A plain-English guide to the trusts used in BC estate planning — alter ego, joint spousal, family, disability, and bare trusts — and what each one is actually for.
A trust is a legal arrangement where one person — the trustee — holds and manages property for the benefit of others, the beneficiaries, on terms set by the person who created it, the settlor. You can create a trust during your lifetime (an inter vivos trust) or through your will (a testamentary trust).
Trusts do several jobs in a BC estate plan: managing property, reducing or deferring tax, avoiding probate fees, preventing family disputes, and controlling when and how beneficiaries receive assets. Below are the trusts we set up most often, and what each one is for.
Available to individuals over 65, an alter ego trust lets the settlor transfer assets into the trust on a tax-deferred basis, deferring income tax until death. The settlor is both trustee and beneficiary during their lifetime, and the trust’s terms govern distribution after death — avoiding probate fees and offering protection from will-variation claims.
Similar to an alter ego trust but for spouses over 65, allowing assets to be transferred in on a tax-deferred basis. Both spouses act as trustees and beneficiaries, and the trust’s terms dictate how assets are distributed after the death of the surviving spouse.
Common in family-run businesses, where the trust owns shares in the family company. Parents typically serve as trustees, controlling the distribution of company profits to beneficiaries, including children. The structure supports income splitting and a smooth transition of business control to the next generation — it works hand in hand with the company’s share structure.
Set up either to provide for a disabled child after the parents’ death or to manage a disabled person’s assets while preserving eligibility for government disability benefits. These trusts carry specific restrictions tailored to the beneficiary’s needs.
A bare trust reflects the distinction between legal ownership (the named owner) and beneficial ownership (who actually benefits). It is common in real estate — to record each party’s true financial stake, or in planning scenarios like a parent adding a child as a joint owner, where the child declares they hold their interest in trust for the parent to manage capital-gains exposure.
Each trust serves a distinct purpose — asset protection, tax planning, probate avoidance, or providing for someone who cannot manage assets themselves — and the right choice depends on your age, your assets, and your family. Our estate planning team will walk through your situation and set up the structure that fits. Get in touch to start.
Written by Lime Law Corporation. This article is general information about BC law as of January 25, 2024. It is not legal advice. If you have a specific matter, contact us — and please do not rely on a blog post in place of advice on your file.
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