A family trust is a trust whose beneficiaries are members of a family, most often structured as a discretionary trust in which the trustees decide the timing and amount of distributions among defined beneficiaries. Beneficiaries of a discretionary trust have no fixed entitlement until the trustees exercise their discretion.
Family trusts are used in Canadian planning to hold the growth shares of a corporation in an estate freeze, to allow several family members to access the lifetime capital gains exemption on a future sale, to split income subject to the tax-on-split-income rules, and for asset protection and succession. Key considerations include the twenty-one-year deemed disposition rule, the tax-on-split-income rules, trustee selection, beneficiary residency, and the annual trust return filing obligation.