What is a alter ego trust?

What is a alter ego trust?

An alter ego trust is a trust created after 1999 by a settlor aged 65 or over. The settlor has the exclusive right to receive all income from the trust. No other person, during the settlor’s lifetime, may receive or otherwise obtain the use of any part of the trust’s income or capital.

How are alter ego trusts taxed in Canada?

Accordingly, alter ego trusts are generally tax neutral while the settlor is alive. Income earned by an alter ego trust, however, will be subject to the top marginal tax rate. Once property is transferred to an alter ego trust, there is no deemed disposition 21 years after the date the trust is created.

How do I move my situs of trust?

Moving a trust means changing its situs from one state to another. Generally, this isn’t a problem for revocable trusts. In fact, it’s possible to change situs for a revocable trust by simply modifying it. Or, if that’s not an option, you can revoke the trust and establish a new one in the desired jurisdiction.

What is principal in a living trust?

Knowing such information may also greatly help a trustee as he or she works to allocate a trust’s assets correctly. As defined by the American Bar Association, principal is the property placed into a trust to benefit beneficiaries (either by producing income or through other means).

Can a trust own a principal residence?

There can be advantages to owning a principal residence in a trust. However, accessing the exemption through a trust is not always possible and the pitfalls must be understood. If you have any questions regarding the principal residence designation by a trust or an individual, please contact your TSG representative.

Does an alter ego trust avoid probate?

Cost-effective alternatives. Alter ego trusts offer the potential to avoid probate and legal fees on death, potential asset protection, and the ability to transfer assets to the trust at cost (i.e., without the realization and taxation of capital gains when transferred to the trust).

What is the 21 year rule?

Commonly referred to as the “21 year rule,” the rule deems certain types of trusts to dispose of their capital property and recognize the accrued gains every 21 years. Without this rule, trusts could be used to defer the realization of a capital gain for more than 21 years (80 years in BC).

Can trust situs be changed?

Moving a trust means changing its situs from one state to another. Generally, this isn’t a problem for revocable trusts. In fact, it’s possible to change situs for a revocable trust by simply modifying it.

What determines the residency of a trust?

For tax purposes a trust may be taxed in any state for which it is determined to be a resident trust under the governing states definition of residency. This could be based on the location of the grantor, the location of the trustee or trust administrator, or the location of the beneficiaries.

What does Distribution of principal mean?

Principal Distribution means, in relation to the Mortgages Trust, any distribution by the Mortgages Trustee to any Beneficiary pursuant to Clause 11 (Distribution of Principal Receipts) or Clause 6.3 (Special Distribution) of the Mortgages Trust Deed; Sample 1Sample 2Sample 3.

Are distributions of principal from a trust taxable?

Principal Distributions. When trust beneficiaries receive distributions from the trust’s principal balance, they do not have to pay taxes on the distribution. The Internal Revenue Service (IRS) assumes this money was already taxed before it was placed into the trust.

Can an alter ego trust claim principal residence exemption?

Since alter ego and joint partner trusts qualify as “personal trusts” under the Act, the principal residence exemption can be claimed in respect of an actual or deemed disposition of a principal residence.

Can a trust use principal residence exemption?

The Principal Residence Exclusion, or Section 121 Exclusion, allows an individual to shield up to $250,000 of primary residence. Since a Trust is not a natural person, they are generally not allowed to use this exclusion.

What happens to an alter ego trust after death?

With an alter ego trust, there’s no deemed disposition until your death, or the death of the surviving spouse if it’s a joint partner trust (unless you elect otherwise).

Does the 21 year rule apply to alter ego trusts?

The 21-year deemed disposition rule, which applies to other inter vivos trusts does not generally apply to alter ego trusts during the lifetime of the settlor, or to joint partner trusts, during the lifetime of the settlor and their partner.

What determines the situs of a trust?

Most state laws determine the situs of a trust based on (i) the location of the trustee, and (ii) the place of administration of the trust.

Does it matter what state my trust is in?

If you have a revocable living trust, it should still be valid in your new state, or in any state for that matter. The main consideration with your trust when you move is to make sure it is funded with all of the assets you want to pass directly to a beneficiary.

Can a non resident be a trustee?

NRIs can be appointed as Trustees of valid Indian Trusts under Income Tax Act: ITAT [Read Order] The New Delhi bench of Income Tax Appellate Tribunal (ITAT) in Global Academy of Emergency Medicine versus CIT(E), held that under the Income Tax Act appointing of NRIs as trustees of valid Indian trusts are permissible.

Can a trust make unequal distributions?

There are two beneficiaries and they are supposed to share the Trust assets equally. If the Trustee gives each beneficiary a house, there will be an unequal distribution.