Trust Setup Tax Planning for Family, Spousal and Alter Ego Trusts
A trust only works as well as the tax planning behind it. Bestax helps you decide whether a trust fits your goals, which type to use and how to fund it, works with your lawyer on the deed, and then registers and files for the trust year after year.
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When Setting Up a Trust Is Worth Considering
Trusts are used to hold assets for family members, plan an estate and manage how and when wealth passes on. Each type has its own tax rules, and the wrong structure can cost more than it saves.
- Business owners planning an estate freeze so future growth passes to the next generation.
- Families who want to hold investments or shares for children or grandchildren.
- Individuals aged 65 or older considering an alter ego or joint partner trust.
- Spouses or common-law partners who want to provide for the survivor through a trust.
- Parents planning for a family member who will need support for the long term.
- Owners of a cottage or other property they want to keep in the family.
Bestax provides the tax planning and accounting. The trust deed itself is a legal document and is drafted by your lawyer, with whom we work directly.
New to trusts? Read our guide to family trusts in Canada. Already have a trust? See T3 Trust Return Filing.
What Our Trust Setup Service Covers
We handle the tax side of a new trust, from the first planning conversation to its first T3 return.
- A review of your goals, family and assets to see whether a trust fits and which type suits it.
- Tax planning for family, alter ego, joint partner, spousal and estate freeze trusts.
- A review of the attribution rules and tax on split income before any income is paid out.
- Coordination with your lawyer, who drafts the trust deed to match the tax plan.
- Registration of the trust account number with the CRA.
- Record keeping, annual T3 returns and beneficial ownership reporting once the trust is running.
The Tax Rules a New Trust Has to Respect
The attribution rules can send income or gains back to the person who transferred or lent property to a trust, for example where the beneficiaries are a spouse or minor children, or where the property can revert to the person who contributed it. How a trust is funded matters as much as who benefits.
Tax on split income (TOSI) can tax certain income paid to family members, including adult children, at the top rate, especially income connected to a family business. Exclusions exist, but they depend on the facts and need to be tested each year.
Most personal trusts are treated as selling their capital property at fair market value every 21 years.
Alter ego and joint partner trusts require a settlor aged 65 or older; their deemed disposition comes at the settlor’s or survivor’s death instead.
Every new trust needs a trust account number, and most file a T3 return with beneficial ownership information each year.
Income allocated without regard to the attribution rules or TOSI can be taxed at the top rate in someone else’s hands.
A trust is a long-term commitment. We plan the funding, the allocations and the 21-year date before it is created, not after.
Common Trust Types and How They Are Taxed
Each trust type serves a different purpose, and each carries a different timing for when its gains are taxed.
| Trust type | Typical purpose | When gains are taxed | Key condition |
|---|---|---|---|
| Family trust | Holding investments or shares for family members | Every 21 years, or when property is sold or distributed | Attribution rules and TOSI tested on each allocation |
| Alter ego trust | Managing your own assets during life and passing them on at death | At the settlor’s death | Settlor aged 65 or older, entitled to all income during life |
| Joint partner trust | The same, for a couple | At the death of the survivor | Settlor aged 65 or older; settlor and spouse entitled to all income |
| Spousal or common-law partner trust | Providing for a surviving partner | At the spouse’s or partner’s death | Only the spouse or partner can benefit during their lifetime |
| Estate freeze trust | Passing future growth of a business to the next generation | Every 21 years, or when shares are sold or distributed | The parent’s value is fixed in preferred shares |
Property can generally move into alter ego, joint partner and spousal trusts at cost. Before a family trust’s 21-year date, capital property can often be distributed to Canadian-resident beneficiaries at cost.
What We Need to Plan Your Trust
Trust planning starts with the people and the assets, not the paperwork.
Once the plan is settled, we send your lawyer a summary of the tax terms the deed needs to reflect.
- Your goals for the trust and who you want it to benefit.
- Details of each proposed beneficiary, trustee and settlor, including ages and residence.
- A list of the assets to be held, with their cost and current value.
- For a business: the corporation’s share structure and recent financial statements.
- Your current will and any existing trusts.
- Contact details for your lawyer, so we can work on the deed together.
Our Trust Setup Process
Understand your goals
We talk through your family, assets and what you want the trust to achieve.
Model the options
We compare trust types and funding methods, with the tax each one creates over time.
Work with your lawyer
We give your lawyer the tax terms, and review the draft deed against the plan.
Register the trust
Once the trust is settled, we apply for its trust account number with the CRA.
Set up the records
We set up the trust’s books, bank records and resolution schedule from day one.
File every year
We prepare the T3 and beneficial ownership information, and track the 21-year date.
Why Families Choose Bestax for Trust Setup
Tax tested first
We run the attribution rules and TOSI against your plan before the trust is created.
Honest about fit
If a trust adds cost without a real benefit for your situation, we say so.
Lawyer and accountant aligned
Bestax does not draft trust deeds. We work with your lawyer so the deed reflects the tax plan.
Set up to be filed
Records, resolutions and the trust account number are in place before the first T3 is due.
The long view
We keep the 21-year date and annual allocation decisions on the calendar for the life of the trust.
Related Bestax Services
Estate & Trust Tax Services for estate planning, executor filings and trust tax work as a whole.
Trust Fund Accounting to keep the trust’s books once it is running.
T2 Corporate Tax Returns for the corporation behind an estate freeze.
Personal Tax Returns for settlors and beneficiaries reporting trust income.
What Our Clients Say
After years of DIY tax filing, I decided to work with professionals, and I’m glad I chose Bestax. Their team corrected years of minor errors and even identified deductions I had missed. The savings more than paid for the service.
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Frequently Asked Questions
No. The trust deed is a legal document and is drafted by your lawyer. Bestax provides the tax planning, works with your lawyer so the deed reflects it, and handles the trust’s registration, accounting and tax filings.
Family trusts are commonly used to hold investments or private company shares for family members, often as part of an estate freeze. Whether income can be split with beneficiaries depends on the attribution rules and tax on split income, which we review before the trust is set up.
It is a trust created by a settlor aged 65 or older, who is entitled to all of its income during their lifetime and is the only person who can receive its capital while alive. Property can usually be transferred in at cost, and the deemed disposition happens at the settlor’s death rather than every 21 years. A joint partner trust works the same way for a couple.
Most personal trusts are treated as selling their capital property at fair market value every 21 years, and the gain is taxed in the trust. Planning before the anniversary, such as distributing property to Canadian-resident beneficiaries, can often defer that tax.
It needs a trust account number from the CRA, and most trusts then file a T3 return each year with beneficial ownership information on Schedule 15, even with no income. Beneficiaries who receive income get T3 slips by the same deadline.
It depends on your goals, your assets and who you want to benefit. Trusts carry setup costs, annual filings and ongoing rules, so we look at whether the tax and family benefits outweigh them before recommending one.