Let me tell you about a meeting I had last year with an investor we’ll call “David.” David had done everything right. Over thirty years, he had built a portfolio of 42 doors in Southwestern Ontario. His cash flow was excellent, his LTVs were conservative, and he was finally ready to step back and enjoy his success.
But when we sat down with his accountant to look at his long-term exit, David was shocked. Because of the way he had titled his properties—mostly in his own name or in a simple partnership with his spouse—David was sitting on a ticking tax bomb.
If he were to pass away tomorrow, the CRA would treat his portfolio as if it were sold at high noon. Between capital gains taxes and probate fees, nearly 30% of his life’s work would belong to the government before his children ever saw a dime.
If you are a scaling real estate investor, you need to realize that the “accumulation phase” is only half the battle. The true mark of a professional investor is the “preservation phase.”
This guide moves beyond basic wills to help you understand the sophisticated tools that high-net-worth investors use to protect their legacy and ensure their portfolio continues to grow for generations.
The “Wealth Trap”: Why Canadian Real Estate Is Tax-Heavy at Death
In Canada, we don’t have a traditional “inheritance tax,” but we have something that can be just as painful: Deemed Disposition.
When you pass away, the CRA assumes you sold every property you own at Fair Market Value (FMV) on the day before you died.
Imagine you bought a small apartment building for $1 million ten years ago. Today, it’s worth $3 million. On your final tax return, you would be triggered for a $2 million capital gain. Even with the primary residence exemption for your home, your investment portfolio is fully exposed.
Then comes Probate. In provinces like Ontario and British Columbia, probate fees (the cost of having the court validate your will) are essentially a value-based tax. On a $10 million portfolio, probate alone can strip $150,000 in liquidity—cash your heirs may not have on hand.
Strategic Level 1: The Multi-Tiered Holding Company
If you are still owning property in your personal name once you cross the 5-10 door threshold, you are making a massive estate planning mistake.
Professional investors use Holding Companies (HoldCos) to own the shares of their operating companies. This creates a “corporate veil” for liability, but from an estate planning perspective, it allows for much greater flexibility.
Instead of passing individual properties (and triggered land transfer taxes) to your heirs, you are passing shares of a corporation.
The Corporate Advantage:
- Tax Deferral: You can keep earnings inside the corp to reinvest at a lower corporate tax rate, rather than pulling them out as personal income.
- Succession Flexibility: You can issue different classes of shares (voting vs. non-voting) to children, allowing one child to manage the business while others simply benefit from the equity.
Understanding how to use corporations to scale is the first step toward a true legacy plan.
Here’s the thing: if you’re sitting on 5+ doors and still holding them in your personal name, you’re leaving hundreds of thousands on the table when it comes time to pass them down — book a free strategy call with LendCity and we’ll walk you through how holding companies and trust structures actually change your borrowing power while cutting your tax bill.
Strategic Level 2: The Family Trust (The Ultimate Shield)
A Family Trust is perhaps the most misunderstood tool in real estate. Simply put, a trust is a legal relationship where you (the Settlor) give assets to a group of people (the Trustees) to manage for the benefit of others (the Beneficiaries).
For a scaling investor, a Family Trust usually owns the common shares of your Holding Company.
Why this is a “Game Changer”:
- Skip Probate Entirely: Assets held in a trust do not form part of your estate. They never go through probate. They are never public record.
- Income Splitting: You can allocate dividends from your real estate business to family members in lower tax brackets (subject to TOSI rules, which a specialist CPA can help you navigate).
- Future Growth Protection: By having the trust own the new growth shares, the value of the portfolio grows inside the trust, effectively locking the tax bill on your portion.
If you haven’t yet explored how trust structures impact your borrowing power, it’s time to speak with a broker who understands high-net-worth structures.
Strategic Level 3: The Estate Freeze
An Estate Freeze is the maneuver that separates the “early-stage” investor from the “dynasty-builder.”
Here is how it works: You “freeze” the value of your current interest in the real estate corporation. You trade your common shares (which grow in value) for “Fixed-Value Preferred Shares.” These shares are worth exactly what the company is worth today.
You then issue new common shares to your children or a Family Trust for a nominal cost (e.g., $100).
