Updated Meeting Outline: Tong Family Trust – Wind-Up, Estate Freeze, and New Trust Setup

1. Introduction & Purpose of Meeting (5–10 mins)
Clarify goals of the meeting:
1. Strategic Wind up the existing Tong Trust strategically
2. Complete second estate freeze within the current trust
3. Establish a new trust for long-term intergenerational planning
2. Review of Existing Tong Trust (10–15 mins)
Summary:
· Trustees: Peter, Grace, Tim, Calvin
· Capital Beneficiaries: Tim, Calvin
· Income Beneficiaries: Josiah, Solomon, Bethany, Adam, Hannah, Charlotte
· Assets held – shares of G&P Tong Gem Holdings (G&P), G&P owns Next Generation Properties Ltd. and Solid Gem Properties Ltd. which hold 12 real estate investments
· 21-year deemed disposition date small consideration
3. Proposed Estate Freeze Within Existing Trust (20–25 mins)
Legal and tax implications of winding up
· Any accrued capital gains, lifetime capital gain exemption (LCGE) planning
· CRA compliance (T3, trust reporting obligations)
Timing and method of winding up
· Purpose of Freeze – Lock in current value of Tim and Calvin’s shares
· Transfer future growth to 3rd generation, optional for Tim and Calvin
· Facilitate use of LCGE and reduce tax on future gains
Freeze Mechanics
· Convert Tim and Calvin’s common shares (owned through the trust) to fixed-value preferred shares
· Issue new common (growth) shares to the trust (existing or new trust)
· New Trust holds new growth shares for benefit of grandchildren
· Use Section 86 or 51 rollover for freeze
· Section 85 election if shares are contributed to the trust (T2057 election to file)
· Update corporate records and shareholder agreements
· Draft valuation of holding investment completed
· Determine redemption value of preferred shares and FMV of new common shares
4. Planning for New Trust Setup (15–20 mins)
· Trust Purpose
o Intergenerational wealth transfer
o Equal family control (Tim & Calvin)
o Protect assets and maintain income-splitting flexibility (TOSI implications)
o Facilitate future periodic estate freezes and LCGE planning
· Key Roles
o Settlor: Neutral third party (non-beneficiary, non-trustee)
o Trustees: Peter, Grace, Tim, Calvin
o Equal control mechanism between Tim and Calvin
o Define rules for successor trustees
o Capital Beneficiaries: Tim, Calvin, Josiah, Solomon, Bethany, Adam, Hannah, Charlotte
o Income Beneficiaries: Tim, Calvin, Josiah, Solomon, Bethany, Adam, Hannah, Charlotte
o Voting and decision-making power must stay equally split between Tim and Calvin
o Include mechanism for jointly appointing successor trustees
5. Tax Planning Strategy (15–20 mins)
· Avoiding s. 75(2) attribution:
· Ensure settlor is not a beneficiary or contributor
· Ensure contributions to new trust don’t allow reversion
Lifetime Capital Gains Exemption (LCGE) planning:
· QSBC share eligibility for trust and beneficiaries
· Ability to multiply LCGE among family members (consideration for future spouses)
· Timeline and structure for trust to hold shares for minimum 24 months
CRA Compliance:
· T3 trust filings and expanded trust reporting rules (Schedule 15 beneficial ownership)
· Determine any Trigger for reporting and timelines
6. Mechanics of Trust Wind-Up and Transition (10–15 mins)
· Outline of how and when the existing trust will be wound up:
o After freeze is complete, determine if growth shares need to be held for minimum period
· Strategy for rolling forward assets into new trust
Tax implications and timing:
· Avoid triggering unnecessary gains
· Take advantage of any tax deferral strategies
7. Next Steps & Action Plan (10–15 mins)
Task Responsible Party Timeline
Confirm settlor for new trust Family / Lawyer [Date]
Corporate reorganization & freeze Tax Accountant [Date]
Draft new trust indenture Tax Accountant [Date]
CRA elections and forms Calvin Tong [Date]

