Are Family Trusts Worth It? A Practical Cost-Benefit
Breakdown
We get a lot of questions about family trusts—especially whether they’re worth the cost.
In our experience, unless you’re dealing with serious six or even seven-figure assets or more, the costs often outweigh the benefits. That said, there are situations where a trust makes good financial sense. Let’s break it down.
The Costs of a Family Trust
Setting up and maintaining a family trust isn’t cheap. Here’s what you’re looking at:
- Initial Setup Costs: Typically ranges from $1,000 to $10,000+ in legal and accounting fees to structure the trust properly. Depending on complexity it could be substantially more.
- Ongoing Administration Costs: Annual accounting, tax filings, and legal compliance can run $2,500 to $10,000+ per year.
- Tax Filing: A separate T3 trust return must be filed annually, adding another layer of compliance.
- Legal & Advisory Fees: If restructuring is needed down the road, additional legal work can drive costs up further. In some cases from $10,000 to $60,000, again, depending on complexity.
What Are the Benefits?
Despite the costs, a family trust can provide some real advantages—but only in the right circumstances.
- Income Splitting (Limited Use Post-2018): The Tax on Split Income (TOSI) rules have significantly reduced this benefit. However, it can still work in cases where adult beneficiaries contribute to the trust.
- Estate Planning Probate Avoidance: Assets held in a trust don’t go through probate, which can save estate taxes and maintain privacy.
- Asset Protection: Trusts can shield assets from creditors, lawsuits, and divorce settlements, making them useful for high-net-worth families.
- Multiplying the Lifetime Capital Gains Exemption (LCGE): If you’re selling a business with qualified small business corporation (QSBC) shares, a trust can allow multiple family members to claim their LCGE, potentially saving $250K+ per beneficiary in taxes.
- Wealth Transition & Control: A trust allows you to control how and when assets are distributed, which is great for long-term family planning.
When Does a Family Trust Make Sense?
For a trust to be financially beneficial, the tax savings and asset protection must justify the costs. Here’s our general rule of thumb:
- Under $1M in assets? Probably not worth it. The costs will likely outweigh the benefits.
- $1M–$5M in assets? Maybe, depending on estate planning goals and tax benefits.
- $5M+ in assets or selling a business with LCGE eligibility? A strong case for using a trust.
Bottom Line: Are Family Trusts Worth It?
For most people, the answer is no—the costs don’t justify the limited benefits unless substantial assets are involved. But if you’re selling a business, have high-value investments, or need strong estate planning tools, a trust can be a powerful strategy.
Every situation is different, so if you’re wondering whether a family trust makes sense for you, let’s chat. A proper analysis can help determine whether the benefits outweigh the costs in your specific case.