Life Interests Trusts

As their name suggest, life interest trusts create interests in assets to be enjoyed by beneficiaries during their lifetime. The living beneficiaries (settlor, one or both spouses) of these trusts should be the only ones entitled to receive any and all the income that may arise during their lifetime; or get the use of the capital of the trust during their lifetime. These trusts are commonly used in Tax Planning and Estate Planning for protection of the assets and their desired distribution upon the death of the owner.

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There are spousal, alter ego and joint spousal trusts:

  • Spousal or common-law partner trust is a trust created for the exclusive benefit of the taxpayer's spouse. Though a spousal trust may be created under a Will or during the life of the transferor (a spouse transferring assets into the trust for the benefit of the other spouse), they are usually created under a will as Testamentary Trusts. Properly structured, they will provide for both spouses during their joint lives and ensure desired distribution after their death;
  • Alter Ego trusts may be created by individuals of 65 years of age and older who wish to create an Inter Vivos Trust for their own primary benefit, mostly to protect the assets and avoid variation of desired distribution of the assets on death;
  • Joint spousal trusts are created by individuals who are 65 and older, who wish to set up an Inter Vivos Trust for the benefit of the settlor and the settlor's spouse. Only one spouse must be 65, there is no age requirement for the other spouse. These trusts are commonly used for Estate Planning by blended families, as it provides for both spouses during their lifetimes and ensures desired distribution after their death.

You can find additional information on our blog.

Lawyers At Granville Law Group Are Experienced In Complex Analysis Of Individual Circumstances And Advising On The Best Possible Solution In Every Case

As in anything in life, there are benefits and drawbacks. While you are the only one who can decide if advantages outweigh the drawbacks, Granville Law Group can advise you on these advantages and drawbacks, assist you in your analysis and decision making.

Consider these Advantages:

  • Capital property can be contributed tax-free to these trusts (income tax);
  • Tax deferral to the time of death of the surviving spouse (spousal), settlor (alter ego) or second to die (joint spousal);
  • Protection from possible abuse by greedy relatives of an elderly beneficiary;
  • Capital may be left to residual beneficiaries of choice; a will that can be varied, variation of a trust is unlikely;
  • A will substitute and not subject to probate;

Some of the Drawbacks:

  • The use of an alter ego or joint spousal trust may result in increased tax liability on death, as gains realized in the trust cannot be offset by losses or unused exemptions of the settlor or his or her surviving spouse in their final returns;
  • Real estate transfers may be subject to property transfer tax;
  • The settlor's interest in the trust may be attacked by the settlor's creditors.

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