3. Are we managing family wealth effectively across borders?
Owners and family beneficiaries who live outside Canada are most susceptible to higher tax rates. Evolving transparency and reporting requirements across many different jurisdictions bring an added layer of complexity to these scenarios. That means planning ahead and working to understand the options available are absolutely essential for any owner or beneficiary who makes their home abroad. Reviewing current asset-holding structures can be a good first step.
Go further to assess how changing rules might impact family members who live or work in the US or other jurisdictions. If they’re beneficiaries of Canadian-resident trusts, they could face income or estate tax exposure here or there, along with complex annual reporting requirements. Key tax strategies can mitigate those risks and cut down reporting responsibilities.
Life insurance can provide another avenue for equalizing family members as part of the overall estate planning process.
But before you can pursue any of these paths forward, you need a clear understanding of the big picture and relevant laws. That’s key.
4. Have you prepared for potential trust filing disclosures in Canada?
Most trusts with a taxation year ending on or after December 31, 2021 will soon be subject to evolving federal disclosure requirements. What will that mean?
Most trusts that are not currently required to file a T3 return will now have an annual filing requirement. Further, as part of the annual filing requirement, you’ll need to disclose the identity of the settlors, trustees, beneficiaries and any other person who can control the way a trust’s income or capital is allocated. If this affects your trust, it’s time to start planning for how you’ll handle these additional requirements. Only limited exceptions will apply, so it’s wise to get ahead of the change and put a plan in place now.
5. Looking ahead: the rise of family offices and the “do it yourself” investment strategy
If you haven’t gone the family office route yet, it might be time to consider your options. A family office can be an effective way to manage and invest wealth. Doing so can help you get more strategic about long-term planning and explore new opportunities — think real estate transactions — in different ways. Recently, a strong trend has emerged of family offices pursuing direct investments in the private market. The primary drivers of this trend have been:
- A search for better investment control
- Attractive risk-adjusted returns that have limited public market correlation
- Lower price volatility, since private direct investing requires the implementation of a formal investment committee process to identify, vet and execute new opportunities as well as manage ongoing portfolio needs
Some family offices have chosen to team up with others to pursue this strategy together. This offers attractive synergies in infrastructure, deal sourcing and idea sharing, but it also creates governance issues with investment selection and ongoing management. For small to mid-sized family offices, the team approach may also enhance their overall competitiveness in the marketplace by increasing the capital available to pursue new opportunities — an important criterion in winning a competitive deal.
What gives family offices a competitive edge against PEs or other funds?
- Family offices have flexibility to change their focus
- They’re not beholden to a 7- to 10-year exit timeline
- They don’t face the same regulatory requirements as funds
- They may or may not have ESG requirements for their investments like larger PEs or funds may have for impact investing