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Special trust offers key benefit to those 65+

If you are 65 or older, you're eligible for special tax treatment when setting up a trust for yourself (an alter ego trust), or for you and a spouse or common law partner of any age (a joint partner trust). Your investments or property can be "rolled over" to the trust without triggering immediate tax on built-up capital gains.

With rollover trusts, as they're sometimes called, you can still control the assets and draw income from them. The key benefit over other trusts set up during one's lifetime is that your unrealized capital gains can continue to compound untaxed until you sell them or die (or on the death of both spouses in the case of a joint partner trust).

So why would someone set up a trust for themselves?

- Protect against creditors. As you technically no longer own the assets held by the trust, they will be protected from dependant and other creditor claims - both during and after your lifetime.

- Avoid probate and retain privacy. The trust assets will never form part of your estate. As a result, they will bypass probate on your death, avoid probate fees and remain confidential. Wills, in contrast, are public documents.

- Simplify estate administration. Plus, you don't have to name a power of attorney for these assets if you also name someone else as trustee.

This strategy is not without drawbacks, however. As with all living trusts, trust income paid out to you will be taxed at your marginal tax rate, while any income retained in the trust will be subject to the highest tax rate. All income paid out from a joint partner trust will always be taxed in your hands. You also lose the opportunity to split income with beneficiaries through a testamentary trust set up through your will. As well, there are expenses related to setting up and administering a trust.

Still, a rollover trust may be a welcome solution for people wanting to protect non-registered assets from creditors, probate or public scrutiny. If you're interested in learning more about the possibilities, call our office for an appointment.

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