Alter Ego Trust vs Joint Partner Trust in Ontario Explained

If you are 65 or older, you may have heard of an alter ego trust or a joint partner trust as a way to manage your property during life and pass it on afterwards. They are close relatives, and the difference mostly comes down to who is entitled to the income.

This article sets out how the two compare on eligibility, tax, probate and control. Whether either one suits you depends on your family, your assets and your goals, so treat this as background for a conversation with a lawyer and an accountant.

What each trust is

An alter ego trust is a living trust created after 1999 by a settlor who was 65 or older at the time. The settlor must be entitled to all of the trust's income during their lifetime.

A joint spousal or common-law partner trust is also a living trust created after 1999 by a settlor aged 65 or older. The settlor and their spouse or partner must be entitled to all of the trust's income until the later of their deaths.

Tax: what is the same and what to watch

Generally, a trust is deemed to dispose of its capital property at fair market value every 21 years. For spousal, alter ego and joint partner trusts, the first deemed disposition happens instead on the day the beneficiary spouse dies, or on the later of the two deaths.

A trust's taxable income is generally taxed at the highest individual rate, with exceptions for graduated rate estates and qualified disability trusts. A trust that is a Canadian-resident express trust and not a listed trust must file a T3 return.

Putting assets into a trust is a transfer, and its tax effects depend on the assets and your circumstances. Get tax advice before you sign anything.

Probate and Estate Administration Tax

Ontario Estate Administration Tax is $15 for each $1,000, or part of $1,000, by which the value of the estate exceeds $50,000, for applications made on or after January 1, 2020. No tax is payable if the estate is worth $50,000 or less, though an Estate Information Return must still be filed.

The tax is based on the deceased's property that must be disclosed, less encumbrances on real property. Assets that pass outside the estate, such as those with a named beneficiary, are excluded.

The key question for a trust is whether you still own the asset beneficially. Ontario includes in the estate value any property the deceased owned that was held in another person's name, and putting legal title in another name does not by itself remove a beneficially owned asset from the tax. A properly set up trust may take assets out of the estate, but how the trust is drafted and how it works in practice matter, so confirm this with a lawyer.

Control, creditors and family concerns

A trustee manages the property under the trust document. Trustees must invest as a prudent investor would and cannot act inconsistently with the terms of the trust. You could be one of the trustees, but this is a choice about who you trust and what happens if you lose capacity, so it should be thought through.

• Who will be the trustees now, and who replaces them if one dies or cannot act? A new trustee may be appointed in writing where a trustee dies, is unfit or is incapable.
• Who gets the property after the income beneficiaries die?
• Are you moving assets to defeat creditors? A court can void a transfer at undervalue to someone not at arm's length if made within one year before the initial bankruptcy event, and a transfer within five years before can be voided if the debtor was insolvent or intended to defraud, defeat or delay a creditor.
• Could the move upset family members who expected to inherit? Disputes may follow, and claims generally have a two-year limitation period from discovery.

Which one suits you, and what to do next

An alter ego trust is built around one person's lifetime income. A joint partner trust is built around a couple sharing income until the later death. Single people, or those who want sole entitlement, look at the first. Couples who want shared income and a single deemed disposition on the later death look at the second.

• Confirm you are 65 or older and that the trust will be created after 1999 terms apply as described.
• List your assets and how each is owned.
• Ask an accountant how the move affects tax now and on death.
• Ask a lawyer how the trust will interact with your will and Estate Administration Tax.
• Plan who will act as trustee and as backup.

Frequently asked questions