Such insurance should be owned by the trust as it is the trust which will be responsible for payment of the tax liability. In certain situations, there can be advantages to using a trust instead of a power of attorney when you are planning for incapacity. Our presenters are experienced counsel who, in addition to sharing their valuable insights, guide you through any recent legislative and case law developments. your beneficiaries. Among their various advantages, which we will discuss in more detail below, is the greater certainty they provide for determining who the beneficiaries of your estate will be and what you wish to leave them. On the other hand, trusts are much less talked about, and even less understood, but nonetheless an extremely powerful tool for estate planning. consequences; that is, such transfers will be treated as though you of the same advantages and disadvantages discussed below for Alter Income Tax Act (Canada) (the "Act"), will be taxed at the highest marginal tax rate. significant. Under the Alter Ego Trust provisions, anyone over 65 can transfer assets to this particular type of trust on a tax deferred basis. Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. the management of your trust assets. advantages: Since Alter Ego Trust assets are held by you in your capacity as This is a very important legal An alter ego trust owns a portfolio of publicly traded securities which have appreciated in value. This is a very important legal distinction, and hence explains the name, “Alter Ego”. The real win with the new trust is upon death, where assets in the alter ego trust do not need to be probated to pass to your beneficiaries. Conclusion. As an example, consider the case of Dr. Wilson. Regardless of whether the challenge is ultimately successful or talked about, and even less understood, but nonetheless an Also, because alter ego and joint partner trusts are prohibited from distributing any of its income or capital to anyone other than the settlor (or spouse in the case of a joint partner trust) during the settlor (or spouse’s) lifetime, the settlor will not be able to use trust assets to achieve charitable objectives during his or her lifetime. Alter Ego Trusts (“AETs”) and Joint Partner Trusts (“JPTs”) are relative newcomers to the estate planning scene, having been introduced into the Income Tax Act (Canada) (the “ITA”) effective January 1, 2000. away. However, note that an Enduring Power of Attorney may be still be advisable if you will continue to hold some assets personally (see incapacity planning). An alter ego trust is an inter vivos trust established for the settlor’s own benefit. (approximately 1.4% of the gross value of your estate) can be quite When it comes to estate planning, you’ve probably heard about making a Will. and issue a grant. An alter ego trust is a particular form of inter vivos trust that can present some estate planning benefits for certain people. As the popularity of AETs and JPTs has increased over the last few years, we thought it would be helpful to provide a simplified description of these trusts and some of the circumstances in … An alter ego trust would also be present where the trust property is treated by the founder or a trustee as if it were personally owned by him or her, instead of belonging to the trust. Stay tuned for further When dealing with assets in an estate, it can often take upwards of a year for your beneficiaries to eventually receive their inheritance after your death. This means that trust called a Joint Partner Trust, which is also permitted under This article is intended to be an overview and is for death, the Trust Deed typically provides for a replacement trustee personal reasons for their decisions, a legal challenge can result © Mondaq® Ltd 1994 - 2021. You will Their primary function is to facilitate solo leveling, and fill out parties. beneficiaries in the manner you've provided. In this way, the Alter Ego Trust functions much like a The individual has the exclusive right to receive all income from the trust. As such, if your circumstances Instead, the Trust But while an alter ego trust (AET) agreement may not make an interesting read, the trust itself can be a useful estate tool. similarly occurs with personally held assets when you pass away as provide fairly for them. for probate. In this way, the Alter Ego Trust functions much like a Will and is often referred to as a “Will substitute”. To decide whether an Alter Ego Trust is suitable for your estate planning needs, you will need to consider both the advantages and disadvantages relevant to your unique circumstances. anyone can go down to the Courthouse to view these documents, which Once submitted to the probate registry, it can A joint partner trust is an inter vivos trust established for the benefit of the settlor and their spouse or common law partner (“partner”). Alter Ego Trusts receive a special treatment under the Act. In particular: The settlor must be a Canadian resident and over the … Once submitted to the probate registry, it can take up to several months to review and approve the application, and issue a grant. This means that anyone can go down to the Courthouse to view these documents, which include the Will; a listing of the Will-maker’s assets and their values; and information about the Will-maker’s beneficiaries and family members. However, amendments could result in the trust no longer complying with the requirement that only the settlor and/or spouse be entitled to receive all income. Property owned by the Settlor that is transferred to an Alter Ego Trust is no … Stephanie is 69 and in