Alter Ego and Joint Partner Trusts in Ontario: A Probate-Avoidance Strategy

If you are 65 or older and own significant assets, you may be looking for a way to transfer those assets to your heirs without going through the Ontario probate process — which is both time-consuming and costly. Alter ego trusts and joint partner trusts are two powerful inter vivos (living) trust structures under the Income Tax Act that allow exactly that, while also deferring capital gains tax until death.

These trusts are not widely understood outside estate planning circles, but for the right person, they can be one of the most effective planning tools available. Here is what you need to know.

What Is an Alter Ego Trust?

An alter ego trust is a trust you set up during your lifetime for your own benefit. You are the settlor (creator), the trustee (manager), and the sole beneficiary during your lifetime. No one else can benefit from the trust while you are alive. When you die, the trust assets flow to whoever you designate — passing outside your estate and therefore outside the probate process.

The Income Tax Act allows you to transfer property into an alter ego trust on a tax-deferred rollover basis — meaning no capital gains are triggered on transfer. Instead, the deferred gain is recognized at your death, when the trust is deemed to have disposed of its assets at fair market value.

To qualify, you must be:

• 65 years of age or older at the time the trust is created
• A Canadian resident
• The only person entitled to receive income or capital from the trust while you are alive

What Is a Joint Partner Trust?

A joint partner trust is the two-person version. You and your spouse (or common-law partner) transfer property into a trust for the benefit of both of you during your joint lifetimes. While at least one of you is alive, no one else can benefit. When the survivor dies, the trust assets pass to your designated beneficiaries.

Like the alter ego trust, a joint partner trust allows a tax-deferred rollover on the transfer of assets in. The deemed disposition (capital gain recognition) occurs at the death of the surviving spouse/partner.

The same age requirement applies: both spouses or partners must be 65 or older at the time the trust is established. Verify the current Income Tax Act requirements with a tax professional.

Why Use an Alter Ego or Joint Partner Trust?

1. Avoiding Probate

In Ontario, assets in your estate at death may be subject to estate administration tax (commonly called probate fees) at a rate that increases with the size of the estate. As of writing, rates apply to the value of estate assets above a threshold — verify current rates with the Ontario government. Assets held in an alter ego or joint partner trust at your death pass outside the estate and are not subject to this tax.

2. Privacy

A will admitted to probate becomes a public document. A trust document does not. If privacy about the distribution of your assets matters to you, a trust achieves what a will alone cannot.

3. Continuity and Avoiding Delays

The probate process takes time — often months. A trust allows assets to flow to beneficiaries immediately on death, without a court process.

4. Protection Against Incapacity

As the trustee of your own alter ego trust, you can appoint a successor trustee who takes over automatically if you become mentally incapable. This is more flexible than a power of attorney in some circumstances, because the trust can operate continuously without court involvement.

The Trade-Offs

These structures are not right for everyone. Key considerations:

• Cost to set up: a properly drafted inter vivos trust document costs more than a will. Legal and accounting fees to establish and maintain the trust are ongoing.
• Annual tax filings: the trust is a separate taxpayer and must file annual T3 returns — even if no income is earned or distributed — and comply with the new trust reporting rules under the Income Tax Act (see the bare trust reporting article for context). Verify current filing obligations with CRA.
• No income splitting while you are alive: because you are the sole beneficiary (alter ego) or you and your spouse are the sole beneficiaries (joint partner), you cannot income-split with adult children during your lifetime.
• Capital gains at death: the rollover defers gain, it doesn't eliminate it. Tax is still triggered at the last death. Plan with a tax professional.
• Assets must be actively transferred in: unlike a will, a trust only controls what is actually transferred to it. Assets left outside the trust still go through your estate.

Alter Ego vs. Will: Not Either/Or

Most people who use an alter ego or joint partner trust still have a will — called a "pour-over will" — to catch any assets not transferred into the trust, and to handle personal effects, digital assets, and the appointment of a guardian for minor children. The two documents work together.

Frequently asked questions