Can Beneficiaries Change or End a Trust Early in Ontario?

A trust set up in a will or during someone's life may last for years. If every beneficiary is an adult and everyone agrees, it is natural to ask why they cannot simply end it and divide the property.

Sometimes that is possible and sometimes it is not. This page explains the main questions: who has to agree, when the court must approve, and what the tax consequences can be.

Why everyone agreeing may not be enough

Start with the trust document. Its terms set out who the beneficiaries are, what the trustee may do and when the trust is meant to end. Whether all adult beneficiaries can end it themselves, without a court, depends on the terms and on the law as it applies to your trust, so a lawyer should confirm this before you act.

The key practical point is whether anyone has an interest who cannot agree. A trust may benefit children, future grandchildren or people who might benefit if the trustee uses a discretion.

When court approval is needed

Under the Variation of Trusts Act, the Superior Court of Justice may approve an arrangement varying or revoking a trust, or enlarging the trustees' powers, on behalf of people who cannot consent themselves. These are minors, incapable persons, unborn persons and people with possible interests under a discretionary power.

The court will not approve a variation on behalf of a minor, incapable or unborn person unless it appears to be for that person's benefit.

A person stops being a minor at 18. A child generally receives their share at 18, or at the age stated in the will or beneficiary designation. So the age set by the trust can matter as much as the age of majority.

The Office of the Children's Lawyer must be served with an application to vary a trust where a minor or unborn person has an interest. It represents the child and does not take instructions from the parents.

Tax effects to consider

For tax purposes, a testamentary trust is generally created on and because of a person's death, and an inter vivos (living) trust is any trust that is not a testamentary trust. The type affects how the trust is taxed.

• A trust is generally deemed to dispose of its capital property at fair market value every 21 years.
• For spousal, alter ego and joint partner trusts, the first deemed disposition happens on the day the beneficiary spouse dies, or on the later of the two deaths, instead.
• Property left by will to a spouse or common-law partner trust can pass at cost only if the survivor is entitled to all the trust income for life and no one else may receive or use income or capital during their lifetime. The property must also vest indefeasibly in the spouse or the trust within 36 months after the death, although the Minister may allow a longer period if a written application is made within that time.
• A trust that must file a T3 return is generally due 90 days after its tax year-end.
• The late-filing penalty for a T3 return is 5% of the unpaid tax, plus 1% of the unpaid tax for each full month the return is late, up to 12 months. Where no tax is owing, filing late costs $25 a day, with a minimum of $100 and a maximum of $2,500.

Ending or changing a trust can trigger tax consequences that depend on the type of trust and the assets. Ask an accountant or lawyer to review the plan before anything is signed.

Other court steps that may come up

A change to a trust is not always the only issue. A trustee who is unsure how to manage trust property may apply to the Superior Court of Justice, without starting an action, for the court's opinion, advice or direction. Several other steps can arise when beneficiaries and a trustee disagree or when a trustee can no longer act.

• A person who appears to have a financial interest in an estate may bring a motion for an order requiring the estate trustee to pass accounts.
• A trustee who wants to pass the accounts may file them in the office of the Superior Court of Justice.
• A beneficiary who objects to the accounts must serve and file a notice of objection to accounts at least 35 days before the hearing date.
• A new trustee may be appointed in writing where a trustee dies, stays out of Ontario for more than 12 months, refuses or is unfit to act, or is incapable of acting.
• The Superior Court of Justice may also appoint a new trustee, either replacing or adding to existing trustees.

Which of these applies, if any, depends on your trust and your situation, so it is worth confirming with a lawyer.

What to do next

• Get the full trust document and any amendments.
• List every beneficiary, including children and anyone who might benefit later.
• Find out whether any of them cannot consent.
• Ask the trustee for a statement of the trust property and its tax position.
• Have a lawyer and an accountant review the plan before anyone signs.

If the beneficiaries agree but some cannot consent, an application to the court may be the way forward. If they disagree, the issues are different, and legal advice is more important still.

Frequently asked questions