What is a joint partner trust and how is it used in Ontario estate planning?

A joint partner trust is similar to an alter ego trust but is set up for a couple — both spouses or common-law partners must be at least 65, and both are named as beneficiaries during their lifetimes. When the first partner dies, the surviving partner continues to receive benefits from the trust. Only when the surviving partner dies do the trust assets pass to the final beneficiaries named in the trust deed.

Like an alter ego trust, a joint partner trust allows assets to be transferred in without immediately triggering capital gains tax. The assets are held outside the estate of each partner as they die, avoiding probate and keeping the distribution private. The capital gain deferred at the time of transfer is eventually recognized at the death of the surviving partner.

Joint partner trusts are useful for couples who want to ensure the surviving spouse is looked after, while also controlling what happens to the assets after both have passed. They can also help where one or both partners have children from prior relationships and want to balance caring for their surviving spouse with protecting what will eventually go to their own children.

Setting up a joint partner trust requires careful drafting to meet the federal Income Tax Act requirements and to clearly define what happens on the first and second death.