Two new tools offer unique benefits
 Like
other trusts, the alter ego trust and joint spousal trust
allow you to avoid probate. But these two recently introduced
trusts offer unique tax advantages as well.
Normally, when you transfer assets to a trust, our tax law
treats those assets as if they had been sold. That means if
there had been any increase in the value of those assets since
the date they were originally acquired, a tax would have to
be paid on that increase.
However, when you transfer assets to an alter ego trust or
a joint spousal trust, this does not happen. Although the
trust is in fact the new owner of the assets, from an income
tax perspective, the transfer of ownership is treated as if
it had never happened. So even if there had been an increase
in the value of the assets, there would be no tax on that
increase.
There are conditions. For one thing, you must be 65 or older
to use the alter ego trust or the joint spousal trust.
And in order for the trust to qualify as an alter ego trust,
you must be the sole beneficiary during your lifetime. Prior
to your death, all income in the trust will be payable to
you and you will pay all the tax on that income. As well,
you can also access the capital in the trust.
When you die the trust will hold any remaining assets for
the benefit of other beneficiaries named in the trust deed.
The trust will be able to distribute those assets to those
other beneficiaries without the assets having to go through
the probate process.
You could also choose to gift the assets to a joint spousal
trust. In a joint spousal trust, the initial beneficiaries
must be you and your spouse during your respective lifetimes.
On the death of the surviving spouse, the trust would start
to hold the trust assets for other persons you name in the
trust deed. In particular, your spouse would not be able to
change the identity of these ultimate beneficiaries.
Here’s an example of how you can use a spousal trust
to ensure your assets are distributed exactly how you want.
Let’s assume a married couple with two children. One
spouse dies and the other remarries. If the deceased spouse
had simply left their assets to the other spouse in a will,
it would be possible for the new spouse to eventually inherit
all the assets and the children get nothing.
However, if the deceased spouse had created a joint spousal
trust, with the children as beneficiaries, this could not
happen. The surviving spouse would receive an income from
the trust while alive. Upon their death, the assets of the
trust would go to the children.
Please Note: This information
has barely scratched the surface of the complex world of trusts.
For example, although trusts have been presented here as estate
planning tools, they are used in other ways and for other
purposes, especially in tax planning.
If you’d like to know more on how a trust could help
your estate’s financial situation, or how you might
use a trust in your tax planning, click
here to find the RBC financial planning professional
closest to you.
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