secondary Education

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By iA Private Wealth, August 23, 2023 Higher education provides many benefits to students, such as building a career foundation, expanding social skills and learning responsibility. However, this education can come at a steep cost. The price tag will depend largely on whether or not your child attends a nearby school. If your child is still years away from post-secondary education, you’ll need to budget for inflation as well. Major expenses With proper planning and budgeting, many families can manage an investment in the child’s future. Before exploring different ways to pay for education, let’s consider the three primary expenses. Tuition: Factors that impact tuition include the school and program, whether your child attends full-time or part-time, and your child&rsquo;s citizenship status. Also plan for the cost of school supplies, books and other course materials. Accommodations: The cost is mostly dictated by living arrangements on or off campus (e.g., if your child rents solo or has housemates/roommates). Food expenses may involve a campus meal plan and/or groceries, dining out or eating at home. Other costs to consider include hydro and utilities, phone, internet/cable, insurance, clothing, personal care and entertainment. Transportation: These expenses will vary. Students staying at home might rely on public transit, ride sharing, walking or cycling. Some may need (or choose) to drive, which means using a family vehicle or buying their own, and paying for maintenance, parking, insurance and fuel. If your child moves away, plan for transportation costs while at school, plus costs for roundtrip travel (car, bus, train or plane) whenever they return home. Making ends meet Once you gain a sense of the costs involved, the other part of your budget pertains to covering these costs. A budget organizes your expenses and income, and helps determine if your finances are on track. Here are five common sources of money to help pay for post-secondary education: RESPs. The Registered Education Savings Plan (RESP) is a proven way to save for school. Not only is investment growth within the plan tax deferred until withdrawal, but if the student is in a low tax bracket when they use the funds for schooling – which is often the case – the tax impact will be minimal. As well, they may qualify for benefits like the Canada Education Savings Grant and Canada Learning Bond, which provide additional funds for education. Personal savings. The student may opt to use some of their accumulated savings for school, plus parents and grandparents are often able and willing to help out. Borrowing. The federal government offers financial assistance to students in need. Your child may be eligible for a government grant or loan; if approved, they can use the money for school-related expenses and won’t begin repaying until after they graduate, according to a specific schedule. Provincial governments may also offer funding, so check with your province for information. Scholarships. Students with strong academic standing could be eligible for a range of scholarships. Scholarships Canada and the Government of Canada’s scholarships website are great places to start. High school guidance counsellors also have current information on scholarships and bursaries, plus they can offer direction on the application process. Employment earnings. Many students build savings by working in the summer and part-time during the school year. You can guide your child on what employment opportunities may suit their experience, skills and interests. Remind them that earning money for school is great, but education should be prioritized and their work schedule must allow enough time for classes, study, assignments, etc.
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