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The Family Trust - A Vital Tool in Preserving Family Wealth


1. Family business succession planning, emphasis on planning

2. A Family Trust plays an integral role in succession planning and asset protection

3. An impartial, objective corporate trustee provides piece of mind

You have literally grown both your business, your wealth and your family over the course of many years and now what? What is your succession plan? What is the plan for the business? What is the plan for your immediate family and the successive generations?

The key word in all of these important questions is “plan.” It is never too early to start planning. However, it is easier said than done for such a complex issue. Unfortunately, “only 34% of Canadian family businesses have a robust, documented and communicated succession plan in place” (PWC 10th Family Business Survey 2021 – Canadian Insights). Failing to plan can lead to dire consequences for you and your family. One of the greatest intergenerational transfers of wealth in history will take place over the next decade or so. “We expect $15.4 trillion of wealth to be transferred by 2030.” (Wealth X, A generational Shift: Family Wealth Transfer Report 2019). Have you planned to transfer your wealth?

It is easy to procrastinate when you have pressing business issues that demand your immediate focus and attention. Likewise, it is easy to procrastinate succession planning because its complexity can be overwhelming.

Similar to starting a business, succession planning is a process that you cannot be successful at on your own. When you started your business, you needed the right team around you in order to be successful. Likewise, to be successful with succession planning, you will also need a collaborative team of professionals with particular specialties to assist you and your family. Such a team will likely consist of lawyers, accountants, valuators, wealth managers, bankers and trustees.

The first step is to start the conversation and assemble such a team which will work with you and your family to develop a succession plan. Inevitably, your particular plan will incorporate a variety of tools and structures such as wills, power of attorneys, agreements, corporate vehicles and trusts.

Trusts are one of the most effective and integral structures employed in succession planning.

Since the time of the Crusades trusts have been used to protect and transfer wealth to successive generations for over eight hundred years. Basically, a trust is a relationship. A trust is created when someone (a “Settlor”) transfers legal ownership of property to someone else (a “Trustee”). The Trustee then has legal ownership of the property, however, the Trustee holds that property for the benefit of someone else (a “Beneficiary”). As a result, the Beneficiary has beneficial ownership and rights in that property governed by the terms of a trust deed, legislation, the common law and equity.

Unlike a corporation, a trust is not a legal entity, it is essentially the relationship described above. Trusts are extremely flexible by nature and can be used for a great variety of succession, tax, asset protection, commercial and philanthropic purposes.

The following is a real-life example where the names have been changed and confidentiality has been strictly maintained:

Sam and Betty quickly came to realize the essential role that trusts would play in their succession plan from their team of advisors.

Sam and Betty fell in love at university and married over forty years ago. Shortly after their wedding in Mexico they put their business education to work. Entrepreneurs to their core, they started a manufacturing company from scratch. Through hard work and perseverance, forty years later they have grown their company exponentially with offices and plants worldwide. They have also grown their family, with three adult children, (Sally, Luke and Joan) and two grandchildren.

Sam and Betty grew up during a not-so-distant time when their parents shunned credit cards and paid everything with cash. Although they were not wealthy by any means, their respective parents scratched and saved to send Sam and Betty to university. Fortunately, Sam’s family was able to provide some small seed capital to start their business so many years ago. Armed with such values, when working through the succession planning process both Sam and Betty were very intent on preserving what they built and protecting their children and grandchildren.

Although Sam and Betty did not lead a flashy lifestyle, they raised their children in a relatively small community where everybody knew each other’s business.

Despite their attempts at maintaining privacy and trying to teach their children the value of a dollar, their son Luke married a gold digger named Debbie. Luke worked for a time in the family business, but after constant prodding and whining spendthrift Debbie convinced Luke to leave the company and move to a more glamourous city in Europe with their daughter Ivy. Fortunately, Luke’s sisters Sally and Joan stayed closer to home.