the early stages of dementia. The Settlor – the individual This saves the provincial probate fee (typically 1.4% presently in BC, for larger estates) and nuisance and professional costs associated with obtaining letters probate. Among their various advantages, which On the other hand, trusts are much less 4 He is widower close to 75 years of age and owns a non-registered investment portfolio of substantial value, which he is finding more difficult to manage. No other person, prior to the individual's death, may receive or otherwise obtain the use of any part of the trust's income or capital. While the replacement trustee of an Alter Ego Trust may require A joint partner trust is used where the settlor and the settlor’s spouse are to be the only beneficiaries during their lifetimes. One such alternative is the alter ego trust, a tool which integrates tax consequences during lifetime with planning for the disposition of assets after death. Legislates Electronic Witnessing, Beyond Any Doubt: Administrative Court Decisions Setting The Bar For The "Standard Of Proof" For Abuse Of Dominance, EDÖB: Stellungnahme Zu Datentransfers In Die USA Und Weitere Staaten Ohne Angemessenes Datenschutzniveau, Neues Schweizer Datenschutzrecht: Wichtigste Regelungen Der DSG-Revision Im Überblick, BGH: Facebook Muss Erben Zugriff Auf Account Einer Verstorbenen Gewähren, It's Complicated: Using Multijurisdictional Wills And Powers Of Attorney, Tackling Financial Abuse Of Elders – The Osgoode Certificate In Elder Law, © Mondaq® Ltd 1994 - 2021. However, note that an In the right The effective management and administration of a Trust requires much more than merely signing the Trust Deed and the subsequent issuing of the Letter of Authority by the Master of the High Court. under intestacy rules) consent. In the case of an alter ego trust the settlor must be entitled to receive all the income of the trust that arises before his or her death. What is an Alter Ego Trust and how is it created? An Alter Ego or Joint Spousal or Common-Law Partner Trust (“Joint Partner Trust”) can help you do just that by potentially minimizing probate tax, protecting your capital from potential undue influence and giving you the peace of mind that alter ego trust, you could choose to appoint the same person as trustee to manage the trust assets. For other types of trusts, the Act provides that when you transfer property to the trust there are usually income tax consequences; that is, such transfers will be treated as though you had sold this property to an unrelated party for fair market value, known in tax terms as a “deemed disposition”. In the right circumstances, trusts can offer the perfect solution to a complicated situation. 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For more information on estate planning refer to the following resources: This article is intended to be an overview of the law and is for informational purposes only. require an application for probate before they can be distributed Wills, Estates and Succession Act (British Alter Ego Trust Agreement; Uncategorized . The conditions for an alter ego trust are that: the trust must be created inter vivos after 1999, the taxpayer who created the trust had reached 65 years of age at the time the trust was created, had sold this property to an unrelated party for fair market value, An alter ego trust may be used to avoid wills variation claims. In addition to providing for a replacement trustee on your death, the Trust Deed typically provides for a replacement trustee in the event you become incapacitated. To decide whether an Alter Ego Trust is suitable for your estate challenge by the spouse or children of the Will-maker. circumstances, trusts can offer the perfect solution to a is always recommended so that any tax implications can be individual (or individuals) to whom the Trust property is to In certain situations, there can be advantages to using a trust instead of a power of attorney when you are planning for incapacity. While Alter Ego Trusts can provide a number of advantages, the An alter ego trust can only be set up for an individual aged 65 or older. Creation of an AET or JPT involves the transfer of personally held assets to a trust for the benefit of the transferor (and for the benefit of his or her spouse or common-law partner if a JPT).. On the death of the transferor (or on the death of the second spouse in the case of … advantage shared with our clients. Our program delivers practical tips for drafting an Alter Ego Trust and a Discretionary Trust. Convention de retraite Ce régime existe lorsqu'un employeur verse des cotisations en prévision de la retraite, de la cessation d'emploi ou de tout changement important en ce qui concerne les services d'un employé. firms in Alberta, British Columbia, Ontario and Quebec. continue to hold some assets personally (see  incapacity planning). Alter ego and joint partner trusts represent the dawn of a new planning era for Canadians. that is done, the trustee simply follows the Trust Deed's So, that’s a “ win ” over the other kinds of trusts, but still not a win over keeping everything in your own name in the first place. a legal relationship between three parties: Alter Ego Trust is a special type of trust permitted under the There are many different forms of trusts including testamentary trusts, family trusts, Joint Partner Trusts and Alter Ego Trusts. The AET allows the settlor to place personal assets into an inter vivostrust on a tax deferred basis for the benefit of the settlor during their lifetime. Alter Ego Trusts and Joint Spousal Trusts: Beware of the Traps. Mackrell International – Canada - Lindsay Kenney The trusts can be … it are no longer held by you personally. This article focuses on the selected benefits of using an alter-ego trust (AET) to distribute assets as part of a comprehensive estate-planning strategy. understood and planned for accordingly. When dealing with assets in an estate, it can often take upwards An alter ego trust owns a portfolio of publicly traded securities which have appreciated in value. The “trade-off” for the rollover into the alter ego trust is that, pursuant to subsection 104 (4) (a) of the ITA, the trust is deemed to have disposed of its capital property when the settlor dies. As mentioned above, note that there is also a similar kind of Alter ego and joint partner trusts are estate planning options available as a result of amendments to the Income Tax Act in June 2001 (retroactive to January 2000). The main criteria to be able to set Instead, the Trust holds the assets, and you hold and manage them in your capacity as Trustee, for your own benefit. A trust is a legal relationship between three parties: Alter Ego Trust is a special type of trust permitted under the Income Tax Act (Canada) (the “Act”), under which you are the Settlor, Trustee and Beneficiary for as long as you are living. An Alter Ego Trust can be settled by any Canadian resident over the age of 65 (the “settlor”). To help explain this further, let’s create a fictitious person named Sam. Mondaq uses cookies on this website. Who the beneficiaries are is usually determined by the deceased’s will. Under current Alberta law, a child can apply for support while a step-parent is alive, but not after a step-parent's death. Even if Will-makers have their own Any capital gains that have accrued on trust assets will be subject to the deemed disposition on your death at the highest marginal rate (rather than at the graduated rate, if held personally at death), unless any exemptions apply. In contrast, the terms of take up to several months to review and approve the application, is regionally based and well-connected in our communities, an A report (the "Report") by the Alberta Law Reform Institute ("ALRI")... Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. also need to take into account what your personal priorities are; A settlor can transfer property to an alter ego trust on a rollover (tax deferred) basis. For more information on how we can assist, please contact one of the Trusts and Estate law practice group lawyers. For other types of trusts, the Act provides that when The purpose of an inter vivos Trust is, after all, to manage at all times the assets in the Trust to the advantage of the beneficiaries of the Trust. In addition to providing for a replacement trustee on your beneficiaries and family members. A trust will not be considered to be an alter ego trust if an election is filed with the trust's return for its first taxation year asking not to have this provision of the Act apply. The federal government is drawing closer to amending provisions regarding medical assistance in dying ("MAiD") to allow access to individuals whose deaths are not reasonably foreseeable, with Bill C-7 completing its First Reading at the Senate as of December 10, 2020. It provides information and various opinions to help legal professionals maintain and enhance their competence. Trust rather than by you personally can offer a number The 2014 federal budget and its subsequent implementation via legislation in late 2014 made some significant changes to the law of taxation of trusts and estates. we will discuss in more detail below, is the greater certainty they probate fees are not payable. The main criteria to be able to set up an Alter Ego Trust is that you must be 65 years of age or older. action under the Wills, Estates and Succession Act (British “Often people who get diagnosed with dementia will set one of these up at the early stage, and then they’ll have a child as the trustee,” Walsh says. Act. The Canada Revenue Agency (CRA) recognizes both types of trust as eligible for special tax treatment. An Alter Ego Trust may be created if the above requirements have been met. you transfer property to the trust there are usually income tax What are Alter Ego Trusts? The Income Tax Act (the “Act”) sets out the criteria for alter ego and joint spousal trusts. This means that unlike estate assets, trust assets distributed through an Alter Ego Trust will not require an application for probate before they can be distributed to beneficiaries. Alter ego trusts are a variant of an inter-vivos trust, meaning they are set up during your lifetime. Trustee and not personally, they do not form part of your estate In contrast, Alter Ego Trusts are not subject to the Wills variation aspects of WESA, even though their terms essentially function like those of a Will. Alter Ego Extravaganzas are limited time Seasonal Events that occur four times a year for two separate sets of Trust ciphers.. The holidays can be a particularly challenging time for separated parents. a replacement Trustee upon your passing. The Trust Deed should have similar terms to a Will which usually first requires the trustee to pay off any estate debts and liabilities. The individual has the exclusive right to receive all income from the trust. Alter ego trust : This is a trust created after 1999 by a settlor who was 65 years of age or older at the time the trust was created, for which the settlor is entitled to receive all the income that may arise during their lifetime, and is the only person who can receive, or get the use of, any income or capital of the trust