4 Good Reasons to Create an Alter Ego or Joint Partner Trust
January 22nd, 2018

Plus: Are Multiple Wills for Me?

By Ron Walsh

Looking to leave more of your estate to the family after you’re gone—or keep a child out of your will? At age 65, you can do both by establishing an alter ego or a joint partner trust. The former is created by an individual, while the latter is for two spouses, whether they’re common-law or married. Contrary to popular belief, these trusts have no income tax advantages, says Walsh King partner Kevin Walsh. But they do offer four powerful benefits.

1. No probate fees

In B.C., alter ego and joint partner trusts aren’t subject to probate, the fee due on a deceased person’s estate. “If you have significant assets that would be subject to probate, which is about 1.4 per cent, you can avoid that fee,” Walsh says.

2. A will alternative

The good thing about will alternatives, particularly trusts, is that they’re exempt from the wills variation provisions in the provincial Wills, Estates and Succession Act (WESA). In other words, a child left out of your will can’t sue the executors of your estate to get back into the fold, Walsh explains. “So if you want to disinherit people, you can do that.”

3. An incapacitation plan

When you establish an alter ego trust, you usually transfer all of your assets to it and become the initial trustee, Walsh notes. Whenever you choose, you can appoint a trustee to act on your behalf and pay your bills. “Often people who get diagnosed with dementia will set one of these up at the early stage, and then they’ll have a child as the trustee,” Walsh says. “Now it’s pretty seamless without having to invoke power of attorney and things like that, and this person can take care of your affairs.”

4. A load off your mind

Walsh strongly recommends alter ago or joint partner trusts, especially as clients get older. Dementia rates are rising, and people tend to lose interest in managing their financial affairs when they’re over 75 because they find it too stressful, he says. “If they have children or somebody they respect who can act as a trustee, they don’t have to be burdened by those decisions anymore.”

For someone with a series of investment portfolios, filing a personal tax return means preparing several income tax slips and compiling other information. “If you put everything into an alter ego trust or a joint partner trust, the income has to come out to you, but you only get one tax information slip that’s very simple,” Walsh says. “And your trustee deals with all that stuff because it’s now inside of the trust.”

The pros and cons of multiple wills

For anyone under 65, multiple wills are an option. This strategy, permitted in B.C. since WESA took effect in 2014, lets you segregate assets that are subject to probate from those that aren’t. For example, you can have one will for real estate—probate applies here—and another for private company shares and shareholder loans, which escape the fee. Otherwise, your estate will pay 1.4 per cent on everything.

So far, Walsh hasn’t seen much appetite for multiple wills, except from clients with valuable shares in private companies. People in their 50s typically don’t want to do much estate planning, especially the expensive kind, he says. “Things can change a lot between 50 and 65, and then people who start getting into their early 60s are thinking, ‘Well, I’ll just wait till I’m 65 to do an alter ego trust.’”

Besides, multiple wills can be complex, Walsh adds. “You’re going to have two different executors, you’re going to have two different estates to manage, whereas if you have an alter ego trust or a joint partner trust, everything’s there.”

How Walsh King can help

Implementing an estate plan requires the services of a skilled estate and trusts lawyer. Walsh King works closely with business owners and their lawyers to develop appropriate plans.

Posted in Estate Planning + Strategic Insights