最新会议提纲：Tong 家族信托 – 清盘、遗产冻结及设⽴新
信托
1. 会议介绍及⽬的（5-10 分钟）
明确会议⽬标：
1. 战略性地清盘现有 Tong 家族信托
2. 完成现有信托内的第⼆笔遗产冻结
3. 设⽴新信托，进⾏⻓期代际规划
2. 审查现有 Tong 家族信托（10-15 分钟）
摘要：
· 受托⼈：Peter、Grace、Tim、Calvin
· 资本受益⼈：Tim、Calvin
· 收⼊受益⼈：Josiah、Solomon、Bethany、Adam、
Hannah、Charlotte
· 持有资产 – G&P Tong Gem Holdings（G&P）的股份，
G&P 旗下拥有 Next Generation Properties Ltd. 和 Solid
Gem Properties Ltd.，持有 12 项房地产投资
· 21 年视同处置⽇⼩额对价
3. 现有信托内拟议的遗产冻结（20-25 分钟）
法律清盘的税务影响
· 任何应计资本利得、终⾝资本利得免税 (LCGE) 规划
· 加拿⼤税务局 (CRA) 合规（T3，信托申报义务）
清盘的时间和⽅式
· 冻结⽬的 – 锁定 Tim 和 Calvin 股份的当前价值
· 将未来增⻓转移给第三代，Tim 和 Calvin 可选择
· ⽅便使⽤ LCGE 并减少未来收益的税收
冻结机制
· 将 Tim 和 Calvin 的普通股（通过信托持有）转换为固定价
值优先股
· 向信托（现有或新信托）发⾏新的普通股（增⻓股）
· 新信托持有新的增⻓股，以惠及孙辈
· 使⽤第 86 或第 51 条展期进⾏冻结
· 如果股份被捐赠给信托，则选择第 85 条（T2057 选择申
报）
· 更新公司记录和股东协议
· 完成控股投资估值草案
· 确定优先股的赎回价值和新普通股的公平市场价值
4. 新信托设⽴规划（15-20 分钟）
· 信托⽬的
o 代际财富转移
o 平等的家庭控制权（蒂姆和卡尔⽂）
o 保护资产并保持收⼊分配的灵活性（TOSI 的影响）
o 促进未来定期遗产冻结和 LCGE 规划
· 关键⻆⾊
o 委托⼈：中⽴的第三⽅（⾮受益⼈，⾮受托⼈）
o 受托⼈：彼得、格蕾丝、蒂姆、卡尔⽂
clear
Translate Sign in
o 蒂姆和卡尔⽂之间的平等控制机制
o 定义继任受托⼈的规则
o 资本受益⼈：蒂姆、卡尔⽂、约西亚、所罗⻔、⻉瑟尼、
亚当、汉娜、夏洛特
o 收⼊受益⼈：蒂姆、卡尔⽂、约西亚、所罗⻔、⻉瑟尼、
亚当、汉娜、夏洛特
o 投票权和决策权必须在蒂姆和卡尔⽂之间保持平等分配
o 包括共同任命继任受托⼈的机制
5. 税务规划策略（15-20 分钟）
· 避免…… 75(2) 归属：
· 确保委托⼈不是受益⼈或贡献者
· 确保对新信托的贡献不允许复归
终⾝资本利得免税 (LCGE) 规划：
· 信托和受益⼈的 QSBC 股份资格
· 家庭成员之间增加 LCGE 的能⼒（考虑未来配偶）
· 信托持有股份⾄少 24 个⽉的时间表和结构
加拿⼤税务局 (CRA) 合规：
· T3 信托申报和扩展的信托报告规则（附表 15 受益所有
权）
· 确定任何报告触发条件和时间表
6. 信托清盘和过渡机制（10-15 分钟）
· 概述现有信托的清盘⽅式和时间：
o 冻结完成后，确定增⻓份额是否需要持有最短期限
· 将资产转⼊新信托的策略
税务影响和时机：
· 避免触发不必要的收益
· 利⽤任何延税策略
7. 下⼀步步骤和⾏动计划（10-15 分钟）
任务 责任⽅ 时间表
确认新信托的委托⼈ 家庭/律师 [⽇期]
公司重组和冻结 税务会计师 [⽇期]
起草新的信托契约 税务会计师 [⽇期]
加拿⼤税务局选举和表格 Calvin Tong [⽇期]
安排下⼀次家庭信托审查 家庭 2028

Planning the Future – Life Insurance, Trusts and Estate Planning

So you’ve now amassed your wealth and may be wondering whether you should consider estate planning and generational wealth transfer.  While each person’s situation is different, I have a rule of thumb for everyone to follow: If you have more wealth than you can spend in your lifetime, you need to think about the future.

