Plan with Purpose.
By the Wills & Estates Team at Simmonds Law
When it comes to estate planning in Ontario, most people think first about creating a will. And rightly so – your will is the cornerstone of your estate plan. But for certain situations, adding a trust within your will can provide additional clarity, structure, and protection for your loved ones.
That said, trusts aren’t used as broadly in Canada as they are in the United States. In fact, due to tax changes in recent years, setting up trusts during a person’s lifetime (inter vivos trusts) has become much less common, unless there’s a very specific purpose. Instead, we more often use testamentary trusts – trusts that are established in your will and come into effect after your death. This guide will walk you through how trusts are used in modern Canadian estate planning, what kinds of trusts make sense in today’s legal and tax environment, and when you might consider one.
What Is a Trust?
A trust is a legal tool where one person (the trustee) holds and manages assets on behalf of someone else (the beneficiary), based on instructions laid out in a trust document. In most cases, these instructions are included in your will and don’t take effect until after your death.
Think of a trust as a structured way to say: “I want this person to benefit from my estate, but under certain conditions.” This can be especially helpful when you’re dealing with young children, dependents with disabilities, or second marriages.
Why Are Trusts Used in Canadian Estate Planning?
Although the use of standalone trusts – both outside and within wills – has declined due to several factors, including significant tax changes affecting trust assets and income, testamentary trusts continue to play an important role in estate planning:
Providing for Minor Children or Young Adults
One of the most common uses of a trust in a will is to provide for children in a staged or timed manner. Unless otherwise specified in a will, by law, children will receive their inheritances once they reach the age of majority (18) which is not always the wisest course of action. Instead of a trust can be used so that they receive, for example:
- One-third of their inheritance at age 25,
- Another third at 30,
- And the final portion at 35.
The terms of the trust that is created in the will can also provide for certain flexibility while the funds are held in trust for the child. For example, the will can specify that funds held in trust can be used to pay for the child’s tuition and living expenses for college and university or other things for the child’s benefit, at the discretion of the trustee.
This approach encourages maturity and financial responsibility while still providing access to funds as they grow.
Supporting a Spouse in a Second Marriage
In blended families, life interest trusts can be invaluable. For example, you might leave your spouse the right to remain in your home after your death – but ensure that the property eventually goes to your children from a previous relationship. You can also set parameters, such as the trust ending if the surviving spouse remarries, moves out, or stops paying property expenses.
This setup avoids potential conflict and makes your intentions legally clear and enforceable.
Henson Trusts for Beneficiaries with Disabilities
A Henson trust is a special kind of trust used to provide for a beneficiary with a disability without affecting their eligibility for the Ontario Disability Support Program (ODSP). These trusts are typically created in a will and give the trustee full discretion over when and how to distribute funds, which is key to maintaining ODSP eligibility.
Tax Planning for Business Owners (in Limited Cases)
While less common now due to tax reforms and the introduction of Tax on Split Income (TOSI) rules, family trusts are sometimes still used when selling shares of a private corporation to multiply the use of the Lifetime Capital Gains Exemption (LCGE). However, these situations are complex and require careful tax planning.
A Real-World Example: Supporting a Spouse While Protecting Your Legacy
Consider Sarah, a widow in her late 60s who has remarried. She wants her new spouse to be able to remain in their shared home if she passes away but also wants to make sure the home eventually goes to her children from her first marriage.
In her will, Sarah creates a life interest trust that gives her spouse the right to live in the home for a period of time (e.g., until he passes away, remarries, or moves out). Once that time ends, the property is passed to her children.
This kind of planning balances care for a surviving spouse with long-term protection of family assets.
Final Thoughts
While trusts can seem complex, they are often straightforward in application – especially when used within a will to address very specific concerns. Whether it’s ensuring responsible inheritance for children, supporting a loved one with a disability, or managing the dynamics of a blended family, a testamentary trust can be a smart, strategic part of your estate plan.
At Simmonds Law, we focus on helping you plan with purpose. If you’re thinking about how best to protect your legacy and support your loved ones, we can help you decide whether including a trust in your will makes sense for your situation.
