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 The
Money Management Newsletter: Taxes
and Estate Matters
Alter ego & joint partner trusts in estate
planning
By Rob Whipp
Money Management Newsletter
 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:
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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Questions about the above send e-mail to:
moneyman@fiscalagents.com
© , Fiscal
Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
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