# Family trust / income splitting



## jamesbe (May 8, 2010)

Does anyone have any experience with a trust / income splitting.

My wife does not work, I make a not insignificant amount from a personal business as well as having a full time job.

I'd like to split the income so she gets my business income legally or at least a portion of it.

I did some reading and from what I can tell if I setup a limited company and a family trust. Then have the limited company pay dividends to the trust that gets pushed directly down to my wife... this seems legit. 

Takes on the limited company would be much lower than my 46% marginal rate and taxes on dividends for her would be very low since she has no other income.

I'm not sure where I start to get even more info professionally? Do I need a lawyer to set all this up for me, or do I just go see my bank? I have an accountant so I'll ping her, she's not a business accountant though so not sure she is the right person to dot the i's cross the t's either.

Any information is appreciated, some quick math shows me I could save $10-15k a year in taxes doing this properly if it is feasible.


----------



## Cal (Jun 17, 2009)

IMO it depends upon how much you are trying to shelter. Definitely start w your accountant, I am sure she should be able to provide you with good advice.


----------



## Islenska (May 4, 2011)

Just had our family trust expire, I think they last 21 years.

Basically the holding Company "holds" your accrued incomes and the trust allows you to preferentially dole out money to members of the trust at hopefully their marginal tax rate.

In our case 2 sons received the bulk of the trust money while my wife and I were the higher salary emplyees. We had 4 members of the trust but amounts per person could vary for tax reasons.

Best to have an accountant fine tune the deal of course but I found it useful---------where did the 21 years go!


----------



## Guban (Jul 5, 2011)

^ I was under the impression that due to the "kiddie" tax, the interest and dividend income is taxed at the top rate, and that only capital gains is "doled out" at their marginal rates.


----------



## Islenska (May 4, 2011)

Not sure, there were some changes in the last year,

May not be as advantageous as "the good old days", should mention to set up a holding Co and trust, fairly pricey thru a lawyer and you pay yearly filing/accounting fees (these a not too much ~$1000/year)

Currently our HoldCo is my wife and I with --2 shareholders then family (thru a will)
So any monies coming out are dividends to me and the missus.


----------



## OptsyEagle (Nov 29, 2009)

I am not personally familiar with trusts holding corporations but I do remember the 2013 budget taking aim at trusts. I know they killed the graduated tax benefits of trusts in 2013 but perhaps they attacked the structures set up above, as well. I mean they should have, but I cannot say for sure if they did. I know the old spousal trust is pretty much dead as a dodo bird, going forward.


----------



## NoWayMe (Nov 25, 2013)

jamesbe said:


> Does anyone have any experience with a trust / income splitting. My wife does not work, I make a not insignificant amount from a personal business as well as having a full time job. I'd like to split the income so she gets my business income legally or at least a portion of it.


Exactly the same situation my wife and I are in, except that all of my income is earned through my corporation



jamesbe said:


> I did some reading and from what I can tell if I setup a limited company and a family trust. Then have the limited company pay dividends to the trust that gets pushed directly down to my wife... this seems legit. Takes on the limited company would be much lower than my 46% marginal rate and taxes on dividends for her would be very low since she has no other income.


Completely legit



jamesbe said:


> I'm not sure where I start to get even more info professionally? Do I need a lawyer to set all this up for me, or do I just go see my bank? I have an accountant so I'll ping her, she's not a business accountant though so not sure she is the right person to dot the i's cross the t's either. Any information is appreciated, some quick math shows me I could save $10-15k a year in taxes doing this properly if it is feasible.


You will definitely need a lawyer and an accountant with at least some corporation knowledge. Ours is set up such that I am a voting shareholder in the corporation, my wife is a non-voting shareholder, and the trust is a shareholder, all with different classes of shares. There was an initial setup fee and a small yearly maintenance fee from the lawyer, but as you indicated, well worth the savings.


----------



## Taraz (Nov 24, 2013)

I don't see why you'd necessarily need a trust; you should be able to do it with a corporation. If you want to pay it out as dividends, you'd just make her the shareholder. I think you can do it with different classes of shares (i.e. use class A shares to pay yourself dividends and class B shares to pay her dividends), but I'd check with an accountant to be sure. If she assists with running the business, you could also pay her a reasonable amount as salary (i.e., as a director, office manager, etc.).


----------



## jamesbe (May 8, 2010)

Yeah from what I have read the rules have changed on dividends making it less advantages now to just do it that way. it seems you have to jump through a few hoops to get this done.

I've contacted my accountant to see if she has any experience with this or any contacts that could help me. The business makes about $50k a year and half of that goes to taxes. If that could be reduced to 15k in taxes instead of $25k that would be awesome and significantly increase our bottom line.


----------



## mcu (Dec 6, 2009)

I know this thread is a few months old but I am in the same boat here. Looking to setup a family trust and rollover some real estate I own into a Holding company. Reason is for both tax savings and asset protection. I met with one firm and I was shocked at how much it costs to setup. Can anyone share what it cost them to get their structure setup?


----------



## 2tire2work (Jul 20, 2013)

I looked into it few months ago. The cheapest quote I got was $5000. Some place cost more than $10000. My company is incorporated. And I wanted to set up a holding company to hold the profit from active business. But later I went against it. My concern was liability not income tax. So you might be in a differnt situation.


----------



## mcu (Dec 6, 2009)

The one quoted me over 15k. Can one firm be much more $$ or better than another? How do you shop around without having to pay a consultation fee every time to interview someone new or get a new quote?


----------



## 2tire2work (Jul 20, 2013)

The lawyer referred by my acountant cost about $20k and he said that lawyer is very good. My acountant has been in business for 30 years so he must know how much some of his clients paid over the years. 
I made some phone calls to several places for quotes. It depends on firms and also they charge on how much money needs to transfered to the holding company. I think some firm will give you a cheap quote to get you in and then charge you more later just like some auto mechanics. Lol.


----------

