Trusts vs. Alter Ego Trusts

Trusts and alter ego trusts are legal arrangements that allow individuals to manage their assets organizationally. One common question is what distinguishes a regular trust from an alter ego trust. As experts in business law and estate planning, the team at Linley Welwood understands that trusts and alter ego trusts can be confusing for many clients. That is why our lawyers have compiled some information to help you understand the unique differences between trusts vs. alter ego trusts.

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Difference Between Trusts and Alter Ego Trusts

Trusts are a popular vehicle for individuals who want to protect their assets and ensure their wishes are fulfilled after they pass away; however, different types of trusts are available, and choosing the right one can be challenging. Two standard options that people consider are testamentary trusts and alter ego trusts. Both types of trusts offer similar benefits, but have some key differences.

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Trusts

Testamentary trusts are a popular estate planning tool that can help individuals manage their assets and provide for loved ones after passing. A testamentary trust is specifically one that is created in a Will (as opposed to an inter vivos trust, that is created while the settlor is still alive). A trust involves three main parties: the settlor, who creates the trust and funds it with assets; the trustee, who controls the trust assets; and the beneficiary, who is given distributions from the trust according to its terms. Trusts offer many benefits, including:

1. Protecting assets from creditors.
2. Managing assets.
3. Providing ongoing financial support to loved ones.

Alter Ego Trusts

An alter ego trust is a unique estate planning tool that seniors can use to transfer their assets while still alive. This type of trust allows individuals who meet specific criteria under the Income Tax Act—people 65 years or older and Canadian residents—to transfer their assets to the trust. With this type of trust, you are the only person entitled to receive all the income the trust generates while you are still alive. An alter ego trust offers many benefits, including:

1. It provides greater flexibility and control than traditional trusts. The individual who creates the trust can retain control over their assets in a limited capacity and modify or revoke the trust as needed throughout their lifetime.
2. Ability to avoid probate, which can be lengthy and expensive.
3. Avoid wills variation claims.
4. Alter ego trusts can provide greater privacy for individuals who want to keep their financial affairs confidential.
5. Ability to minimize estate taxes upon death.

Learn all about alter ego trusts.

To learn more about how trusts and alter ego trusts, please do not hesitate to contact Linley Welwood. Our commitment is always to provide exceptional service that exceeds your expectations. To contact us today, fill out our online contact form.