When coming up with an estate plan, we want to give as much as possible to our family and pay as little as possible in tax. This is why if you own real estate or other property and have started thinking about how best to give that property to your loved ones, tax should be the most important consideration. There are many strategies you can use to beat the death tax, but if you are over the age of 65 there are two special types of trust that were made with you in mind: the “Alter Ego” trust and, if you are married or have a common-law spouse, the “Joint Partner” trust
There are substantial tax and other benefits to using these two types of trusts to transfer property prior to your death. Unlike other trusts, transferring property to one of these two types of trusts allows the transfer to be deemed to have occurred at an amount equal to its original cost rather than at the fair market value. This prevents the normal tax consequences that come about when transferring property to other types of trusts. It is only at the death of the person who made the trust (or the last of the surviving partners, in the case of a joint partner trust) that the assets are deemed to be disposed at fair market value. In other words, capital gains tax is deferred until death, thus giving you the ability to succeed your assets in a much more tax efficient way.
To see if you qualify for these tax-efficient types of trusts there are some criteria that need to be met, but the two main criteria are:
The Joint Partner Trust has the same criteria as the Alter Ego Trust except both you and your spouse (who does not need to be older than 65) must be the sole beneficiaries of the income and capital in the trust during your lifetimes.
It is important to receive professional advice before deciding which estate planning tools are right for you, but in summary here are some of the Pros and Cons of using these two types of trusts:
Pros:
Cons:
Whether you should transfer a certain piece of property into either of these two types of trusts will depend on the facts of your circumstances. It is important to receive professional legal and accounting advice before structuring your estate. Contact the legal professionals at Grinhaus Law Firm today to learn more about whether these trusts are suitable to ensure your loved ones are taken care of financially beyond your death.
PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL.