Two types of inter vivos trusts exist in Canada which allow people aged 65 and older to transfer property to a trust without paying taxes on capital gains. These two types of trusts are alter ego trusts and joint partner trusts.

Alter ego trusts Alter ego trusts are established during the lifetime of the person making the trust. A person can transfer assets, including assets that have increased in value, to an alter ego trust without paying capital gain taxes at the time of the transfer.

An alter ego trust can be made if the following three conditions are met:

  1. The person making the trust is at least 65 years old;
  2. Only the person making the trust is entitled to receive income from the trust during their lifetime; and
  3. Only the person making the trust is entitled to access the capital of the trust during their lifetime.

As these conditions suggest, alter ego trusts are established by single individuals. Property can be moved into alter ego trusts with the taxes being deferred. When the person who made the trust dies, the property is deemed to have been disposed of for tax purposes.

Joint partner trusts – Joint partner trusts are like alter ego trusts, but they are established during a couple’s lifetime. With joint partner trusts, both partners in the couple are entitled to the trust’s yearly income, and only partners in the couple are entitled to access the trust’s capital during their lifetimes. As with an alter ego trust, taxes on trust property are deferred until death, but in the case of a joint partner trust, taxes are deferred until the death of the final survivor.