Alter Ego Trusts: The Public and Private Nature of Estate Planning

Celebrity deaths breed so many news articles, and the tabloid analysis of what is and isn’t in their Last Will and Testament is one of them. How much was their estate worth? Who did they leave money to?  Did you see who they didn’t leave anything to?

Our American counterparts make use of an estate planning mechanism known as a “revocable trust” in their estate planning, and thus leave everything to the trust, rather than to the beneficiaries. While the Will may become a matter of public record, the trust – and the beneficiaries of that trust – are not.

So what is a Canadian resident – celebrity or otherwise – to do?

While multiple will plans are an option for assets that do not require probate to administer, if you are over the age of 65, the Income Tax Act allows you to create a revocable trust for your own benefit during your lifetime, and the benefit of others after your death, which is commonly referred to as an “Alter Ego Trust”.

Unlike a traditional Canadian trust, the Alter Ego Trust does not require the original owner of the assets (legally referred to as the “Settlor”) to divest themselves of any future interest in the assets. A Settlor of an Alter Ego Trust continues to be the beneficiary of the assets during their lifetime. The Settlor can also be – but is not required to  be – the Trustee of the Alter Ego Trust.

The Alter Ego Trust Document (referred to as a “Trust Deed”) will also set out who will act as the Trustee of the assets after the Settlor has become incapable or died, and who will receive the assets upon the death of the Settlor. The Trust Deed can set out instructions for future trusts to be established for the Settlor’s beneficiaries, to achieve similar planning goals and considerations as a Will (for example, for incapable beneficiaries or minors).  

When a Will is submitted for probate to the courthouse, it becomes a part of the court file, as do the documents required to be filed in companion for a probate application, including the value of assets, and information regarding beneficiaries. These court files are public record and therefore available for access by anyone who attends the Courthouse and requests this information.  An Alter Ego Trust, however, remains private.

In addition to this privacy, assets passing under an Alter Ego Trust are not subject to estate administration tax (more commonly referred to as “probate fees”), which in Ontario are currently 1.5% of the value of assets over the first $50,000, and continue to benefit from a deferral of accrued capital gains on applicable property transferred to the trust.

If you are over the age of 65 and think you can benefit from this type of planning, the specialists in our Business and Estate Succession Group would be happy to assist.