Alter Ego and Joint Partner Trusts

Most of the ways to keep property out of an estate involve giving something up. Transfer the cottage to the children and it is theirs, with everything that follows: their creditors, their spouses, their decisions. Add somebody as a joint owner and the same risks arrive in a quieter form. There is one structure in Canadian planning designed specifically to avoid that trade, and it opens at age 65. An alter ego trust is a trust a person creates for themselves: they transfer property into it, they remain entitled to all of its income during their lifetime, nobody else may touch it, and at death it passes to the people named in the trust rather than through the will. A joint partner trust does the same thing for a couple. This article sets out the statutory conditions, what the structure genuinely achieves, what it costs in practice, and the several situations in which it is the wrong answer.

What the structure actually is

A person transfers property to a trust they have created. During their lifetime they are entitled to all the income of that trust, and no one else may receive or use any of its income or capital. They are frequently the trustee as well, so nothing about the day to day changes. At death, the trust continues to exist and the property in it passes according to the terms of the trust rather than through the will.

A joint partner trust is the same idea extended to two people, the settlor and their spouse or common law partner, with the deferral running to the later of their two deaths. Both are commonly called inter vivos trusts, meaning trusts created during life rather than by a will.

The point is not secrecy and it is not tax avoidance. It is that property held in the trust is not property of the estate, and everything that happens to an estate, probate, delay, publicity, and the risk of a challenge, applies to what is in the estate rather than to what is in the trust.

The conditions the Act imposes

The age condition is absolute. Subsection 73(1.02) of the Income Tax Act requires that the individual had attained 65 years of age at the time the trust was created. There is no version of this structure for a person younger than that.

The entitlement condition is what gives the structure its name. Under subparagraph 73(1.01)(c)(ii), for an alter ego trust the individual must be entitled to receive all of the income of the trust that arises before their death, and no other person may before that death receive or otherwise obtain the use of any of the income or capital. Subparagraph 73(1.01)(c)(iii) applies the same test to a couple in a joint partner trust, running to the later of the two deaths. Source: Income Tax Act, section 73, Justice Laws Website, read 5 September 2026.

Those two conditions are what allow the transfer to occur on a rollover basis rather than as a disposition at fair market value. That is the practical point for a household: the trust can be funded with property that carries a large accrued gain without triggering the tax on the day it is transferred.

What it achieves, in plain terms

Property in the trust is not in the estate, so it does not go through probate and is not subject to whatever the province charges on the value of an estate. In provinces where that charge is significant, this is the reason people are sitting in the meeting.

It also settles faster and more privately. An estate is administered, and in several provinces the application becomes a public document; a trust simply continues, and its trustees carry on under terms nobody has to file anywhere. For a family that owns property in more than one province, the difference is larger still, because a second province frequently means a second administration.

Two further advantages get less attention and matter more than people expect. A trust that already exists continues to function if the settlor loses capacity, which is a smoother path than a power of attorney in some situations. And property that never enters the estate is harder to attack through a challenge to the will, which is the reason it comes up in blended family planning.

What it does not do

It does not avoid tax. Under paragraph 104(4)(a) the trust is deemed to dispose of its capital property on the day the death occurs, or on the later death in the case of a joint partner trust, and paragraph 104(4)(b) then applies a deemed disposition every twenty one years afterwards. The tax on accrued gains arrives; it arrives inside the trust rather than on the final return, and it is deferred rather than escaped.

It does not replace a will. There is almost always property outside the trust, and a person still needs a will for it, for the appointment of an executor or liquidator, and for everything a trust does not address.

It does not create creditor protection in any general sense, and a transfer made to defeat a creditor is exactly the transfer a court will look at hardest. Anyone considering this structure for that reason needs legal advice about that specific question, not an article.

And it does not shelter income during life. Income in the trust must be paid or payable to the settlor and is taxed accordingly, which is the entire logic of the arrangement. Nothing is being moved out of anybody’s hands while they are alive.

