Trusts are recognized in Canada under the Company and Corporate Law. According to this law, there are various types of trusts local and foreign citizens can establish in Canada. It should be noted, however, that the trust is not considered a legal entity, such is the case of companies. Below, our Canadian company formation agents explain the elements of the trust and how one can create such an entity.
Types of trusts in Canada
Canada is, perhaps, one of the few countries which provide for a large variety of trusts. There are a little over 30 types of trusts (one can also register a testamentary trust in Canada) which can be established in Canada. These trusts can be further categorized into trusts which are established as part of a testament and trusts which can be used while the settlor is alive. The following types of trusts are more common in Canada:
- family trusts which are created as testamentary trusts most of the times;
- trusts which can be created for various employment purposes, such as benefit plans and life and health trusts – these are usually created by Canadian companies;
- mutual fund and real estate investment trusts which are created for investment purposes;
- retirement income trusts, savings trusts, and compensation arrangement trusts are also common in Canada.
Our local consultants can offer more information on the types of trusts in Canada. Our consultants can also provide legal representation in the case in which you want to open a company in Canadaor you want to start a non-profit organization.
What is a family trust in Canada?
One of the ways to start a trust in Canada is by opening a family trust. This type of entity has the purpose of protecting the estate of a family and it can also provide various tax advantages. From a legal point of view, a trust has the characteristics of a legal entity that is separated from the person who created the trust.
Another advantage of setting up a trust in Canada is that, by doing so, the properties of a person/family will belong to the trust, instead of the person who is the initial owner. By this, one can protect the wealth of a family from various legal issues that can appear in the future, while the trust is administered by the appointed persons in the name of the beneficiaries of the trust.
The family trust Canada offers multiple advantages which otherwise can’t be obtained on an individual-to-individual basis. For instance, through the trust, one can benefit from lower taxes paid during the transfer of ownership from one member of the family to the other (a tax obligation which appears when a property owner dies and the other family members are entitled to inherit the said property and other assets).
This vehicle is also suitable for the protection of assets and the wealth of person or a family unit and it also provides a safe legal framework for the protection of the interests of the family children, as the owners of the trust will specifically mention the rights granted to children and the way in which they can benefit from the wealth accumulated through the trust.
Another type of family trust is the testamentary trust in Canada, which is set up at the moment when the person who owns a certain estate dies. The terms that will set up the trust will follow the wishes prescribed by the deceased in his or her will, or, if there isn’t a will, in accordance with the rules of the Canadian province where the person has his or her residency.
Thus, family trusts in Ontario can have slightly different rules and tax requirements compared to trusts registered in other Canadian provinces. For example, if you will set up a family trust in BC (British Columbia), the said trust can have a validity of maximum 80 years since the moment when it was incorporated. Because such rules can vary, we invite you to address to our team of consultants in company registration in Canada for in-depth advice regarding the region of your interest.
Elements of trusts in Canada
A Canadian trust, no matter its type, will have the following elements: the settlor – the person creating the trust, the trustee – who will act as the administrator of the trust and the beneficiary or beneficiaries – the person or persons who will benefit from the assets held by the trust. Our company registration advisors in Canada can offer more information on the elements of the trust, as they can vary – for instance, family trust in Ontario can be different than the family trust in BC.
What are the advantages of setting up a trust in BC?
All trust funds in Canada provide various advantages, depending on the place where they are incorporated. Also, various regions can have a lower cost for setting up a family trust in Canada and we advise you to address to our team if you want to know more of the registration costs, the yearly maintenance costs or the taxes associated with this structure. Taxes for trusts are administered by the Revenue Agency, where the registration formalities are also concluded. In British Columbia, the following apply:
- the standard lifetime of a family trust in BC is of 80 years;
- in other Canadian regions, the standard lifetime is of 21 years;
- through a trust, one can avoid the payment of the probate fee, charged at the standard rate of 1.4% in British Columbia, from the value of the deceased estate, if the transfer of ownership is done through regular means (through will or by inheritance);
- the probate procedure will also include specific steps that take time during the distribution of assets (it can take several months) and after the decision on the distribution of the assets is made, the executor has to wait 210 days before actually distributing the assets, and this does not occur when setting up a trust in Canada;
- it can also avoid any additional claims that can be made by heirs if the inheritance was obtained through a will, following the rules of the Wills, Estates and Succession Act Part 4, Division 6.
The manner in which a trust can be registered in British Columbia is done following the rules of the Trustee Act BC, the main rule of law regarding the organization and the management of this vehicle. If you are interested in setting up a trust in BC, we invite you to address to our team of consultants in company formation in Canada by e-mail or by phone, and our team can help you prepare the set of documents necessary for this procedure.
Our specialists can also present the tax advantages you can obtain through this entity and you can rely on us for information on the tax obligations you will have in a financial year and what types of documents you must submit with the local institutions. We can also inform you on the cost of setting up a family trust in Canada.
How to create a trust in Canada
The trust is created through a trust deed, following the rules of the Trustee Act BC, for trusts registered in British Columbia – a document signed by the settlor – through which the trustee and beneficiaries are appointed. The document must also contain information about the assets to be left in the trust. Persons interested in creating a trust in Canada must be aware of the fact that trusts are taxed differently based on their type. Trusts can also be used for tax minimization purposes in Canada. For assistance in establishing a trust in Canada, please feel free to contact us.