What happens to the 21-year clock on a spousal trust when my surviving spouse later dies?

Your surviving spouse's death doesn't reset the spousal trust's 21-year clock — the two events are handled separately under the Income Tax Act. When your spouse dies, the trust faces its own deemed disposition of its capital property at that point, because a spousal trust's tax-deferral benefit is tied specifically to the surviving spouse being alive and entitled to the income; once they're gone, the deferral condition no longer applies, so the trust is treated as having disposed of and reacquired its property regardless of where the 21-year anniversary happens to fall.

If the trust continues to exist after your spouse's death — holding property for children or other beneficiaries, for example — the ordinary 21-year rule then keeps governing it going forward, meaning it can still face a further deemed disposition down the road if it isn't wound up. Because two different triggering events can overlap in the same trust's life, working through the timing and tax consequences with an advisor before your spouse's death, where possible, avoids surprises for whoever ends up administering the trust afterward.