Everyone know there are two sure things in life; death and taxes, but for those that have accumulated a lot of wealth, they can come at the same time!

In section 70 of the Income Tax Act, there is a deemed disposition of all the deceased’s assets at fair market value immediately before death.  If left unplanned, all property owned by the deceased will have deemed to have been sold at fair market value.  This includes all investments, and real property at the capital gains rate, and remaining RRSPs, RRIFs and other earnings included in the final return as income. 

There are a couple of scenarios where taxes may be lowered or deferred in the event of death.  The first lies in Section 70(6) where it provides for a rollover of all assets to a spouse or common-law partner, which leads to a deferred-tax transfer.  The second is to determine if there are any qualified small business corporation shares, farm property, and fishing property.  If so then the Lifetime Capital Gains Exemption (LCGE) may be available to reduce the tax on the capital gain, close to $1 million depending if the LCGE has been used before.

Upon death, taxes can significantly reduce the value of an estate.  A 20-year US study found that 70 per cent of wealthy families lost their wealth by the second generation, and 90 per cent by the third.  This concept is commonly referred to as the “wealth transfer problem” and it suggests that wealth doesn’t typically survive beyond two or three generations due to various factors, such as inadequate and unprepared financial management, possible conflict over inheritance, or tax erosion of wealth through generational transfer.  With respect to the issues arising from tax, we will provide four strategies curtail the impact that the next generation will face.

 

The Waterfall Method

Life insurance is a logical option when planning to pay for estate taxes because of the timing.  If you can forecast and estimate your taxes owing, adjusting a policy to fit your future needs can be a ‘hand in glove’ move.  While life insurance can be expensive, particularly for permanent policies, with premiums potentially increasing over time and payments generally non-deductible for tax purposes, an effective strategy for leveraging life insurance is the Waterfall Method.

The Rockefeller family accumulated wealth in the multi-billions and has been able to preserved it through strategic use of trusts, financial education, and life insurance.  The family have effective passed down their wealth across seven generations and 170 descendants, fostering responsible management and maintaining their legacy through disciplined planning and family unity. 

Also termed the Rockefeller method, the waterfall method is the use of life insurance in estate planning involving a structured approach to distributing policy proceeds. First, the payout covers debts and estate taxes. After these are settled, the remaining funds are allocated to beneficiaries. Life insurance proceeds are typically tax-free, making it an effective way to transfer wealth to the next generation. Policies can also be gifted to the next generation once they reach 18, providing them with a tax-free inheritance. This strategy ensures that financial obligations are addressed first, while enabling the next generation to benefit from a significant, tax-advantaged gift when they are ready to manage it.  Policies can used as security to obtain financing or a loan as well.

 

Trusts

An inter vivos trust (or living trust) is a valuable estate planning tool in Canada, offering several benefits. While transfers to the trust may trigger capital gains taxes, it allows for strategic tax planning by distributing income to beneficiaries, potentially reducing overall tax liability if they are in lower tax brackets. The trust provides flexibility, enabling the trustees to retain control over assets and specify how and when beneficiaries receive their benefit. This is particularly beneficial for minor children or beneficiaries who need financial guidance.

Furthermore, capital beneficiaries in the trust play a crucial role in facilitating wealth transfer to the next generation, ensuring that assets are passed on efficiently. Additionally, the assets in the trust are often shielded from creditors, providing added protection. Inter vivos trusts are especially useful for blended families, helping ensure fair and clear distribution of assets in complex family structures, such as those involving stepchildren or second marriages. Overall, an inter vivos trust helps manage wealth, minimize taxes, and ensure that assets are passed down according to the settlor’s wishes, both during their lifetime and after death.

