Alter Ego Trusts, which were established in 1999, are a tax and estate planning tool which allows an individual to transfer assets outside of their estate while still enjoying their assets during their lifetime and many other benefits. The main requirements are that the person who gifts the assets or property to the trust (“the trust creator”) must:
- be at least 65 years old when they create the trust;
- be entitled to receive all the income of the trust prior to their death;
- be the only person who can receive all of the income and capital of the trust prior to their death; and
- reside in Canada.
There are quite a few benefits to alter ego trusts:
- There is no need to put the assets transferred to the trust in a will;
- Assets in an alter ego trust immediately transfer to beneficiaries named in the trust document upon the death of the trust creator. This would allow for the trust creator to privately distribute some of their assets, and they would not need to apply for probate, which is a public process;
- Assets in the alter ego trust will not be part of the trust creator’s estate and are not subject to estate administration taxes, which are currently approximately 1.5% of estate values over $50,000—about $15,000 per $1 million of estate value;
- As the assets are not part of the trust creator’s estate on death, the trustee can distribute the property in accordance with the alter ego trust, without the delays involved with a probate application;
- Property transfer to an alter ego trust will not be considered disposition of the property for income tax purposes. Instead, the property is rolled-over, delaying the realization of capital gains and the tax owing in this regard until the death of the individual.
- Alter ego trusts are not subject to the deemed disposition rule after 21 years, during the lifetime of the individual. Any taxation of capital gains will be deferred until the death of the individual even if death occurs more than 21 years after the trust is established. If the trust continues to exist after the death of the individual, however, a deemed disposition will thereafter occur every 21 years.
- They can be used for the continual management of the property in the event the trust creator becomes mentally incompetent and thus unable to manage the property. In this sense, it’s similar to a Power of Attorney for Property, except that the testamentary terms of the trust would survive upon the death of the trust creator.
Alter ego trusts are especially appealing to those interested in avoiding or reducing their estate administration taxes, who prefer to transfer their assets privately on death, who have substantial assets and who are willing to incur costs associated with setting up and maintaining the trust.
If you or someone you know is 65 years or older and would like to consider establishing an alter ego trust during their lifetime, please contact Andrea Kelly.
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.