There are many types of Trusts that can be created but the one that stands out for couples is a Joint Partner Trust because of its unique estate planning characteristics.
What is a Joint Partner Trust?
With a Joint Partner Trust, the settlor and his or her spouse, together, are entitled to receive all of the income from the Trust that arises before the death of the survivor of them. Also worth noting is that only the settlor and the settlor’s spouse are entitled to receive or use the capital of the trust until the settlor, and his or her spouse have both died. The definition of a spouse includes married, common law and same-sex spouses.
Here are the top 8 benefits of a Joint Partner Trust:
- Joint partner trusts can accept assets from Canadian residents aged 65 on a tax-deferred basis. That is to say, no tax is payable on the transfer into the trust assets.
- The taxable disposition occurs only after the death of the second spouse.
- The CRA considers both spouses the creators of a trust established with jointly contributed property as long as each spouse is eligible to contribute to a joint partner trust (i.e., is over 65 and a Canadian resident).
- In 2022, the CRA confirmed that trusts set up with jointly contributed property could accept subsequent transfers of property owned by either of the spouses alone and still benefit from the tax-deferred rollover, thereby adding income-splitting capability to the plan.
- The CRA also confirmed that second-generation income derived from trust property could be attributed to the trust itself rather than to the settlor or their spouse
- While the terms of the trust provide for an ultimate beneficiary after the death of the surviving spouse, these assets will not form part of either spouse’s estate.
- One major benefit of this arrangement is that probate fees are not applied even after the 2nd spouse’s death, as the asset will flow from the trust directly to the final beneficiary.
- If an estate has some complexity, it can take some time to settle and assets that bypass to the trust avoid all those delays, putting the money straight into the hands of the trust’s final beneficiaries in a timely fashion.
When you and your spouse are developing a financial plan, you are encouraged to work with a trusted professional advisor with experience in Joint Partner Trusts in order to determine if it should be part of your financial plan.