To legally create a family trust in Canada, the trust must receive an initial property, typically executed using a silver coin or a $10 bill. To avoid the CRA’s strict subsection 75(2) attribution rules, you must use an independent settlor, and professional legal fees to draft this properly range from $3,000 to $7,000 CAD.
In Canadian law, a trust is not a corporation you simply register with the government; it is a legally binding relationship. For this relationship to exist, there are three essential certainties: the certainty of intention, the certainty of beneficiaries, and the certainty of property. This means that a trust absolutely does not exist until it holds actual, tangible property. 💰 This is where the famous “silver coin” method comes into play during the trust settlement process.
The act of creating the trust involves a person (the settlor) handing over an initial piece of property to the people managing the trust (the trustees). While you could use a $10 bill or a cheque, many Canadian lawyers prefer using a physical silver coin, specifically a Canadian Maple Leaf ounce. A pure silver coin is unique, easily identifiable, and serves as a permanent, tangible proof that the trust was properly funded. 📍 Failing to execute this step correctly can lead to the Canada Revenue Agency (CRA) declaring your trust invalid, unravelling years of tax planning.
Step-by-Step Process for Settling the Trust
Whether you are setting up an estate freeze in Ontario, managing a family farm in Saskatchewan, or protecting assets in British Columbia, the settlement mechanics are governed by the same overarching common law and federal tax principles.
Step 1: Choosing the Perfect Settlor
This is arguably the most critical step to avoid a tax disaster. 👤 Under subsection 75(2) of the Canadian Income Tax Act, if the person who creates the trust (the settlor) is also a beneficiary, or if they have the power to decide how the trust property is distributed, the CRA will attribute all trust income and capital gains directly back to them. To prevent this, you must choose an independent settlor-usually a grandparent, an aunt, or a trusted family friend who will never benefit from the trust.
Step 2: Procuring the Silver Coin
Once the settlor is chosen, they must use their own personal money to buy the initial property. They cannot be reimbursed by you or anyone else, as this would make the reimbursement the true source of the funds, violating CRA rules. The settlor typically purchases a 1-ounce Canadian silver coin or provides a crisp $10 or $20 bill.
Step 3: The Formal Settlement Meeting
The settlor, the trustees, and the lawyer will gather to formally execute the trust deed. 🖊️ During this meeting, the settlor physically hands the silver coin to the trustees and verbally states their intention to create the trust for the beneficiaries. The settlor then signs the trust deed, followed by the trustees. The moment the coin changes hands and the signatures are placed, the family trust is legally born.
Step 4: Securing the Coin and Opening the Bank Account
The trustees must keep the initial property safe. If a silver coin is used, it is typically taped inside the physical minute book of the trust, or placed in a safety deposit box. If a $10 bill or a cheque is used, the trustees will immediately take it to a Canadian bank to open the formal trust bank account, depositing the initial funds. From this point forward, the trust can legally begin acquiring other assets, like corporate shares or real estate.
How Much Does it Cost in Canada?
The actual cost of the settlement property is tiny, but the legal architecture surrounding it requires a professional budget. 💵 Proper drafting prevents devastating tax audits.
- The Settlement Property: A 1-ounce Canadian silver coin costs about $40 to $50 CAD. Alternatively, a $10 or $20 bill can be used.
- Lawyer Fees: Drafting the trust deed and facilitating the legal settlement meeting typically costs between $3,000 and $7,000 CAD.
- Accountant Fees: Ensuring the structure avoids subsection 75(2) attribution rules usually costs $1,500 to $4,000 CAD in tax advice.
| Requirement | Approximate Cost (CAD) | Who Pays? |
|---|---|---|
| Silver Coin / Cash | $10 – $50 | The Settlor (Out of pocket) |
| Legal Trust Deed | $3,000 – $7,000 | The Trust / Family |
| Tax Structuring | $1,500 – $4,000 | The Trust / Family |
How Long Does the Process Take?
The actual act of settling the trust-handing over the coin and signing the papers-takes less than 30 minutes in a lawyer’s office. However, as of May 2026, the preliminary work of designing the trust structure, drafting the complex legal deed, and ensuring CRA compliance generally takes 4 to 6 weeks of preparation.
Frequently Asked Questions (FAQ)
Why use a silver coin instead of a $10 bill?
While a $10 bill is perfectly legal, cash is easily spent, lost, or mixed with other funds. A physical silver coin is distinct, rarely spent by accident, and can be easily taped inside the trust’s legal minute book as permanent proof of the settlement property.
Can I reimburse the settlor for the silver coin?
Absolutely not. If you reimburse the settlor, the CRA may argue that you are the true settlor of the trust. If you are also a trustee or beneficiary, this could trigger severe tax consequences under the attribution rules.
What happens if the silver coin is lost?
Losing the initial settlement property can theoretically jeopardize the existence of the trust. This is why lawyers strongly advise securing the coin or depositing the cash immediately into a trust bank account.
What is Section 75(2) of the Income Tax Act?
It is a punitive tax rule. It states that if property is held in a trust on condition that it may revert back to the person who contributed it (the settlor), or if that person controls its distribution, all income generated by the trust is taxed in the hands of that person, defeating the trust’s tax planning purpose.
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