What is the difference between spousal trust and alter ego trust?
With an alter ego trust, you are the only person who is entitled to receive all trust income and has access to capital in the trust until you die. In a joint partner trust, you and/or your spouse are the only ones entitled to all the income and capital in the trust during your lifetime.
How are alter ego trusts taxed in Canada?
Under the Tax Act, on the day that the settlor dies (in the case of an alter ego trust), or on the death of the last to die of the settlor and his or her spouse (in the case of a joint partner trust), the trust will be deemed for tax purposes to have disposed of all of its capital property at fair market value.
Who is the trustee in an alter ego trust?
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).
Does the 21-year rule apply to alter ego trusts?
The 21-year deemed disposition rule, which applies to other inter vivos trusts does not generally apply to alter ego trusts during the lifetime of the settlor, or to joint partner trusts, during the lifetime of the settlor and their partner.
How does an alter ego trust work?
When you set up an Alter Ego Trust, any assets you transfer to it are no longer held by you personally. Instead, the Trust holds the assets, and you hold and manage them in your capacity as Trustee, for your own benefit. This is a very important legal distinction, and hence explains the name, “Alter Ego”.
What is the 21 year rule?
The 21-year rule, which applies to most personal trusts, means that a deemed disposition comes into play and the trustee has to file a return on all the property held as if he or she had sold it at fair market value. This means you are triggering, and taxed on, all the capital gains accrued over that time.
What are the benefits of an alter ego trust?
Alter ego trusts offer the avoidance of probate and legal fees on death, potential creditor protection, and the ability to transfer assets to the trust without taxation of capital gains.
What happens to alter ego trust on death?
With an alter ego trust, there is no deemed disposition until your death (unless you elect otherwise). Transferring assets to a trust can also provide potential creditor protection.
Are alter ego trusts revocable?
The settlor can be the sole trustee during his or her capacity and the spouse can be a successor trustee. The settlor can also revoke the trust or amend it- unless one of the reasons for establishing the trust is to make it irrevocable to avoid influence from others and difficulties on the settlor’s incapacity.
How many years can a trust last?
A trust can remain open for up to 21 years after the death of anyone living at the time the trust is created, but most trusts end when the trustor dies and the assets are distributed immediately.
How is a trust taxed in Canada?
Though a Canadian trust is not a legal entity, it is considered a taxpayer at the highest rates under Canadian law. That is why trustees try to pass on any income earned by trust property to beneficiaries, so they can pay the taxes at their own, presumably lower, rates.
Can a trustee be a beneficiary Canada?
The usefulness of a trust is based on the fact that a trustee can hold property on behalf a single beneficiary, or a group of beneficiaries, for their benefit while maintaining control over the property.
Who is the beneficiary of an alter ego Trust?
The Beneficiary – the individual (or individuals) to whom the Trust property is to benefit. 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.
What is “alter ego”?
This is a very important legal distinction, and hence explains the name, “Alter Ego”. While the Trust Deed must state that only you are entitled to the benefit of trust assets while you are alive, you get to provide for who gets the trust assets after you pass away.
Are alter ego trusts subject to wesa variation?
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. As such, if your circumstances and intentions are likely to be contentious, an Alter Ego Trust may be considered.
What does it mean to have a deemed resident Trust?
Deemed resident trust. A trust is deemed resident in Canada where there is one of the following: A resident contributor to a trust at a particular time means a person that is, at that time, resident in Canada and has at or before that time made a contribution to the trust.