Sam and Betty were fortunate that their daughter Sally, like Luke before her, worked many years in the family business and was its anticipated successor. Sally and her husband Al didn’t have any children yet. Sam and Betty’s other daughter, Joan, never had any interest in the business. She was a nurse, married to her husband Bill, a physician and most importantly mother to their son Jimmy. Both Joan and Bill were hoping to provide more grandchildren for Sam and Betty.

Fortunately, Sam and Betty avoided the fate that befalls many families who ignore the benefits of succession planning and started the planning process with an eye towards eventual retirement. Their valued team of advisors collaborated, created and executed a plan based upon Sam and Betty’s wishes and needs.

At the heart of the planning structure, a Family Trust was settled which served many of their needs. From a tax planning perspective, the trust was used in a structure to freeze the value of the company shares held by Sam and Betty and pass on the future growth of the company onto the next generation. The tax owing was deferred and the value of the tax mitigated with planning for the multiplication of lifetime capital gains exemptions. The tax liability on the frozen voting shares held by Sam and Betty was quantified and will be paid by life insurance proceeds payable on the last to survive.

Although Sam and Betty certainly appreciated the tax benefits, most important to them was the added protection to their family and their wealth. The Family Trust provided them with a structure to protect the wealth they had grown over the course of four decades for their children and grandchildren while maintaining their family’s privacy and confidentiality. The separation of ownership inherent in the trust relationship provides an added blanket of asset protection.

The trust was drafted to ensure all current and future beneficiaries remained within Sam and Betty’s family bloodlines. The spouses of their children and grandchildren were expressly excluded as beneficiaries. As a result, current daughter-in-law, gold digger Debbie, was not a beneficiary although Luke and their children were.

The Family Trust was also drafted to take into account successive generations of bloodline family members who have not even been born yet.

Likewise, in addition to the common shares of their company, the trust also held and segregated most of Sam and Betty’s assets such as their investment portfolio and vacation properties in underlying structures. In contrast to a will which gets probated and becomes a public record, trusts are confidential.

Although deceased pharmaceutical billionaire Barry Sherman most likely had a trust structure, a significant portion of his wealth was dealt with by his will. The Supreme Court of Canada recently ruled that the Sherman estate files be unsealed and open to public access. Previously a lower court sealed the documents subject to an ongoing criminal investigation contrary to normal public probate access. In contrast, fortunately for Sam and Betty their wish for privacy and discretion was solved with their Family Trust structure.

By settling a Family Trust, Sam and Betty have provided their family with a legacy that will benefit them long after Sam and Betty have passed.

Although a trust was only one component of Sam and Betty’s succession plan, it plays an integral role in their key succession planning objectives and solutions:

1. Generational Transfer of Wealth

2. Asset Protection

3. Privacy and Confidentiality

4. Tax planning

The appointment of a professional corporate trustee for their Family Trust also provided Sam and Betty with peace of mind owing to their complex planning needs. They knew a corporate trustee would provide them with:

1. Professional Experience and Expertise: In the administration of trusts and estates which are often complex and burdensome owing to changing laws, tax matters and diverse investments.

2. Objectivity: Impartial and objective decision making free from family bias and dynamics.

3. Continuity: A primary objective for establishing a trust is typically to benefit future generations of family members. The choice of a professional corporate trustee ensures the longevity of the trust as it is not subject to the human frailties of an individual trustee.

4. Confidentiality: An impartial, objective, and professional corporate trustee has a fiduciary duty to maintain a client family’s privacy and keep their matters in strict confidence.

5. Regulation and Compliance: A professional corporate trustee is regulated and monitored by legislation and is held accountable to a higher standard than are individual trustees.

6. Collaborative Approach: A professional corporate trustee is dedicated to working with its client family’s team of professionals to obtain the best results and solutions.

If you have any questions or would like to discuss further, please feel free to contact a representative from Sorrell Private Trust.

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