Understanding Alter Ego Trusts and Joint Spousal Trusts in BC

DISCLAIMER 

This information is intended for business owners in Canada and serves as general guidance only. Always consult with a qualified advisor before making any legal decision.

In this article we’ll cover the following topics: 

• Defining alter ego and joint spousal trusts

• Continuity of asset management

• Probate fees reduction

• Protection against estate contests

• Confidentiality 

Hey there, it's Steve Parr, a seasoned wills and estates lawyer from beautiful British Columbia. Estate planning is an essential aspect of personal finance and future planning. Two potent tools in the realm of estate planning, particularly in British Columbia, are the alter ego trust and the joint spousal trust. Today, we delve into these terms and their benefits and provide practical examples to bring these concepts to life.

Defining Alter Ego and Joint Spousal Trusts

To start, let's dive into the definition of an alter ego trust and its companion, the joint spousal trust. Both these tools are forms of inter-vivos trusts - a Latin term that signifies a trust set up during your lifetime. These trusts are distinct from testamentary trusts, which are trusts embedded within your will and only come into effect after your death. 

Let's use the hypothetical example of Mary, a 70-year-old widow, and John and Jane, a couple aged 68 and 66, respectively, to illustrate these trusts. Mary can establish an alter ego trust, while John and Jane can set up a joint spousal trust as they both meet the age requirement of being over 65. Now let's see how Mary, John and Jane can use these tools to their advantage. 

Continuity of Asset Management

The first advantage of an alter ego or joint spousal trust lies in the continuity of asset management. Upon your death, your appointed executor, identified in your will, would typically apply to the BC probate registry to obtain a grant of probate. However, during this interim period, they will not have the authority to manage your financial affairs, including access to your bank accounts or the ability to make investment decisions on behalf of your estate. In some instances, obtaining the grant of probate may take a considerable amount of time - sometimes up to two or three months.

By establishing an alter ego or joint spousal trust, your assets are transferred into this trust, bypassing this interim period. Your assets, including real estate, vehicles, and investments, are managed within the trust, ensuring a seamless transition and continued management.

Let's assume Mary owns a thriving bakery business. She is worried that upon her death, the business might be left unattended during the probate process, affecting its operations. By creating an alter ego trust and transferring the ownership of her bakery into the trust, Mary ensures the continuity of her business operations. Similarly, John and Jane can protect their shared assets, such as their jointly-owned rental properties, by placing them in a joint spousal trust. This strategic move ensures their investments continue yielding returns even during the probate process.

Probate Fees Reduction

Consider that Mary also owns a home worth $1 million. In BC, the probate fees on this property would amount to $14,000 (1.4% of the property value). By transferring her property into the alter ego trust, Mary effectively eliminates this cost. Similarly, John and Jane can significantly reduce the probate fees on their joint assets using a joint spousal trust.

Protection Against Estate Contests

Suppose you have concerns about potential disputes over your estate, such as from a disinherited family member or a beneficiary receiving substantially less than another. In that case, an alter ego or joint spousal trust can be a strategic tool. These assets moved into the trust are no longer part of your estate and, thus, cannot be contested or claimed by disgruntled beneficiaries.

Let's say John and Jane have two children – an economically successful son and a daughter struggling with financial management. They wish to leave more assets to their daughter, but they fear their decision might lead to future disputes. By transferring their assets into a joint spousal trust, they can distribute them as they see fit, without fear of legal disputes over their will, maintaining peace within their family.

Confidentiality

Mary is a private person and values her confidentiality. She worries that her will's details might become public knowledge once probated, causing unwanted attention or speculation. By moving her assets into an alter ego trust, she can ensure the details of her estate remain private, even after her passing.

While these trusts serve an excellent purpose, it's crucial to remember that other essential legal documents should complement them. For instance, Mary, John, and Jane must all ensure they have an enduring power of attorney, a representation agreement, and a will. These documents are necessary to manage assets outside these trusts and to cover other considerations like burial wishes.

In essence, alter ego trusts and joint spousal trusts in BC provide an invaluable means of ensuring smooth asset management, saving on probate fees, protecting against potential disputes, and maintaining your estate's confidentiality. 

Overall 

Understanding alter ego trusts and joint spousal trusts in BC is critical to effective estate planning. These trusts offer unique advantages that can help ensure smooth asset management, reduce probate fees, protect against estate contests, and maintain confidentiality. Remember to always seek professional legal advice to determine the most suitable trust structure for your unique circumstances. As always, our experts at Parr Business Law are at your service!