Canada: Alter Ego And Joint Partner Trusts: Estate Planning Beyond A Will

Last Updated: July 23 2013
Article by Farha Salim

For many, estate planning begins and ends with the preparation and execution of a legally valid Will.   Certainly, a valid Will, together with an Enduring Power of Attorney and a Personal Directive, allows an individual to dispose of their property on death in accordance with his or her wishes, and provides authority for financial and non-financial decision-making in the event of the individual's incapacity during their lifetime.

However, inter vivos trusts can also play an important role in estate planning. Inter vivos trusts are trusts that are established and operate during the individual's lifetime (and often continue after the individual's death).   By contrast, testamentary trusts are established pursuant to the provisions of a Will or other testamentary document, and become effective only upon the individual's death.   Once established, an inter vivos trust may serve  a  number  of  functions,  including allowing  the  individual  to  distribute  assets  outside  of the  individual's estate without limiting the individual's right to enjoy the assets during his or her lifetime.

Generally, the transfer of capital property into an inter vivos trust is considered a disposition of that property for tax purposes, attracting income tax on any unrealized capital gains accrued on the property.   However, in 2001, the Income Tax Act was amended to permit taxpayers aged 65 years or older to transfer property inter vivos or "during their lifetime" into a trust on a tax-deferred basis. Such trusts are called "alter ego" or "joint partner" trusts. If a trust  qualifies as either an "alter ego" or "joint  partner"  trust, taxes on accrued capital gains are typically deferred  until  the  earlier  of the  disposition  of  the trust property or the  death  of the  individual or   surviving Partner.  An "alter ego" trust is an inter vivos trust established for the individual's own benefit.  A "joint partner" trust is an inter vivos trust established for the benefit of the individual and his or her spouse or common law partner of either the same or opposite sex (the "Partner").

Requirements

There are certain requirements that must be met to establish a valid alter ego trust or a joint partner trust.

1.   The trust must be created after 1999 and must be created by an individual (also referred to as the "settlor") who is at least 65 years of age.

2.   In an alter ego trust, during the individual's lifetime the individual must be the only person entitled to receive the income of the trust.  In a joint partner trust, the individual and his or her Partner must be the only persons entitled to receive the income of the trust prior to the death of the individual and his or her Partner.

3.   In an alter ego trust, the individual creating the trust must be the only person entitled to receive the benefit of the trust property prior to the death of the individual. In a joint partner trust, the individual and his or her Partner must be the only persons entitled to receive the benefit of the trust property prior to the death of the individual and his or her Partner.

4.   The individual and his or her Partner must be resident in Canada.

Benefits

Alter ego or joint partner trusts have many benefits:

1.   Trusts as a Will substitute: The transfer of property to an alter ego or joint partner trust may obviate the need for a Will with respect to the property transferred, as the terms of the trust will provide for the disposition of the property to one or more beneficiaries upon the death of the individual or the surviving Partner.

2.   Privacy and Efficiency: The assets in an alter ego or joint partner trust devolve to the beneficiaries outside of the estate. Therefore, an individual may be afforded more privacy regarding the nature, extent and disposition of his or her assets on death as there is typically no need to apply for probate, which is a public process, with respect to the trust property. Additionally, as the assets held on trust are not included among the assets to be distributed as part of the deceased's estate, the trustee will have continuous legal title to the property and can distribute to the beneficiaries according to the terms of the trust document without the delays inherent in the probate process.

3.   Trusts as a Power of Attorney substitute: An alter ego or joint partner trust can be used to provide for the continuous management of the assets of the individual and his or her Partner in the event of incapacity.  These trusts may therefore serve as an alternative to a power of attorney and, unlike a power of attorney, the terms of the trust will survive the death of the individual and his or her Partner.

4.   Tax planning: The transfer of assets to an alter ego or joint partner trust is typically not a disposition for tax purposes. Instead, the property is rolled-over, delaying any realization of capital gains and the tax owing thereon until the death of the individual or surviving Partner. In addition, unlike other inter vivos trusts, alter ego and joint partner trusts are not subject to the   21-year deemed disposition rule during the lifetime of the individual and his or her Partner.  Rather, the taxation of capital gains will be deferred until the death of the individual or surviving Partner even if death occurs more than 21 years after the trust is established. If the trust continues to exist after the death of the individual or the surviving Partner, a deemed disposition will occur every 21 years thereafter.

5.   Creditor protection and protection from claims against the estate: The trust structure typically makes it more difficult for creditors and claimants to execute against property that is validly transferred into the trust.

6.   Probate fee savings: The assets in an alter ego trust or joint partner trust will not form part of the individual's estate. Accordingly, the assets will not be subject to probate fees. Although probate fees are capped at $400 in Alberta irrespective of the size of a deceased individual's estate, in many other Canadian provinces, probate fees are calculated based on a percentage of the value of the assets in the deceased's estate and are often an important consideration for clients with assets in other jurisdictions.

For all of these reasons, Canadians aged 65 years or older may want to consider establishing either an alter ego trust or a joint partner trust during their lifetime.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
O'Sullivan Estate Lawyers LLP
O'Sullivan Estate Lawyers LLP
O'Sullivan Estate Lawyers LLP
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
O'Sullivan Estate Lawyers LLP
O'Sullivan Estate Lawyers LLP
O'Sullivan Estate Lawyers LLP
Norton Rose Fulbright Canada LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions