Awerix CPA Professional Corporation

Alter ego trusts and Joint Partner trusts

A trust, simply put, is a legal arrangement between several different classes of people.

The person whose assets are transferred into this new trust is called the settlor, because these trusts are settled by the transfer of these assets.

Those who govern the trust are called trustees, and they must administer the trust according to the trust indenture, which can be considered similar to a last will and testament, or a corporate charter, with the trustees functioning in a manner akin to a will executor or a corporate board of directors.

Those who are bound to receive distributions from the trust are called beneficiaries, akin to the beneficiary of a will.

These classes of people are all the parties to a trust, which could not function without any of them.

Persons who are at least 65 years of age looking for alternative options of managing their assets may wish to consider making use of trusts. This facilitates the distribution of a person’s assets in the desired manner, during and after the end of their life.

One of the trusts available to persons over 65 is called an alter ego trust, administered for the benefit of the person who creates the trust; another is the joint partner trust, administered for the benefit of the person who creates the trust as well as their spouse or common-law partner.

There are three important conditions for these trusts:

  • The settlor must be 65 years of age or older at the moment of the creation of the trust and must be resident in Canada.
  • The settlor and/or their spouse or common law partner must be entitled to the entire income generated by the trust prior to the later of the death of the settlor and that of their spouse or common law partner.
  • Nobody besides the settlor and/or their spouse or common law partner may receive or in any other way avail themselves of the trust income or capital during the lifetime of the settlor or their spouse or common law partner.

The alter ego trust and the joint partner trust offer the following benefits:

If the settlor is no longer to control the assets in the trust, or anticipates becoming unable to do so, one or more trustees who can administer the assets can be chosen to do so. All trustees would have the fiduciary duty to administer the assets of the trust in accordance with the wishes of the settlor as delineated in the trust indenture. This allows the direction of the settlor to endure even if the settlor cannot function as a trustee.

Placing the settlor’s assets in trust also allows them to be protected from vulnerabilities that an aging individual with direct oversight and control of their assets might be exposed to. For example, scams which target the elderly would be ineffective if their assets are held in trust. Because the assets are controlled by the trust, this is also an effective alternative to a power of attorney, who is given far more latitude to use their own judgement to control the assets and their distribution.

Assets which are not placed in trust may be subject to a probate fee once the individual dies, particularly if these assets include real property. The probate fee is charged as a percentage of the fair market value of the assets, which can be considerable. Trust assets, being part of a separate legal entity from an individual’s personal assets, are not subject to probate fees. Likewise, trusts are not subject to a probate period when distributing their assets to beneficiaries.

Trust indentures, in stark contrasts to wills, are not made publicly available and can therefore be kept private from prying eyes.