Family trusts are a powerful tool for multiplying access to the Lifetime Capital Gains Exemption (LCGE), particularly when selling shares of a qualifying small business corporation. By having multiple beneficiaries such as the spouse and children named in the trust, and ensuring they meet the criteria for the exemption, a portion of the capital gain can be allocated to each beneficiary. This allows the trust to effectively claim multiple LCGE amounts, significantly reducing the overall tax liability on the sale. For example, if four beneficiaries each qualify for the exemption, over $4 million of capital gains could potentially be sheltered from tax. This strategy requires careful planning and compliance with CRA rules, but when executed properly, it creates substantial tax savings and enhances the after-tax proceeds of a business sale.

While an inter vivos trust offers many benefits, it also has drawbacks. One key limitation is the 21-year rule, which means the trust must be terminated or assets distributed after 21 years, potentially triggering capital gains taxes.  Additionally, there’s a risk of creating a reversionary trust, where the assets could revert to the settlor, which may lead to unintended tax consequences or complications in wealth distribution. Moreover, establishing and maintaining the trust can involve administrative costs and complexities.

Another limitation to trusts is the “kiddie tax rules”, which was introduced in 1999 under Section 120.4 of the Income Tax Act.  Tax unearned income (such as dividends, interest, and capital gains) earned by children under 18 at the highest marginal rate. This prevents income splitting by ensuring such income is taxed at appropriate levels, rather than being shifted to children in lower tax brackets.

 

Estate Freezes and Redeeming Preferred Shares

An estate freeze is a powerful strategy used in estate planning to reduce anticipated tax liabilities upon death, particularly for individuals with substantial assets or family-owned businesses. This strategy essentially locks in the value of assets at their current value, ensuring that any future appreciation in those assets is passed on to future generations, rather than being taxed as part of the estate. This approach can also be used in conjunction with the redemption of preferred shares as a way to grind down pregnant estate taxes and maximize the wealth passed down other beneficiaries.

The first basic concept of an estate freeze involves transferring the future growth of assets to heirs while retaining the current value of the assets in the individual’s estate. This is typically done by exchanging common shares to preferred shares to the estate holder (often the parent or senior family member), which are fixed at their current value.  A swap of common shares to preferred share can be done on a tax deferred basis under Section 51 of the Income Tax Act.  The next step is to issue new common shares at a nominal value.  These new common shares of the business or asset, which are expected to appreciate in value over time, can be assigned to the next generation. The preferred shares are fixed at the fair market value of the company at the time of the freeze, ensuring that the estate holder doesn’t face a larger tax burden on the future growth of the assets.

Freezing your estate through preferred shares, but that’s the first half of the equation.  The redemption of preferred shares now becomes an essential aspect of reducing tax liability when the estate holder passes away.  A periodic redemption of shares occurs when a corporation buys back its own shares. For preferred share redemptions, the company repurchases the shares at an agreed-upon value.  As the cost base (initial cost of the shares or paid up capital) for shares are typically low, this may quickly lead  lead to a deemed dividend for the shareholder, meaning the amount over the original cost of the shares is treated as dividend income, subject to tax. The deemed dividend under Section 84(3) of the Income Tax Act is taxed at the applicable dividend tax rate.

So why does this matter?  Each redemption you make effectively leads to paying taxes today that you would have paid when you die.  By redeeming preferred shares over time, you can reduce the number of shares held at death, which lowers the estate’s ultimate tax liability.

In the beginning of the chapter I asked if you have more wealth than you can spend in your lifetime.  If you have enough, redeeming shares and received deemed dividends today will spread out your tax liability throughout your life instead of at the end of your life.  At this stage, you should strongly consider replacing compensation of wages for the more powerful compensation of the deemed dividend.  Wages have the advantage of a tax deduction, but a deemed dividend has two advantages, one being the dividend tax credit and the other paying taxes today that you will owe anyway.

 

Donations of Preferred Shares

Donating preferred shares to a registered charitable foundation can be an effective strategy in estate planning to manage taxes upon death, benefit from donation tax credits. Under Section 110.1 of the Income Tax Act, when preferred shares are donated, the donor can claim a charitable donation tax credit based on the fair market value of the shares at the time of donation. This credit can offset the tax liabilities that arise upon death, particularly capital gains taxes under Section 38 of the Income Tax Act on appreciated assets. By donating appreciated preferred shares to a registered charity or foundation, the donor avoids triggering capital gains tax, as the shares are deemed to have been disposed of at their fair market value, effectively reducing the donor’s taxable income.

