- Beneficiaries of full legal capacity who together hold all the beneficial rights, with the consent of everyone with an interest, may be able to end a trust; contingent interests are not enough.
- A sole competent adult who is absolutely entitled can collapse the trust.
- When a minor or an unborn or unascertained person has an interest, the Office of the Children's Lawyer must be served on an application to vary a trust under the Variation of Trusts Act.
- Ending a trust can have tax effects, so check with an accountant first.
Sometimes everyone who benefits from a trust wants it gone. Perhaps the original reason for the trust has passed, the trustee fees feel pointless, or the family simply wants to divide the assets now. The trust document may say the trust runs for years, but the beneficiaries are all adults and all agree.
Ontario law offers two main paths: the long-standing rule in Saunders v. Vautier, and a court application to vary a trust. Which one fits depends on who the beneficiaries are, and details of the document matter a great deal, so speak with a lawyer before acting.
The rule in Saunders v. Vautier
The Supreme Court of Canada has described the rule this way: beneficiaries of full legal capacity who together hold all the beneficial rights, with the consent of all those with an interest, may end a trust. Contingent interests are not enough. The Court of Appeal for Ontario has also said that a sole competent adult who is absolutely entitled can collapse the trust.
In plain words, if every person who could ever benefit is an adult, mentally capable and in agreement, they can generally ask the trustee to hand over the property instead of keeping the trust going. The key words are every and capable. One missing person, or one person who might benefit only if something happens later, can defeat the approach.
When Saunders v. Vautier works and when it does not
| Situation | Likely effect |
|---|---|
| One adult with capacity is absolutely entitled | That person can collapse the trust |
| Several adults with capacity hold all the beneficial rights and all consent | They may be able to end the trust together |
| A beneficiary has only a contingent interest | Not enough on its own |
| A beneficiary is a minor or unborn | Needs legal advice; the Office of the Children's Lawyer must be served on an application to vary a trust |
| A beneficiary's capacity is in doubt | Needs legal advice before relying on the rule |
Many family trusts include people who might benefit later, such as grandchildren not yet born, or contingent interests that depend on a condition. Those features often rule out this route.
Changing a trust through the Variation of Trusts Act
Where not everyone can consent, a court application to vary the trust may be one option, and a lawyer can confirm whether it fits your situation. The Office of the Children's Lawyer must be served on an application to vary a trust under the Variation of Trusts Act where a minor or an unborn or unascertained person has an interest, and it may act for children under 18 or unborn persons.
The tests the court applies and the steps involved should be confirmed with a lawyer.
Tax and benefit issues to check first
Ending a trust is not only a legal step. A trust is deemed to dispose of its non-exempt capital property at fair market value on the day 21 years after the latest of January 1, 1972 and the trust's creation, and again every 21 years after. Moving property from one trust to another does not postpone that date. Gains from that deemed disposition are reported on Form T1055. Whether a distribution or a restructuring triggers tax in your case is a question for an accountant.
Income that becomes payable to a beneficiary in the year is deducted by the trust and included in the beneficiary's income, while income the trust keeps is taxed in the trust. Ordinary inter vivos and ordinary testamentary trusts pay tax at the top rate with no graduated brackets, but a graduated rate estate or qualified disability trust is taxed differently.
If a beneficiary receives ODSP, be especially careful. Under ODSP policy, an absolute discretionary trust is not counted as an asset, but payments from a trust to an ODSP recipient are income in the month received unless exempt. ODSP directives also say a person entitled to an inheritance cannot put that inheritance into such a trust to avoid the asset test. Collapsing a trust and handing money outright to an ODSP recipient could affect benefits, so get advice first.
If the trust is a bare trust, other reporting rules apply, and relief for certain years remains in flux. Confirm the current position with an accountant.
What to do next
- List every beneficiary, including those with contingent interests and anyone not yet born.
- Note each person's age and whether anyone's capacity is in question.
- Read the trust document for its purpose, end date and any restrictions.
- Ask an accountant about tax on ending the trust, including the 21-year date.
- Check whether any beneficiary receives ODSP before planning a payout.
- Have a lawyer advise whether the Saunders v. Vautier rule applies or a court application is needed.
Frequently asked questions
Can one beneficiary end a trust on their own?
Only if that person is a competent adult who is absolutely entitled. A sole competent adult absolutely entitled can collapse the trust. If others also have an interest, their consent is needed.
Do all beneficiaries have to agree?
Under the Saunders v. Vautier rule, the consent of all those with an interest is needed, and the beneficiaries must have full legal capacity. Contingent interests are not enough on their own.
What if a beneficiary is a child or not yet born?
The Office of the Children's Lawyer must be served on an application to vary a trust under the Variation of Trusts Act where a minor or an unborn or unascertained person has an interest, and it may act for children under 18 or unborn persons. How this applies depends on your situation, so it is worth confirming with a lawyer.
Will ending the trust trigger tax?
How this applies depends on your situation, so it is worth confirming with an accountant before acting. One rule to know about is that trusts are deemed to dispose of non-exempt capital property every 21 years.
Sources
- Income Tax Act s. 122 (Justice Laws) — Justice Laws (federal)
- Income Tax Act s. 104 (Justice Laws) — Justice Laws (federal)
- CRA – Enhanced reporting rules for trusts and bare trusts FAQ — canada.ca
- CRA – Trust types and codes — canada.ca
- Ontario – ODSP Policy Directives 4.7 Funds held in trust — ontario.ca
- Ontario – Office of the Children's Lawyer and estates and trusts matters — ontario.ca
- Court of Appeal for Ontario, 2018 ONCA 341 (search-result summary only; page not fully read) — ontariocourts.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a wills & estates question
Start a file online — flat, published fees, reviewed by a licensed lawyer before a dollar is owed.