Alter Ego and Joint Partner Trusts in Ontario: Probate Planning After 65

Most people know that assets held in trust at death bypass probate — the trust owns the assets, not the individual, so there is no estate for the court to certify. The challenge is that setting up a trust and transferring assets into it usually triggers an immediate capital gains tax, because the tax rules treat the transfer as a disposition at fair market value.

Two special trust structures eliminate that problem for older Ontarians: the alter ego trust and the joint partner trust. Available under the Income Tax Act to individuals who are 65 or older, these trusts allow you to move appreciated assets into a trust without triggering immediate capital gains — and without losing control of those assets during your lifetime. At your death (or the death of the last surviving partner in a joint partner trust), the assets transfer to your chosen beneficiaries outside of probate.

This article explains how each trust works, what they accomplish, and where they fall short.

What Is an Alter Ego Trust?

An alter ego trust is an inter vivos (living) trust available to any individual who is at least 65 years old. The defining features are:

1. You are the only person entitled to receive income or capital from the trust during your lifetime. No other person can benefit from the trust while you are alive.
2. You transfer assets into the trust at your adjusted cost base (ACB) — not at fair market value — so no capital gain is triggered on transfer.
3. The trust holds and manages the assets during your lifetime, paying you any income or capital you need.
4. On your death, the trust terms dictate who receives the assets — bypassing your will and bypassing probate entirely. No Certificate of Appointment is needed for the trustee to distribute the trust assets.

The "alter ego" concept is that the trust is essentially you — it serves you alone during your lifetime and distributes according to your wishes after death.

What Is a Joint Partner Trust?

A joint partner trust operates the same way, but for couples. The conditions:

1. You must be at least 65 years old on the date the trust is created.
2. During the lifetime of both you and your spouse or common-law partner, only the two of you can receive income or capital from the trust.
3. Assets transfer into the trust at cost — no immediate capital gain.
4. After the death of the last surviving partner, the trust distributes to the named beneficiaries outside of probate.

A joint partner trust is effectively two alter ego trusts layered together, appropriate for couples who want to avoid probate on assets that will ultimately flow to children or other beneficiaries only after both spouses are gone.

The Probate Benefit

Because the trust — not you as an individual — owns the assets at the time of your death, those assets are not included in your probate estate. For large estates with substantial investment portfolios, a family cottage, private company shares, or multiple real properties, the estate administration tax saving can be significant.

Importantly, unlike a secondary will strategy (which requires assets to be of a type that third parties will accept without probate), a trust is universally effective at bypassing probate. Financial institutions, land registries, and transfer agents deal with the trustee of a continuing trust without requiring probate.

The Tax Trigger at Death

The probate saving comes with a corresponding tax event. Under the alter ego and joint partner trust rules, a deemed disposition at fair market value occurs on the death of the last beneficiary entitled to income or capital during life (i.e., you, or the surviving partner). At that point, any accrued capital gains in the trust are realized and taxed on the trust's tax return for that year.

This is the same tax that would have occurred in your estate — the alter ego trust does not eliminate the capital gains tax, it defers it to the same point it would otherwise arise and changes who pays it (the trust, rather than your estate). The primary financial benefit is the EAT saving, not income tax savings.

Control During Your Lifetime

A significant advantage over other probate-avoidance techniques is that you retain full control of the assets:

• You are typically both the settlor and the trustee (or a co-trustee) during your lifetime
• You can direct investment decisions, change the trust's terms in some cases (if drafted as an amendable trust), and access income and capital freely
• Unlike a gift, you have not parted with the asset — you remain its economic owner

This addresses the fear that many clients have about "giving away" assets while they are still alive and well.

Limitations and When It Is Not the Right Tool

The 65-Year-Old Threshold

The rollover on transfer is not available before age 65. Younger clients who want a trust-based probate strategy must either accept a deemed disposition on transfer or use other structures (such as an estate freeze with a family trust, which is a different and more complex strategy).

Administration Costs

A trust requires ongoing administration: a trust account, annual trust tax returns (T3 returns), and compliance with the trust's terms. This is more complex than simply holding assets in your own name. For modest estates, the EAT saving may not justify the annual legal and accounting cost.

Change of Control Issues for Real Property

Transferring real property into a trust requires a transfer of title — a deed registered on title. This may trigger land transfer tax in Ontario (verify whether an exemption applies to a transfer to a qualifying trust). Get legal advice before transferring real property.

Not a Substitute for a Will

An alter ego trust covers assets transferred into it, but you will still need a will to deal with assets that remain in your personal name at death — whether because you chose not to transfer them into the trust, or because they were acquired after the trust was set up.

Frequently asked questions