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Is an alter ego trust or joint partner trust right for you?

An elder woman in a forest with her dog.

If you already have a will and powers of attorney, but you want more flexibility and control over your assets, an alter ego or joint partner trust might be the answer.

Alter ego trusts and joint partner trusts are both inter vivos trusts, meaning they are set up while you are alive. This is different from a testamentary trust, which is set up after your death from instructions in your will.

To set up an alter ego or joint partner trust, you must be at least 65 years old and a resident of Canada. 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.

After you transfer assets to the trust, you (and your spouse for a joint partner trust) can act as your own trustee — the person who controls, administers and distributes the trust assets. You may also wish to appoint another trustee in case you lose your capacity to manage your financial affairs. This can be especially helpful if there is a chance that you could lose your ability to manage the affairs of the trust without being aware of your loss of capacity.

What are the benefits of alter ego and joint partner trusts?

Alter ego and joint partner trusts can help do the following:

Manage your assets if you’re incapacitated: As you get older, you might find it difficult to manage your assets. With an alter ego trust, if you no longer wish to manage the assets or become incapacitated during your lifetime, the assets will continue to be managed by your co-trustee or named alternate trustee, in a seamless fashion. 

Avoid probate fees: Your estate includes your real estate, personal property, securities and other assets held in your own name. But some assets, including those in a trust, don’t form part of your estate.  After your death, your executor1 may have to apply to court to confirm their authority to deal with the assets in your will. Most provincial governments charge probate fees, typically a percentage of the value of the estate. Since assets in an alter ego trust and joint partner trust aren’t part of the estate, having assets in this type of trust helps reduce your probate fee.

Make estate administration easier: Since the assets held in the trust don’t form part of your estate, your beneficiaries don’t need to wait until the probate process has been completed before the assets can be distributed to them.

Maintain confidentiality: The trust document is private. In contrast, a will that requires probate becomes a public document.

Provide a tax advantage when rolling over assets: Normally, when you transfer assets/property to an inter vivos trust, you are deemed to have sold those assets at a price equal to the fair market value. If there are any capital gains, you would have to pay tax on your personal return.

When you transfer assets to an alter ego trust, however, it is not a taxable event. The trust is deemed to have acquitted the assets at your adjusted cost base (i.e., what you paid for them). When you die, there is a deemed disposition of the assets in the trust at their fair market value.

How MD Private Trust Company can help

You can have an individual act as your trustee, but you can also choose a corporate trustee. One option is MD Private Trust Company (MD Private Trust), which is federally licensed in Canada.

When you appoint MD Private Trust to act as your trustee, you and your family members are relieved of the burden of administering the alter ego or joint partner trust as well as any other trusts you create under your estate plan.

Some MD clients appoint MD Private Trust to act as an agent of the trustees. In this situation, MD Private Trust helps alleviate the burden of administering the trust by helping the trustees with their duties. These duties include preparing and filing annual trust tax returns and such other matters as the trustees direct.

To learn more about MD Financial Management’s estate and trust offerings, contact an MD Advisor*.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

1 An “executor” is called a “liquidator” in the province of Quebec and an “estate trustee” in the province of Ontario.

Estate and trust services are offered through MD Private Trust Company.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.