Alter ego trust can help protect your assets

Posted: April 17, 2013 in articles

Alter ego trust can help protect your assets.

 

A will is the traditional way to distribute your assets upon your death.

 

But it may not be the best estate planning tool for you. Depending on your circumstances, an alter ego trust or joint spousal or partner trust could be a better choice.

 

When assets pass under a will, probate fees must be paid. In B.C., where probate taxes are the second highest in Canada (1.4 per cent of estate values over $50,000 — about $14,000 per $1 million of estate value), these can be hefty.

 

Also, a child or spouse (including a common-law spouse) unhappy with their share of the estate can attack your will under the Wills Variation Act. They can ask the court to change the terms of the will. If the court concludes that your will doesn’t adequately provide for the proper maintenance and support of the disgruntled claimant, the court can vary your will and order whatever distribution it thinks is “adequate, just and equitable.”

 

This is where trusts can be useful. Assets in a trust don’t form part of your estate (the trust owns the assets) and therefore do not pass under your will. This means no probate fees are payable in relation to these assets, and the assets are not subject to claims under the Wills Variation Act.

 

But one of the problems in the past with setting up a trust that takes effect while you’re still alive is that it generally triggered a tax liability for any accrued capital gains on property transferred to the trust (other than your principal residence, which is exempt from capital gains tax).

 

Enter alter ego trusts and joint spousal or partner trusts. Since 2000, you have had the option of creating an alter ego or joint spousal trust without attracting any immediate tax consequences. You can transfer property to an alter ego trust or joint spousal or partner trust without triggering any capital gains tax.

 

You must be 65 or older to set up one of these trusts. With a joint spousal or partner trust, your property and assets are transferred into the trust, but you still have the use of your assets and continue to receive income on the trust assets. On your death, the assets pass to your spouse or partner according to the terms of the trust. An alter ego trust is similar but is for people who don’t have a spouse. After your death, the assets pass to the named trust beneficiaries.

 

Read the rest of the article at canada.com Alter ego trust can help protect your assets.

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