What is a testamentary trust and how does it work in Ontario?

A testamentary trust is a trust created inside a will that comes into effect only when the person who made the will passes away. Unlike a living (inter vivos) trust set up during your lifetime, a testamentary trust does not exist until the estate is administered and the trustee formally establishes it according to the will's instructions.

Testamentary trusts are commonly used to hold assets for a beneficiary who is a minor, has a disability, or may not be ready to manage a lump sum on their own. The will names a trustee — often a trusted family member or a trust company — who manages and distributes the trust assets according to the rules you set out.

In Ontario, testamentary trusts are governed by the Trustee Act and general trust law principles. A common use case is holding a child's inheritance until they reach a specified age, such as 25 or 30, rather than releasing it all at 18. The trust can pay out income, cover education costs, or distribute capital in stages. Speaking with a lawyer ensures the trust terms are drafted clearly and the trustee's powers are appropriate for your situation.