In addition to the immediate tax benefits, this strategy allows for the deferral of cash otherwise needed to pay for estate taxes. By donating the shares rather than liquidating them, the donor doesn’t need to sell the shares and pay taxes on the proceeds.

Repurchasing the preferred shares back over time is the final step to bringing the estate back to its original ongoing interest in the company or assets. However, repurchasing shares after donating them might have tax implications, particularly if done within a short period after the donation. If the donor repurchases the shares at a later date, they would need to ensure the transaction is structured correctly to avoid any unintended tax consequences, such as triggering a deemed disposition of shares under Section 70 or violating the rules around split donations as outlined in the Income Tax Act.

One of the challenges in this strategy is that the preferred shares must be properly structured to ensure they qualify for donation purposes. The donor should ensure that the shares are transferred to the charity without any encumbrances or conditions, that they are redeemable and retractable, as this could complicate the donation.  Additionally, as the preferred shares have a redemption feature, it’s important to consider how this will interact with the charitable donation. 

The repurchase of the shares will occur at the fair market value at the time of the donation. The cost of the benefit of deferred cash flow is the fair market value of the shares and the donation tax credit.  However, it’s important to note that if the repurchase takes a longer period, it could affect the present value of the original donation, potentially introducing additional complexities.

 

Pipeline Planning for Estate Planning Upon Death

One of the most significant tax pitfalls in estate planning for incorporated business owners is the risk of double taxation upon death. As mentioned in the beginning of the chapter, when a shareholder dies, the fair market value (FMV) of their private company shares is deemed to be disposed of at death under subsection 70(5) of the ITA. This creates a capital gain on their final return.

The problem: If the estate then tries to withdraw the corporate assets (typically cash or property), those same funds may be taxed again as a dividend when distributed out of the corporation — effectively taxing the same value twice.

The Pipeline Solution: tax planners often use a pipeline strategy, which is similar to estate freezes and estate planning prior to death, that allows for the extraction of corporate funds without triggering a second layer of tax. Here’s how it works:

Step 1: Estate Transfers Shares After death, the deceased’s shares are transferred to the estate or a holding company, with a deemed disposition at FMV and resulting capital gain already reported.

Step 2: Reorganization: The corporation is reorganized so that the estate exchanges the original shares for new preferred shares. These new shares have a redemption value equal to the FMV of the original shares and a nominal adjusted cost base (ACB).

Step 3: Introduce a New Corporation or Common Shares A new corporation or class of common shares is introduced to hold future growth. The preferred shares represent the value of the company at the time of death.

Step 4: Repay the Pipeline (Extract the Funds) Over time, the preferred shares are redeemed or repaid as return of capital (effectively a repayment of a shareholder loan), not as dividends. This avoids triggering additional tax, since the capital gain was already recognized at death.  The pipeline strategy effectively recharacterizes what would be dividend income into a tax-free repayment of capital. 

Without the pipeline, the estate could face tax rates of 45 percent or more twice on the same corporate value; once as a capital gain and once as a dividend. Note that this is similar to redeeming shares when the owner is alive except Section 84(3) applies where the treatment of share redemptions are deemed dividends because tax value of shares redeemed are typically nominal.

Note that CRA has acknowledged pipeline planning as acceptable when it reflects a genuine repayment of capital and is not executed solely to avoid taxes (see CRA Document No. 2010-0374721C6).

 

Summary

The waterfall method, trusts, estate freezes, redemption of preferred shares and donating preferred shares provides significant tax benefits, promote the transfer of wealth, defers cash flows, and can help manage taxes upon death.  Which alternative is the best approach?  To be honest, if there is enough time to plan out the next generation, a combination of all approaches is best because each method addresses a need in a separate way.  The most significant tax savings is the redemption of preferred shares as you are spreading out the tax owing at death over a longer period of time.  Life insurance and donating preferred shares can help plan for any taxes remaining from the estate freeze.  Trusts and life insurance, and estate freezes also allow for the generational transfer of wealth on a tax deferred basis.  The donation of preferred shares is a potential ‘get out of jail free’ card for deferring out cash flow but the repurchase of preferred shares at fair market value is quite punitive, especially if there are a lot of shares donated.