The costs, which are real

This article prints no figures, because legal fees and trustee fees are professional charges that vary widely, but the categories are worth stating plainly so that nobody is surprised. There is the cost of drafting the trust, which is a substantial legal document rather than a form. There is the cost of transferring the property into it, including registration where real property is involved.

Then there is the ongoing cost, which people forget. A trust is a separate taxpayer and files its own return every year, for as long as it exists. Where a professional trustee is appointed, there is a fee for that too, every year, for decades.

The honest way to look at it is a comparison, and it is a comparison a professional can do properly in one meeting: the total cost of setting up and running the trust for the expected period, against what the estate would otherwise pay and the other advantages the structure brings. In a province with a modest estate charge and a simple estate, the arithmetic frequently says no.

When it fits, and when it does not

It tends to fit a person over 65 with property of real value, in a province where an estate is expensive to administer, or with property in more than one province, or with a genuine expectation that the will may be contested, or in a blended family where a clean separation between what goes to a spouse and what goes to children matters more than simplicity.

It tends not to fit where the estate is modest, where the province charges little, where the household needs flexibility that a trust deliberately does not offer, or where the same objective is met more simply by beneficiary designations on registered plans and insurance, which pass outside the estate on their own without any of this machinery.

One caution belongs at the end. A trust is not a document to economise on. It is drafted once, it governs property for decades, and the failures in practice are drafting failures: a trust that does not meet the statutory conditions, a trustee provision that becomes unworkable, or a term that says something the settlor did not intend. Have it done by a lawyer or notary who does this work, and have the tax consequences confirmed by a qualified tax professional before anything is transferred.

What can be transferred into it, and what cannot

The costing exercise above depends on a question families reach late: how much of the household’s property can actually go into the trust. For many, the answer is less than they assumed.

Registered money stays where it is. A registered retirement savings plan, a registered income fund and a tax free savings account cannot be transferred into this kind of trust and remain what they are. They do not need to be, because a beneficiary designation on each already carries the money outside the estate, which is much of what the trust is being asked to do.

What is left for the trust is the rest: non registered investments, a cottage or another property, a share portfolio. A principal residence can be held by such a trust and the exemption can remain available where the conditions in the Act are met, a point to confirm with a qualified tax professional before a home is transferred.

Property outside Canada raises a separate problem, because a trust recognised here may not be recognised the same way where the property sits. United States situs property carries an exposure this structure does not answer.

How the trust is taxed, and the bill that lands on the trustee

A trust of this kind is a separate taxpayer and is not taxed the way an individual is. It has no graduated scale. During the settlor’s lifetime that is largely academic, because the income has to be payable to the settlor and is taxed in their hands instead.

It stops being academic at death. The deemed disposition arises inside the trust, so the tax on the accrued gain is the trust’s liability rather than an amount on the final return. Credits and deductions available on a final return are not necessarily available the same way inside a trust, and the trustee has to find the money from a trust whose assets may be a property nobody wants to sell that year.

That liquidity question is why life insurance is sometimes examined alongside a structure like this, usually held outside the trust. Whether it fits a particular family is a question for a lawyer or notary and a qualified tax professional, on the actual property.

Running it for decades, which is where these fail

The trust is drafted once and operated for a very long time, and the operating half gets a fraction of the attention.

Name a successor trustee, and name one who will still be there. A trust whose only trustee is the settlor works until the settlor cannot act, one of the situations it was created for. Keep the record of what was transferred in and what it cost: the deemed disposition decades later is calculated from it.

Trust reporting obligations have been broadened and now generally require an annual filing naming trustees, beneficiaries and the settlor, with penalties for not filing. What is required this year is published by the Canada Revenue Agency. Confirm the current requirements with a qualified tax professional.

Frequently Asked Questions

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Read What probate is and what it costs by province for the charge this structure is usually aimed at, Joint ownership for the simpler alternative and its risks, and Testamentary trusts for the trust that is created by a will instead. Blended family planning covers the situation where this comes up most.