For Canadians aged 65 and older, estate planning can offer more than just peace of mind. It can also offer strategic tools to help simplify asset transfer, save on probate fees, and maintain privacy. Two such tools are the Alter Ego Trust and the Joint Spousal (or Common Law Partner) Trust.
These trusts are sometimes referred to as “will substitutes” because they allow your assets to be distributed without going through the probate process. But they also come with other important advantages worth considering.
Here’s what you need to know.
What Are Alter Ego and Joint Spousal Trusts?
Both Alter Ego and Joint Spousal Trusts are inter vivos trusts, which means they are created while you’re alive. They allow you to transfer certain assets into the trust without triggering a tax event, provided you meet specific criteria set out by the Income Tax Act.
This ability to transfer assets on a tax-deferred basis is one of the most attractive features of these trusts, but it’s far from the only benefit.
Alter Ego Trusts: For Individuals 65+
An Alter Ego Trust can be created by anyone who is:
- 65 years of age or older
- A Canadian resident
With this trust, only the person who creates it (the settlor) can receive or use any income or capital from the trust during their lifetime. They are entitled to 100% of the income generated by the trust, and no one else can benefit from the trust until the settlor passes away.
After death, the trust can pass the remaining assets to designated beneficiaries, bypassing probate entirely.
Joint Spousal or Common Law Partner Trusts
A Joint Spousal Trust (also called a Joint Partner Trust) works similarly but is designed for couples.
- The settlor and their spouse or common law partner must both be 65 or older.
- Both partners are entitled to receive all income from the trust during their lifetimes.
- No one else can benefit from the trust until both individuals have passed away.
Again, beneficiaries can be named in advance, so that the assets pass smoothly after the second death with no need for probate.
Key Benefits of These Trusts
There are several reasons why Alter Ego and Joint Spousal Trusts are becoming more popular in estate planning:
1. Privacy
Assets held in these trusts are not listed on probate forms, which become part of the public court record. This allows your estate to stay more private.
2. Probate Fee Savings
In British Columbia, the probate fee is roughly 1.4% of the value of your assets. By placing assets into one of these trusts, you can avoid probate on those assets entirely.
3. Faster Distribution
Assets in the trust can be transferred directly to the named beneficiaries without waiting for a Grant of Probate. This can shorten the timeline from months to weeks, helping your loved ones receive their inheritance faster.
4. Protection Against Estate Challenges
Trust assets can offer some protection against will variation claims. Since these assets are no longer part of the estate, they are generally harder to contest.
5. No 21-Year Deemed Disposition Rule
Unlike other trusts, these do not trigger a deemed disposition every 21 years. The assets are only considered disposed of at fair market value upon death — either your death or the death of the surviving partner in a Joint Spousal Trust.
What to Keep in Mind
While these trusts offer many benefits, they aren’t right for everyone. You’ll want to consider:
- Legal fees to draft and implement the trust properly
- Ongoing accounting costs, including the requirement to file an annual T3 Trust Income Tax and Information Return
- The need to update your overall estate plan to reflect the trust structure
It’s also important to carefully select trustees and alternate beneficiaries to ensure your intentions are carried out effectively.
Is an Alter Ego or Joint Spousal Trust Right for You?
If you’re over 65 and looking for a way to simplify your estate plan, reduce probate costs, and preserve your family’s privacy, one of these trusts might be the right move.
At Oak Tree Estate Law, we specialize in estate planning strategies tailored to each client’s unique circumstances. Whether you’re planning as an individual or as a couple, we can help you decide if an Alter Ego or Joint Spousal Trust fits into your overall plan and ensure it’s set up correctly from the start.