规划未来——人寿保险、信托和遗产规划

您现在已经积累了财富，可能正在考虑是否应该考虑遗产规划和代际财富传承。虽然每个人的情况各不相同，但我有一个经验法则供大家参考：如果您拥有的财富超过了您一生所能支配的，那么您就需要考虑未来了。

众所周知，人生中有两件事是必然的：死亡和税收，但对于那些积累了大量财富的人来说，它们可能同时到来！

《所得税法》第70条规定，死者在去世前的所有资产均应按公平市场价值进行处置。如果没有进行规划，死者拥有的所有财产都将被视为按公平市场价值出售。这包括所有投资、按资本利得税率计算的不动产，以及剩余的注册退休储蓄计划 (RRSP)、注册退休收入基金 (RRIF) 和其他计入最终纳税申报表的收入。

在发生死亡的情况下，在某些情况下，税款可能会降低或递延。第一点在于第70(6)条，该条规定将所有资产转移给配偶或同居伴侣，从而实现递延税项转移。第二点是确定是否存在符合条件的小型企业股份、农场财产和渔业财产。如果存在，则可能适用终身资本利得免税 (LCGE)，以减少资本利得的税款，根据LCGE是否曾被使用，最高可达100万美元。

遗产价值一旦被抵扣，税收会大幅缩水。一项为期20年的美国研究发现，70%的富裕家庭在第二代就失去了财富，90%的富裕家庭在第三代就失去了财富。这一概念通常被称为“财富转移问题”，它表明财富通常无法传承两代或三代，原因多种多样，例如财务管理不善或准备不足、可能存在的继承权冲突，以及代际转移导致的财富税收流失。关于税收问题，我们将提供四种策略来减少下一代将面临的影响。

瀑布法

由于时机选择，人寿保险在计划支付遗产税时是一个合理的选择。如果您可以预测和估算您的应缴税款，那么调整保单以适应您的未来需求可能是一个“密切合作”的举措。虽然人寿保险费用昂贵，尤其是永久性保单，保费可能会随着时间的推移而增加，而且通常不可用于税收减免，但瀑布法是利用人寿保险的有效策略。

洛克菲勒家族积累了数十亿美元的财富，并通过战略性地运用信托、金融教育和人寿保险来保值。该家族有效地将财富传承给了七代人和170位后代，通过严谨的规划和家庭团结，培养了负责任的管理方式，并维护了他们的遗产。

瀑布法也称为洛克菲勒方法，是指在遗产规划中使用人寿保险，并采用结构化的方法分配保单收益。首先，赔付涵盖债务和遗产税。这些债务和遗产税解决后，剩余资金将分配给受益人。人寿保险收益通常免税，是将财富传承给下一代的有效方式。保单也可以在18岁后赠予下一代，为他们提供免税遗产。这种策略确保优先履行财务义务，同时使下一代在准备好管理时能够享受一笔可观的税收优惠赠予。保单也可以作为抵押品，获得融资或贷款。

信托

生前信托（或生前信托）是加拿大一种重要的遗产规划工具，具有多种优势。虽然向信托转移资产可能会引发资本利得税，但它可以通过将收入分配给受益人来进行战略性税务规划，如果受益人处于较低的税率等级，则有可能降低他们的总体纳税义务。信托提供了灵活性，使受托人能够保留对资产的控制权，并指定受益人如何以及何时获得其收益。这对于未成年子女或需要财务指导的受益人尤其有益。

此外，信托中的资本受益人在促进财富向下一代转移方面发挥着至关重要的作用，确保资产有效传承。此外，信托中的资产通常不受债权人追讨，从而提供额外的保护。生前信托对混合家庭尤其有用，有助于确保在复杂的家庭结构中（例如涉及继子女或再婚的家庭）公平、清晰地分配资产。总而言之，生前信托有助于管理财富、最大限度地减少税收，并确保