Can a family trust own a company in British Columbia? The short answer is yes, it can, and it can continue to own the company after your death. However, it’s best to work with an experienced attorney familiar with British Columbia’s legal framework to determine if a trust is the right legal mechanism for managing your family’s needs after death, as there are specific regulations in the province that must be adhered to.
As a business owner in British Columbia, Canada, you have worked hard to build success and you want to preserve your business for your family after your death. One way to achieve this is through the establishment of a family trust.
What Is a Family Trust In British Columbia?
A family trust in British Columbia, Canada, is a legal and financial agreement that allows individuals or families to manage and protect their assets for the benefit of the family, both during and after their lifetime. Commonly used in estate planning to enable the transfer of wealth, assets and property to future generations while providing benefits such as tax planning and asset protection.
There are three parties in a family trust:
- Grantor: This is the person who creates the trust and moves assets into the trust. In this situation, the business could be that asset.
- Trustee: This is the party that manages the trust on behalf of the beneficiaries after the death of the grantor.
- Beneficiaries: This is the person or people that benefit from the trust in some way, such as receiving compensation from it over time.
In most cases, the family members are listed as the beneficiaries in a family trust, and it can be any family member named on the trust.
What Is the Purpose of a Family Trust In British Columbia?
The core benefit of a family trust is to establish a way to pass assets, like your business, from your ownership to your chosen family beneficiaries. Trusts provide financial protection to you and your family members. During your lifetime, you can make changes to your family trust (depending on the type of trust it is) as a way to help you protect your assets and potentially minimize taxes on your business during your lifetime.
After your death, a trust acts somewhat like a legal entity, which means it can protect the assets within it from going through the probate process. Probate is the legal process in which creditors make claims against your assets, the judge requires them to be paid, and taxes are applied. With a trust in place, whatever is within that trust won’t go through this process.
A Family Trust In British Columbia Can:
- Provide you with the ability to leave money or other assets, such as your business, to specific beneficiaries.
- Help by reducing taxation during your lifetime.
- Protect your assets from creditor claims now and after your death.
- Allow you to control when, how, and if a person named on your trust receives these benefits.
- Avoid allowing the probate process to make decisions about who inherits your assets.
How Does a Family Trust Work In British Columbia?
British Columbia allows for various types of family trusts, and they all operate, as noted above, with various specifications. Here are a few examples of how this may be set up to manage your specific needs.
- Bypass trust: In this situation, the bypass trust bypasses the surviving spouse when one dies. It helps to protect spouses from double taxation at the time of one spouse’s death and then again at the second’s death.
- Generation-skipping trusts: This form can be designed to allow you to leave your assets to a younger generation, and this does not require that you pay estate or gift taxes.
- Living trusts: Also known as a revocable trust, this type of trust allows you to change its structure and details over your lifetime. ‘
- Spendthrift trusts: This form helps to protect the assets in the trust by eliminating the risk that a beneficiary will sell the assets within the trust or give away the trust’s assets.
It is possible to structure a family trust in BC to meet many specific needs and considerations. Ultimately, the goal is to ensure that your business, or other assets, are moved from your ownership to your desired beneficiaries with the least risk of financial loss.
Family Trust Ownership of Company Shares
In British Columbia, some companies are owned through shares. Each share of the company represents a piece of ownership of the company, typically a percentage of the company’s ownership. It is possible to establish a family trust in such a way that it would allow the trustee to own shares of the company. However, it is important to note that a trust in BC is not a fully separate legal entity but rather a legal relationship.
It is possible for the trust to hold shares of the property owned by the trustees named within the trust and profits earned from the company can be distributed to the trustee and beneficiaries.
Benefits of Family Trust Owning a Company
Why should you make the decision to establish a family trust for your company? There are many benefits to establishing a family trust for your company in BC, including:
- Asset Protection: A trust allows for the creation of protection from creditors and third-party claims against the business. It is harder for a trustee to mismanage the shares in the company or a creditor to seek out claims against the company.
- Tax Planning: The trust structure can also help to reduce taxation both during your lifetime and later after death. Depending on the structure, it may be possible to avoid gift taxes and estate taxes.
- Clear Succession Planning: With the establishment of a trust, there is a clear, well-defined path for the court to follow after the company’s owner’s death. There is less risk for the next generation to miss out on the ownership of the company due to factors like capital gains.
- Estate Planning and Wealth Transfer: A family trust is important for estate planning purposes. They allow for a tax-efficient transfer of a company ownership to the next generation or beneficiaries after the guarantors’ death, whilst avoiding delays and costs that come with probate.
- Privacy: Assets that are held within a family trust are private and do not have to be disclosed to the public, unlike a company held in a personal capacity.
Company and Trust Structure In British Columbia
In BC, Canada, it’s important to know that when a family owns a company, there is a separation between the legal structure of the company and of the trust. Understanding these different structures is important for knowing how to manage and protect assets effectively. Here is how these structures usually work in BC:
Company Structure:
- Business Entity: The company is a separate legal entity, with its own assets, liabilities and legal obligations.
- Ownership: The company will have its own ownership structure made up of shareholders and partners.
- Management: The company is managed by directors and officers, who make strategic decisions for the company.
- Assets and Operations: The company owns and operates its assets, conducts business and generates income.
- Taxation: The company is subject to corporate income tax on its profits.
Trust Structure:
- Legal Relationship: A family trust in BC is a legal relationship. It does not have its own separate legal entity: it is a relationship where assets are managed for the beneficiaries’ benefit.
- Ownership of Assets: The family trust owns the assets given by the guarantor.
- Trustee: The trustee manages the trust assets and ensures it operates according to the trust documents.
- Beneficiaries: These are the people designated in the trust documents to receive benefits or income generated by the trust assets.
- Asset Protection: Assets in the trust are protected from personal creditors and legal claims against beneficiaries of the guarantor.
- Taxation: Family trusts in BC may be subject to their own tax considerations, including potential taxation of trust income.
Interactions Between Company and Trust:
- The family trust holds a significant stake in the company through the ownership of company shares.
- The trustee exercises decision-making authority over the shares, according to the trust documents.
- The trustee can be a part of shareholder meetings and vote on corporate matters.
As a complicated legal structure with numerous options and various rules to follow, it is critical for company owners to work closely with an attorney to ensure they are creating and managing a trust in a way that’s beneficial to all involved.