Exploring the Top 5 Benefits of Alter Ego and Joint Partner Trusts in Canada
Alter ego and joint partner trusts are both “inter vivos” trusts, meaning that you will transfer assets into these trusts during your lifetime. These special types of inter vivos trusts are allowed under Canada’s Income Tax Act, and to set them up, you must be a resident of Canada and at least 65 years old.
With an alter ego trust, you are the only one who can access the capital held in the trust and the only person entitled to receive all income from the trust until you die. On the other hand, you and/or your partner or spouse are the only ones to enjoy these privileges when you set up a joint partner trust. Once you have set up the trusts and transferred assets into them, the trusts become the legal owners of the assets. However, as a trustee, you and/or your partner will maintain control over the assets held in the trust.
Because alter ego and joint partner trusts are basically the same concept, they also share the same benefits. Here is a look at some of these top benefits you can look forward to when you set up either of the trusts.
Incapacity Planning
Trusts serve as an alternative to a Power of Attorney. Alter ego and joint partner trusts ensure your financial affairs are well managed should you become incapacitated during your lifetime or should you no longer wish to manage these affairs.
While you and/or your partner can act as your own trustees, appointing another trustee is an excellent way to plan for when you become incapacitated. Your co-trustee or the named alternative trustee will manage your financial affairs.
No Probate Fees
Most provincial governments in Canada charge probate fees, typically a percentage of your estate’s value. In Ontario, around 1.5 % of the value of the deceased’s estate is payable as probate fees, also known as estate administration taxes. Similarly, probate fees charged at about 1.4% of the deceased’s estate, which includes personal property, real estate, securities, and other assets in the deceased’s name, are payable in British Columbia.
Some assets, including those in a trust, are not a part of your estate. Accordingly, probate fees will not apply for the assets in alter ego and joint partner trusts. This exemption will reduce your overall probate fees.
Estate Administration Made Easier
In addition to eliminating probate fees, having your assets held in a trust makes estate administration easier. Because these assets are not part of your estate, your beneficiaries will not have to wait until the completion of the probate process to have the assets distributed among them. The probate process usually takes up to over a year to complete. Distribution of assets is much quicker, and family members and other intended beneficiaries can benefit from this asset distribution sooner rather than later.
Confidentiality and Privacy Maintained
All the terms of alter ego and joint partner trusts are confidential and remain private before and after the death of the settler. This advantage is a plus, especially for a family that is very keen on keeping their affairs private, not to mention that maintaining this privacy can help enhance the family’s security.
This is unlike a filed probate application that concerns a will, which technically becomes a public document at the probate registry. The value of an estate must be listed on this application. As a public record, anyone can go to the Courthouse and, upon request, view the will, information about the will-maker’s family members and beneficiaries, and a list of the will-maker’s assets alongside their values, among other documents.
Maintaining a Tax Advantage
For taxation purposes, the trust will be deemed to have disposed of its capital property at a fair market value on the day the settlor dies, in the case of an alter ego, or on the day the last one between the settlor and their spouse dies, in the case of a joint partner trust. Any capital gains on such property will be taxable at the highest applicable individual marginal income rates, depending on the trust’s resident province.
Establishing the trust in a lower taxing province will help you take advantage of the lower tax benefit. Similarly, you can have the tax document drafted so as to permit a change in residence for the trust in the future for tax purposes.
Trust an Expert
As you near retirement age, you will want to explore what estate planning options may be available to you. With all the benefits highlighted, it is easy to see why alter ego and joint partner trusts are such great options. An experienced tax lawyer will help you get a better understanding of the trust, and when you are ready to create an alter ego or joint partner trust, you can be sure you will have all the help you need.
