Trusts and Legacy Planning: Structuring Wealth Across Generations

For high-net-worth (HNW) and ultra-high-net-worth (UHNW) families, the transfer of wealth across generations is rarely straightforward. Families are navigating not only taxes and regulations, but also the complex dynamics of relationships, values, and long-term stewardship. 

Trusts are among the most versatile tools available to address these challenges. Properly structured, they can reduce tax burdens, provide asset protection, and streamline estate planning. At the same time, they help families maintain control over how and when wealth is distributed. But trusts also bring costs, complexity, and governance considerations that should not be overlooked. 

Beyond the technical aspects, families often find themselves grappling with deeply personal questions: 

• How do we avoid double or even triple taxation when passing along a business or real estate? 
• Are all of our children equally prepared to inherit wealth and responsibility? 
• Should children’s partners have claims to our family wealth? 
• How might these resources be best structured to raise healthy, grounded humans across multiple generations? 

While Nicola Wealth doesn’t establish or administer trusts directly, our advisors collaborate with clients and their trusted legal and tax partners to explore how a trust could support their broader wealth and legacy goals. This article explores the most common questions families raise when considering whether a trust should be part of their long-term plan.

What is the best trust for tax purposes for wealthy families? 

Trusts come in different forms, each serving distinct purposes. There are two main types of trusts in Canada: 

• Inter Vivos Trusts: These are trusts established during an individual’s lifetime (as opposed to testamentary trusts, which are created upon death). They can include Family Trusts, Joint Partner Trusts, and Alter Ego Trusts, among others. Inter vivos trusts are commonly used for tax and estate planning purposes, such as income splitting, multiplying the Lifetime Capital Gains Exemption (LCGE), or deferring the taxation of asset growth to the next generation through an “estate freeze.” 
• Testamentary Trusts: Created at death through a Will, these can take advantage of graduated rates, but only during the first three years after death. After that, the tax advantages narrow considerably compared to family trusts. 

For many UHNW families with significant corporate or investment holdings, inter vivos trusts remain one of the most powerful long-term vehicles for reducing taxes and structuring intergenerational transfers. 

How do family trusts work in protecting assets? 

Asset protection is often as important as tax efficiency. The most common scenarios we see include: 

• Divorce and Relationship Breakdown: Assets placed in a trust are not gifted outright to adult children, reducing the risk of commingling with matrimonial property that could become divisible on separation or divorce. 
• Creditor Protection: A properly structured irrevocable trust can provide a higher degree of protection against creditor claims. However, the details matter. Regular income distributed from a trust can sometimes be challenged in family law proceedings, and trusts set up to avoid known liabilities may be deemed fraudulent conveyance. 
• Spendthrift Beneficiaries: Families sometimes worry about heirs who may not exercise sound financial judgment. A trust can restrict how and when these beneficiaries receive funds, helping protect capital from mismanagement while still providing support. 
• Beneficiaries with Disabilities: Trusts can be structured to provide for a disabled beneficiary without jeopardizing their access to government support programs. This ensures ongoing care while preserving eligibility for benefits. 

In practice, when trusts face legal challenges, the outcome often hinges on the precision of drafting and administration. 

Are there downsides to setting up trusts? 

Trusts are powerful, but they come with friction: 

• Costs: Establishing a trust often costs thousands of dollars. Complexity increases if beneficiaries are tax residents in different countries, adding cross-border compliance. Ongoing annual filings and trustee fees are additional expenses. 
• Governance: Families must identify trustees who can act impartially and competently. While many appoint relatives, the role carries fiduciary duties that not all family members are equipped to manage. Professional trust companies are one solution but introduce another relationship to oversee. 
• Complexity: A trust introduces a new layer to a family’s financial affairs. It requires coordination across legal, tax, and investment professionals, and demands ongoing attention. 

These factors underscore the importance of viewing trusts as part of a broader planning framework, not as a simple fix.  

How are trusts used for sheltering capital gains taxes or splitting income in a tax-efficient way? 

