All About Estates

Occupation of the Principal Residence held in an Alter Ego Trust

The CRA was asked whether the fact that the spouse of the settlor/beneficiary of an alter ego trust inhabits the principal residence of the trust would taint the trust for the purpose of subparagraph 73(1.01)(c)(ii) of the Income Tax Act (“subparagraph 73(1.01)(c)(ii)”).

The CRA’s response was favourable. It explained that this is a question of law and fact. However, as long as the terms of the trust satisfy the conditions of subparagraph 73(1.01)(c)(ii), the fact that the settlor/beneficiary of the trust permits his/her spouse after the transfer to continue to inhabit the principal residence with him/her will not in and by itself taint the trust.

Recall the requirements for an alter ego trust:

  • The settlor must be age 65 or older;
  • The settlor and the trust must be resident in Canada;
  • The trust must be an inter vivos trust created after 1999;
  • The settlor must be entitled to receive all of the income of the trust that arises before his/her death; and
  • No person other than the settlor can receive or otherwise obtain the use of any of the income or capital of the trust while he/she is alive.

As a practical matter, if an individual settles an alter ego trust and transfers his/her principal residence into the trust, his/her spouse should not be prohibited from continuing to live in the residence or else to taint the alter ego trust. The CRA rightly concluded that the fact that the spouse of the settlor/beneficiary of an alter ego trust lives in the principal residence of the trust will not breach the requirement that “no person other than the settlor may … obtain the use of any of the … capital of the trust while the settlor is alive”.

About Brittany Sud
Brittany Sud is a member of the Trust, Wills, Estates and Charities Group in Fasken Martineau’s Toronto office. Brittany is developing a broad estates and trusts practice with a focus on planning and administration matters. As part of her practice, Brittany assists high net worth clients, entrepreneurs and professionals with Wills, powers of attorney, domestic contracts and trusts. She has experience developing and implementing cohesive estate plans that reflect the financial objectives and short and long-term goals of clients, including advising on probate planning, family business succession planning, asset protection strategies and disability planning. Brittany’s estate administration practice includes preparing applications for probate and administering the Canadian estates of non-residents. Outside of the office, Brittany enjoys playing softball and tennis, travelling and cooking. She is a dedicated volunteer of the United Jewish Appeal, Jewish National Fund, One Family Fund and Baycrest Foundation. Community Involvement • Host, Baycrest Foundation - Game Night for Baycrest, 2015 • Chair, Pitch for Israel Softball Tournament, 2014-2016 • Vice-Chair, United Jewish Appeal Young Lawyers Leadership Campaign Canvassing Team, 2016 Memberships and Affiliations • Member, Canadian Bar Association • Member, Ontario Bar Association - Trusts and Estates Law Section • Member, Ontario Bar Association - Young Lawyers’ Division • Student Member, Society of Trusts and Estates Practitioners (STEP) Canada

0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *