Joint Partner Trusts and Alter Ego Trusts are new forms of inter vivos trusts which make inter vivos trusts far more attractive as a planning tool for older clients. Previously, inter vivos trusts were burdened with the unfortunate income tax result of a deemed disposition of the assets transferred into the trust. This often had the effect of accelerating capital gains tax payable on the increase in value of the assets, which tax would otherwise not be payable until the death of the last spouse. Under the proposed new forms of trusts, provided certain requirements are met, there is no deemed disposition on a movement of assets into the trust. A disposition for tax purposes only occurs on the death of the last surviving spouse (in the case of a Joint Partner Trust).
The requirements include:
1.The settlor of the trust must be at least 65 years of age;
2.The settlor must be a Canadian resident for income tax purposes;
3.The trust must be established after 1999 by an individual who is then alive;
4.The settlor in the case of an alter ego trust or the settlor and his or her spouse in the case of a joint partner trust must be the only persons entitled to receive the benefit of any of the assets of the trust during the lifetime of the settlor and the spouse.
For older clients, this is a valuable and new tool that can protect the assets during the client’s lifetime and avoid both probate fees and Wills Variation Act claims on the client’s death. These trusts continue after the death of the settlor, moving the assets from the settlor (and spouse in the case of a joint partner trust) to the beneficiaries, without having the assets pass through the estate of the settlor or spouse. A trust has the additional benefit of being a private document that need not be registered or available for public scrutiny (other than the CRA). Use of the new forms of trust can also avoid the risk of giving assets to family members before death, providing the client with the financial security of continuing to control their own assets until their death.
Another important use for the new forms of inter vivos trust is to permit a person to have their financial affairs managed and directed according to the trust document, rather than relying on an appointment of an attorney under a Power of Attorney. The trust can provide more flexibility and a greater level of control while providing privacy and confidentiality.
Almost any asset may be transferred into an alter ego trust or joint partner trust (other than an R.R.S.P. or R.R.I.F.). A trust can also be named as the designated beneficiary of a life insurance policy or a registered fund or a separate life insurance trust can be established. A transfer of real estate must be done carefully to avoid Property Transfer Tax.
Note that an inter vivos trust has the tax disadvantage at being taxed at the highest marginal rate for any income earned and left in the trust, while a testamentary trust such as that established in a will or by a life insurance trust declaration will be taxed at the graduated rates available for a testamentary trust. An alter ego trust or joint partner trust may not be the best choice where income splitting with a spouse or adult children after death is desired.
Contact a lawyer knowledgeable about these types of trusts to determine whether they are appropriate for your circumstances.
For more information on this topic contact Pushor Mitchell Partner Theresa Arsenault at: [email protected] or (250)869-1110