One of the most compelling advantages of trusts is their ability to achieve tax efficiency. 

• Capital Gains Planning: When shares of a Canadian Controlled Private Corporation qualify for the LCGE, holding them in a trust can allow multiple beneficiaries to each claim the exemption. Prior to Budget 2024, the LCGE was $1,016,000 – increasing to $1,250,000 for dispositions after June 24, 2024. A trust with five beneficiaries could shelter more than $5 million in gains upon the sale of shares, a substantial tax savings for business owners. 
• Income Splitting: Trusts can distribute income across multiple family members in lower tax brackets, allowing families to take advantage of graduated personal rates. This reduces overall taxation compared to holding all income in the hands of a single high-income earner or a corporation. 

These strategies require careful structuring and compliance with eligibility rules, but when done correctly, they can materially improve after-tax outcomes. 

How can spousal or joint partner trusts be used effectively? 

Specialized trusts provide solutions for estate planning and family dynamics: 

• Spousal Trusts: Often used in blended families, these trusts ensure the surviving spouse has income during their lifetime while preserving capital for children from a previous marriage. Assets generally roll into a spousal trust tax-deferred, deferring capital gains until the surviving spouse’s death. 
• Alter Ego and Joint Partner Trusts: Available to individuals or couples age 65 or older, these trusts primarily serve to avoid probate costs and delays. In provinces where probate is a percentage of estate value, the savings can be material. At the death (or second death), assets transfer directly to beneficiaries without the expense or time associated with probate. 

While these structures are less focused on tax minimization, they provide meaningful efficiency and certainty in estate administration. 

What do Advisors need to remember when helping clients set up trusts? 

In our experience, the greatest threat to generational wealth is not taxation, it is family breakdown. Trusts can meet intended tax and legal objectives, but they cannot on their own create unity or shared purpose. 

That is why we encourage families to pair technical structures with family governance frameworks. These might include: 

• Family meetings to align expectations. 
• Education for younger generations on financial stewardship. 
• Clear communication about the values and intentions behind the wealth transfer. 

Trusts can secure financial capital. Family governance sustains human capital. Both are required for a legacy to last. 

Key Considerations Before Establishing a Trust 

Wealthy families and their advisors should ask: 

• What is the primary goal: tax efficiency, asset protection, probate planning, or family governance? 
• Who will serve as trustee, and are they equipped to handle fiduciary duties? 
• How will the trust adapt to cross-border complexities if beneficiaries live abroad? 
• Does the family have a governance framework to complement the financial structure? 
• How will the trust’s purpose be communicated to beneficiaries to reduce misunderstandings? 

Answering these questions upfront lays the foundation for a trust to function as intended and supports the family’s broader legacy goals. 

From Structure to Stewardship

Trusts are versatile tools that allow HNW and UHNW families to balance tax efficiency, asset protection, and estate planning. When thoughtfully structured, they can: 

• Enhance access to tax exemptions and reduce overall tax burdens. 
• Protect wealth against divorce, creditors, and family disputes. 
• Provide for spouses and children in blended family situations. 
• Streamline estate transitions and reduce probate costs. 

Yet trusts also introduce cost and complexity, requiring careful planning and active governance. For families committed to long-term stewardship, trusts work best when paired with transparency, education, and a focus on family harmony. 

In the end, trusts are not simply vehicles for preserving wealth, they are instruments for shaping the legacy of a family across generations. 

A well-designed trust can help manage taxes, protect assets, and simplify estate planning, but its greatest value lies in shaping how wealth is stewarded across generations.

Nicola Wealth collaborates with clients and their trusted legal and tax partners to integrate trusts into a comprehensive wealth strategy that aligns financial structures with family values and long-term goals. By connecting technical expertise with thoughtful guidance, we help families preserve not only wealth, but also unity and purpose for generations to come.

To explore how a trust could support your family’s legacy, contact your Nicola Wealth advisor or Meet With Us.