Hold Cos and Family Trusts
Posted In: Business Succession & Estate Planning

Hold Cos and Family Trusts

Executive Summary

Understanding the technical details and complexities of a Holding Company (HoldCo) and/or Family Trusts can be daunting for business owners.  Business owners often ask, “Which option would be most beneficial to my firm, my family and overall business?” Unfortunately, the answer isn’t an easy one and will more than likely require you recruiting expert advice. One thing is for certain, however: implementing either option is far better than doing nothing, and maintaining the status quo.

What you need to know

Let us imagine a successful business that has taken close to twenty years to build. The business is well equipped with predictable revenue based on strong products and services as well as healthy relationships with clients, suppliers and staff. The company owns or is contemplating purchasing the work premise, and has $500,000 in invested assets for the long-term needs of the owner in addition to $100,000 in cash and working capital for any short-term business needs. Currently, all the assets sit inside the operating company because a HoldCo or Family Trust has yet to be established.

To continue our scenario: One employee inadvertently creates a liability that exceeds the operating company’s assets. As a result, most or all of the business assets had to be sold-off in order to meet the liability. A quick moment of carelessness easily wiped away twenty years of work!

Like the scenario outlined above, leaving assets within an operating company can leave your business vulnerable to uncontrollable circumstances. Introducing a HoldCo or Family Trust can prove beneficial to busy business owners because either option can help protect company assets from creditors.

HoldCo’s and Trusts have many other benefits beyond asset protection including deferred and reduced taxation for the owner, compensation strategies that reduce taxes for the entire family, helps to implement proper company structuring and simplified business operations are just a few.

Depending on the situation, HoldCo’s may be more advantageous than Trusts. As part of the analysis process the cost to establish either option must be weighed against the anticipated benefits.  Additionally, several scenarios with some sensitivity analysis are required to determine the best course of action. With so much to consider, it is no wonder the process can be quite daunting but again acting to protect the results of your hard work is 100% essential.

The Details

Placing assets that are not required to operate the business outside of the operating company is one of the key elements in becoming a Qualified Small Business Corporation. The Lifetime Capital Gains Exemption for tax year 2015 is $813,600.

Advisors, accountants and owners should look down the road and determine whether they expect to sell the shares of their corporation (even to family members) and decide if approximately $10,000 to $20,000 in legal fees is worth $200,000 in tax savings when business ownership is transferred.

The example mentioned above suggests that a HoldCo is the best option for the eventual sale of the business but that is not always the case. The chart below outlines different circumstances and how the two, HoldCo’s and Trusts are influential.

Holding Company

Family Trust

Receiving Income

·   Income typically paid as dividends

·   Up to $45,000 can be earned tax-free by those with no other income

·   Income is paid or made payable to beneficiaries and maintain the original income type

Invested assets

·   Investment income inside a corporation is taxed at nearly 50%

·   Control remains with the original owner

·   These assets must be outside the control of the original owner and require the appointment of a Trustee


·   HoldCo’s can creditor-proof assets if established prior to known threat·   Trusts can creditor-proof assets if established prior to known threat



·   Assets inside the HoldCo can be sold as needed to meet needs·   Every 21 years the trust has a “deemed disposition” to ensure that assets are not held indefinitely without being taxed

The Bottom Line

Both Holding Companies and Trusts are complicated instruments, and introducing either requires guidance from industry professionals armed with the specific expertise and skills. The lawyer who handled your home purchase or incorporated your business, for example, may not be the best person to establish your complicated corporate structure or trust.

Recruiting an industry expert is by far the best place to start when considering introducing either of these measures within your company.


Jeff Devlin, CFP (2010-2022)

Elementus Wealth Management Inc.

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