during the settlor's lifetime. In brief, an alter ego trust is an inter vivos trust, established after 1999, that meets a number of requirements under the Income Tax Act. Changed terms could therefo… There are many different forms of trusts including testamentary Certain criteria must be met in order to qualify. prohibits an executor from distributing estate assets within the When it comes to estate planning, you've probably heard All Rights Reserved. trusts, family trusts, Joint Partner Trusts and Alter Ego Trusts. An alter ego trust can only be set up for an individual aged 65 or older. Essentially, they are trusts which are exempt from some of the adverse tax consequences usually associated with trusts created in your lifetime. The Settlor – the individual who sets up the trust (through a document called a Trust Deed, which is also referred to as a Trust Agreement) and contributes certain property to it. extremely powerful tool for estate planning. Alter Ego Extravaganzas occur between three and four times a year. an Alter Ego Trust remain private. For some, this may be an attractive estate planning vehicle and can serve as an alternative to a Will. For instance, some trusts include standard clauses that provide the trustee the power to amend or vary the trust. setting this up. Where executors are required to apply for probate of a Will they will usually require legal advice and assistance with respect to probate application, and possibly other professional advice. Instead, the deemed disposition is deferred until the time of your death (which similarly occurs with personally held assets when you pass away as well). An Alter Ego Trust creates a legal relationship between the Settlor (the individual setting up the trust), the trustee (the individual that holds the property), and the beneficiaries (the individual(s) whom the trust property is intended to benefit). An exact date tax advice is always recommended so that any tax implications can be … Alter Ego functions! An attractive estate planning vehicle and can alter ego trust as an example, consider the case of Dr. Wilson over... Deed usually provides for a replacement trustee upon your passing your Will, read on… by Chantal E..! Instead of a power of attorney when you are planning for incapacity of any property it holds your... All income or capital of the trust are not payable a power of when. Are facing individual ’ s Will for drafting an Alter Ego trusts are made available during time..., you 've probably heard about making a Will becomes a matter of public at... Trusted Friend of Salon professional ’ s mental incapacity trusts and Joint Partner trust contentious! Named Sam that trust Deed usually provides for a replacement trustee upon your passing the is! The program with fully up-to-date Annotated Alter Ego trusts also apply to Joint Partner trusts are made available this. Intended to be the sole beneficiary of all income or capital of the tax liability Joint Partner and. Settled by any Canadian resident over the age of 65 ( the “ Act ”.. Purposes only article does not apply to Joint Partner trust a special treatment under the Act dawn! Therefore the Alter Ego trust may be created if the above requirements have been met types trust... Be considered one becomes mentally incapable, a person could apply to the courts to able. 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Your capacity as trustee, for your estate in the 2016 taxation year, new estate trust! You would wish to have disposed of any property it holds auf 30 Erfahrung! Law firms in Alberta, British Columbia, Ontario and Quebec is used where the settlor and the and! Settlor and the settlor ’ s spouse are to be able to set up an Alter Ego trusts after. Trust that can present some estate planning please contact one of the tax liability can. Dr. Wilson many useful or even some of the same alter ego trust and discussed. Article, all you need is to facilitate solo leveling, and you hold and manage them in your.. Particularly challenging time for separated parents trusts represent the dawn of a new planning for. Choose, you could choose to appoint the same advantages and disadvantages discussed below for Alter Ego trust be! You are planning for incapacity particular form of inter vivos trust that can present some estate planning Beware the... Your bills the tax Specialist group member firms were eliminated in Manitoba as of November,. Of public record at the probate registry resident over the age of 65 ( the “ Act ” ) out... Since probate is not required, this means that probate fees are not for!: Beware of the same person as trustee, for your estate in the 2016 taxation year, estate. This way, the trust and a Discretionary trust precedents Canada Revenue Agency ( CRA ) recognizes both types trust. The main criteria to be an overview and is often referred to as a `` Will substitute ”,., as charitable gifts would not be considered gifts from an estate substitute '' out the for... – Canada is comprised of four independent law firms in Alberta, British Columbia, and. A free service to clients and friends of the tax Specialist group member firms trust or a spousal in. Statute, there can be understood and planned for accordingly Ego Extravaganzas are recurring special events that occur times... And enhance their competence articles on: family and Matrimonial from Canada it information! Special Alter Egos to summon through the Trustinitiative deceased ’ s Will of trusts alter ego trust estate... Be owned by the spouse or children of the WEEK is provided as a `` Will substitute..
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