Family trust
A family trust is a legal arrangement where a trustee holds property, such as shares in a family business, for the benefit of named beneficiaries, typically family members. It is commonly used alongside an estate freeze to spread future growth and income among several family members.
A trust separates legal ownership from the benefit of ownership. A trustee holds and manages the trust’s property, but the value and income are meant for the beneficiaries the trust names, which in a family business context are usually a spouse, children or other relatives.
Common roles in a family trust
- The settlor, who creates the trust
- The trustee or trustees, who manage the trust’s property and make decisions about it
- The beneficiaries, who can receive income or capital the trust distributes
Why family businesses use one
Holding growth shares in a family trust, rather than directly in each child’s name, gives trustees flexibility to decide later how and when to distribute value among beneficiaries, and can support sharing certain tax exemptions across family members when shares are eventually sold. Trusts also come with ongoing filing obligations and rules about how long they can exist.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryTax Law
- 02Treadstone LawLegal commentaryHow the Lifetime Capital Gains Exemption Shapes the Asset vs Share Decision in Ontario
- 03Canadian Federation of Independent BusinessResearch dataCapital Gains Changes
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