Both alter ego and joint partner trusts (the trust) allow a settlor to transfer capital assets into the trust on a tax-deferred basis if the following conditions are met:
- The trust is created after 1999.
- The settlor is at least 65 at the time of creation.
- In the case of an alter ego trust, the settlor must be entitled to receive all the trust’s income that arises before death. In the case of a joint partner trust, the settlor, in combination with the settlor’s spouse or common-law partner, must be entitled to all the trust’s income that arises prior to the surviving spouse’s death.
- No person except the settlor (and the settlor’s spouse, in a joint partner trust) may, before the settlor’s death (or the survivor’s death, in a joint partner trust), receive or otherwise obtain the use of any income or capital of the trust.
- A majority of the trustees must be Canadian.
These trusts have several advantages, including probate savings and confidentiality, which may really suit most if not all estate planning scenarios.
Generally speaking, I am not a fan of breaking something in the course of trying to fix something else. What happens when someone other than the settlor uses the trust property, such as, a family cottage that is now owned by the trust.
The Canada Revenue Agency position is that a taxable benefit will generally not be assessed to that beneficiary for the rent-free use of the property by that beneficiary. However, when considering the use by another individual, one must remember that for an alter ego trust, in order to meet the conditions outlined earlier, the trust must be a trust under which no person except the settlor may receive or otherwise obtain the use of any of the income or capital of the trust before the settlor’s death. Similarly, in the case of a joint partner trust, the terms of the trust must provide that no person other than the settlor and their spouse may obtain the use of any of the income or capital of the trust before the later death of the settlor and their spouse.
Be cautious when drafting the trust agreements and enjoy the rewards.