For entrepreneurs and business owners, setting up a discretionary family trust and a holding company can be an essential fiscal and asset management tool. At Eb Conseil Fiscal, we help our clients maximize the benefits of these legal structures while minimizing tax and financial risks.
What is a discretionary family trust?
A trust is an autonomous legal entity with its own separate assets, similar to a corporation. It can hold assets, manage income, and interact with third parties. A discretionary family trust allows a business person to protect their assets, distribute income among family members, and optimize tax strategies. The key players in a trust are the trustees, who manage the trust, and the beneficiaries, who may receive income or capital depending on the trustees’ decisions.
What is a holding company?
A holding company is a passive company that typically receives tax-exempt dividends from the operating company and reinvests them for investment purposes. This structure allows the deferral of profit taxation, providing flexibility in income management.
The benefits of a family trust and holding company
- Flexibility in dividend allocation
The trust allows for the distribution of dividends among several family members or companies, according to the needs and objectives of the entrepreneur. For instance, an entrepreneur could allocate dividends to their adult children or to their holding company to split the income. This income splitting takes advantage of the federal tax exemption on the first $36,000 of dividend income received by an adult individual with no other taxable income. - Multiplication of the capital gains exemption
Through a trust, it is possible to multiply the capital gains deduction (CGD), currently set at $824,176. When selling a business, this mechanism allows the gain to be spread among several beneficiaries, each of whom can use this deduction. For example, if a trust holds shares in a company whose sale generates $2.4 million in profits, this amount can be distributed among three beneficiaries, each benefiting from the tax exemption. - Asset protection from creditors
Another major benefit of a trust is asset protection. The entrepreneur’s or family members’ creditors cannot seize assets held by the trust, as its assets are separate from those of the beneficiaries. This provides extra security in the face of lawsuits or personal creditors. - Maintaining control of the business
As a trustee and holder of voting shares, the entrepreneur retains control of their business while integrating family members as beneficiaries. However, these beneficiaries have no management rights over the company or trust, ensuring continuity in the governance of the business. Additionally, during the transfer of the company to the next generation, it is possible to plan a gradual transfer of control while minimizing tax impacts.
Why consult a tax expert to set up a trust and holding company?
Setting up a family trust and a holding company requires strategic planning and in-depth knowledge of tax rules. At Eb Conseil Fiscal, we guide you through every step, ensuring that your assets are structured optimally, while protecting your interests and maximizing your tax savings.
Don’t leave your assets unprotected! Contact our experts today to learn more about discretionary family trusts and holding companies, and discover how these tools can transform your tax and asset management strategies.
