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Are you 65 years of age or older?
By Eunice Luis
Published in Port Credit Harbour Lights
An "Alter-Ego" or "Joint Partner" trust may provide you with new flexibility in estate planning.
Due to changing laws (passed June 2001) and taxation rules, seniors now have alternatives to the traditional will and powers of attorney to maintain or distribute assets. This can be accomplished by setting up an "Alter-Ego" Trust (if set up by an individual) or a "Joint Partner" Trust (if established by partners).
What are the conditions for setting up Alter-Ego or Joint Partner Trusts?
- Individual(s) setting up the trust must be at least 65 years of age.
- Trust must be set up after 1999.
- The individual, or for Joint Partner Trusts, the individual and his or her spouse, must be entitled to receive all of the income from the trust until the time of death of the individual or the death of the second of the two partners.
- Alternate ("contingent") beneficiaries can be named to inherit the assets in the trust upon the death of the settlor or the last to die of the partners.
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Are there income tax benefits?
- Any accrued gain on transfer of assets to the trust is not taxed until disposition, which can occur during the lifetime or upon the death of the settlor and/or partner.
- During the trust's existence, all of the income and capital in the trust is held for the individual's use only, or in the case of a Joint Partner Trust, the individual and his/her partner only. Therefore, any income or capital gains earned by the trust will continue to be taxable, just as it would if the settlor still personally held the assets.
- Transfers of qualified small business corporation shares or qualified farm property to an Alter-Ego or Joint Partner Trust should take place at fair market value in order to trigger capital gains and thereby allow the individual to claim the $500,000 capital gains exemption.
Other factors to consider:
- Considering the set-up fees, professional fees, and legal fees, there may be other more cost effective estate planning strategies..
- The $500,000 capital gains for small business corporations and family farms exemptions are not available to these trusts. (Transfers of qualified small business corporation shares or qualified farm property to an Alter-Ego or Joint Partner Trust should take place at fair market value in order to trigger capital gains and thereby allow the individual to claim the $500,000 capital gains exemption).
- The status of an Alter-Ego or Joint Partner Trust will not change to "testamentary" from "inter vivos."
- Individuals intending to name a charity as beneficiary of the trust after their death, or their surviving partner's death, should be aware of the tax implications to their estate.
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For more information about this topic, attend our seminar at The Regency Retirement Home, on Tuesday, June 15th 2004, 2:00 p.m. to 3:00p.m. To reserve a seat contact Eunice Luis at Portlington Financial Group at (905) 274-7820 or email your questions or comments to eunice@portlingtonfinancial.com.
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