Clientalk
December, 2002
ALTER EGO TRUSTS and JOINT PARTNER TRUSTS
Alter Ego Trusts and Joint Partner Trusts were introduced in 1999,
although the legislation was not passed until December of 2001. We have
now had the opportunity to review the legislation and weigh the pros
and cons of these estate planning devices.
Alter Ego Trusts and Joint Partner Trusts can be created by any taxpayer
over the age of 65.
In an Alter Ego Trust, the settlor's assets are transferred into a
trust. The effect of this is to transfer ownership of the assets from
the individual tax payer to the trust, but the settlor retains control
over the assets. No capital gains tax consequences are triggered until
the settlor dies. All of the income and capital is payable (and therefore
taxable) only to the settlor during his/her lifetime.
In a Joint Partner Trust, the assets are transferred into the trust
by a tax payer and the income and capital is payable only to that person
and his or her spouse. The capital gains tax consequences are postponed
until both spouses pass away.
The advantage of this arrangement is that the assets transferred no
longer form part of the estate of the settlor. Therefore probate fees
are not paid. This can result in a substantial tax saving. Also, the
terms of the trust remain confidential.
If the trust is a Joint Partner Trust, then it is unlikely that the
children of the deceased parent could attack the trust, because the
Wills Variation Act does not apply. However if the settlor sets up an
Alter Ego Trust and names only the children as beneficiaries, it is
likely that the surviving spouse could challenge the trust. If you want
to provide for your grandchildren, then an Alter Ego or Joint Partner
Trust is probably not the appropriate vehicle, because it will be taxed
at the maximum rate, rather than marginal rates that are applicable
to testamentary trust. Also, if you intend to make substantial charitable
gifts at your death, or the death of your spouse, you are probably better
off to make such gifts through your will.
Finally, if you intend to use the Alter Ego or Joint Partner Trust
to hold real estate, such as a family cottage, you have to carefully
consider the property transfer tax implications.
Alter Ego Trusts and Joint Partner Trusts are not for everyone, but
they are interesting estate planning tools that should be considered.
If you have any questions, do not hesitate to talk to your financial
planner, accountant or us. We would be happy to assist you and to work
with them in creating an estate plan that suits your needs.
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The opinion(s) expressed in this article may not be shared by the Law Corporation and is the opinion(s) of the author. This article is not intended to substitute for the advice of a lawyer. Please consult a lawyer regarding any legal issues you may have.
Shook, Wickham, Bishop & Field
906 Island Highway, Campbell River, B.C., V9W
2C3
Tel: (250) 287-8355
Fax: (250) 287-8112
Email: wickham@crlawyers.ca
