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  The Money Management Newsletter: Taxes and Estate Matters
Alter ego & joint partner trusts in estate planning



Estate planning may sometimes seem a bit like a juggling act as we try to ensure our hard earned assets will be divided as per our wishes upon death , giving as little as possible to the tax department, but at the same time not unduly complicating the control and management of these assets while we are still living. For those people who are uncomfortable with the problems and pitfalls associated with the joint registration of assets with children or other non spouse individuals or the immediate tax liabilities that can be triggered with some forms of trusts, there is help available if certain conditions are met.

The help is in the form of a recently passed tax law (June 2001) which established two new types of trusts called Alter Ego Trusts and Joint Spousal or Common-Law Partner Trusts. The former is a trust set up by an individual while the latter pertains to married or common-law spouses. The conditions to be met are as follows: the individual(s) establishing the trust (known as the settlors) must be at least 65 years of age, the trust has to be set up after 1999, and the settlor(s) must be be the only people entitled to receive all of the income or capital from the trust while they are living. These trusts are not a panacea for estate planning but two important features distinguish them from other types of inter vivos trusts. (trusts created while still living) Firstly there is no deemed disposition of capital assets at the time they are transferred into the trust , meaning there is no capital gains tax to pay . The disposition of assets for tax purposes and any capital gains liabilities can be deferred until the death of the last settlor of the trust. Secondly, Alter Ego and Joint Partner Trusts can avoid the 21 year deemed disposition rule which forces other types of trusts to pay tax on any accrued capital gains on each and every 21 year anniversary of the trust. Once again these gains can be deferred until the death of the last settlor.

By utilizing these trusts individuals or couples can transfer assets to a trust without any immediate tax consequences and have the assets subsequently distributed as per their specified wishes to named beneficiaries immediately upon their death deferring any capital gains tax until that time.. They can still benefit from the income and capital within the trust while they are living and the assets will not be subject to provincial probate fees or the public record of the estate that goes along with probate thus protecting their privacy. The use of the trust also protects the settlors’ distribution of their assets from court challenges by others who feel left out. Those who disagree with their inheritance or lack thereof could challenge a will under The Wills Variation Act but current provincial laws do not favour challenging a trust.

The trust document can also allow for trustees other than the settlor(s) to administer the trust in the event of the incapacity or death of the settlor(s) and will contain clear instructions as to the responsibilities and powers of the trustee. Of course there are drawbacks to using an Alter Ego or Joint Partner Trust such as the cost of establishing and running it as well as , the taxation of any trust income at the top marginal rates after the death of the settlors if the assets are not immediately distributed to the beneficiaries. Before any decisions are made a thorough and impartial review by a qualified tax and estate planning professional should be done.

We have provided the following links to other articles about this subject:

The Alter Ego Trust: A Tax-Effective Tool to Protect Your Testamentary Wishes By Garri Terzian, CGA, Manager, Taxation, Deloitte & Touche LLP, Vancouver.

Aim-Trimark have produced a info-sheet in an Adobe PDF format: Estate planning using Alter Ego / Joint Partner Trust



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GETTING ADVICE: A will and or trust arrangements requires careful planning to ensure all essential matters are covered. It should also be reviewed periodically and discussed with a qualified adviser or team of advisers to incorporate any changes in your personal circumstances.

Notice: Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments in this article are not intended, nor should they be relied upon to replace specific professional advice. Before acting on material contained herein. Readers should seek advice that is appropriate to their personal circumstances from a professional advisor.



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© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700





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