The Result: If the company grows by $5 million over the next decade, that $5 million in growth belongs to your heirs—tax-deferred. You only owe tax on the “frozen” value you kept in your preferred shares. You have effectively capped your final tax bill while inviting the next generation into the equity.
An estate freeze sounds complicated, but it’s one of the smartest moves a scaling investor can make — schedule a free strategy session with us to talk through how this strategy locks in your tax liability while letting the next generation own the growth, tax-free.
The Problem of Liquidity: Why Cash Is King at the End
Even with the best planning, a tax bill will eventually come due. The worst-case scenario for a real estate family is a Fire Sale.
If the CRA wants $2 million and the estate only has $100,000 in the bank, the kids have to sell a property they would have rather kept. This is often done under duress, resulting in a lower sale price and further tax triggers.
The Solution: Permanent Life Insurance. Savvy investors use “Corporate Owned Life Insurance.” The corporation pays the premiums, and upon your death, the death benefit is paid into the corporation’s Capital Dividend Account (CDA). This allows the money to be paid out to your heirs as a tax-free dividend, providing the immediate cash needed to pay the CRA without selling a single brick.
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Building a portfolio is hard. Protecting it shouldn't be. Our team specializes in structuring financing that aligns with sophisticated estate and tax goals. Don't leave your legacy to chance.
Book A Strategy CallThe “Soft Side” of Estate Planning: Governance
Succession is 10% legal/tax and 90% psychology.
I’ve seen families torn apart because “Child A” wanted to be a hands-on manager and “Child B” just wanted to sell and buy a boat. Without a Governance Plan, you are leaving a mess, not a legacy.
Consider these questions:
- The Power of Attorney (POA): Who has the authority to sign mortgage documents if you are incapacitated? A general POA often isn’t enough for corporate holdings.
- The “Legacy Toolbox”: Do your heirs have a list of your How to Build a Real Estate Team Without Burning Out? Do they know who handles the plumbing? Who the banker is?
- Values Alignment: Have you sat down to explain why you invested the way you did?
Frequently Asked Questions
Do I still need a will if I have a Family Trust?
How much does it cost to set up an Estate Freeze?
Can I distribute property from a trust tax-free?
What is the difference between a Bare Trust and a Family Trust?
Will a trust make it harder to get a mortgage?
The Final Word
Building a great real estate portfolio is like running a marathon. Estate planning is the last mile. If you trip in the last mile, the previous 25 don’t matter as much.
Start the conversation now. Talk to your spouse, your heirs, and your professional team. The best time to plant a tree was twenty years ago; the second best time is today.
Disclaimer: This article provides general information and should not be construed as legal or tax advice. Always consult with a qualified professional regarding your specific situation.
Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.
Written by
LendCity
Published
February 16, 2026
Reading Time
7 min read
Bare Trust
A legal arrangement where one party holds legal title to a property on behalf of another. In Canadian investing, bare trusts let investors buy property personally for easier mortgage approval while a corporation retains beneficial ownership.
Capital Gains Tax
Tax owed on the profit from selling an investment property, calculated as the difference between the sale price and the adjusted cost base. In Canada, 50% of capital gains are included in taxable income, though recent changes have increased the inclusion rate for amounts over $250,000.
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
Corporate Veil
The legal separation between a corporation and its shareholders protecting personal assets from business liabilities. Courts can pierce the veil when corporate formalities are not maintained or finances are commingled.
Deemed Disposition
A tax event recognized by CRA where property is treated as if sold at fair market value even though no actual sale occurred. Triggered by death, emigration from Canada, or conversion of property use, creating a capital gains tax liability.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.
Estate Freeze
A tax planning strategy that locks in the current value of assets for the original owner while transferring future growth to the next generation, minimizing capital gains tax triggered at death.
Estate Planning
The process of anticipating and arranging for the management and disposal of a person's estate during their life and after death, with the goal of minimizing taxes and ensuring a smooth transition for heirs.
Family Trust
A legal entity that holds assets on behalf of family members. Family trusts enable income splitting and tax-free asset transfers for estate planning, though most lenders are reluctant to finance properties held in family trusts.
Holding Company
A corporation created to own shares of other corporations or hold assets like investment properties. In real estate, a holding company sits above property-specific corporations, providing liability isolation and tax planning flexibility.
Hover over terms to see definitions, or visit our glossary for the full list.