- A testamentary spouse trust is created by will, and the spouse must be entitled to all income arising before death.
- No one but the spouse may receive or use income or capital during the spouse's lifetime for the trust to qualify.
- A trust whose terms let the trustee restrict income payments to the spouse does not qualify, so the trustee's powers must be drafted carefully.
- Naming the spouse as trustee can raise conflict questions that a lawyer should review.
If you are planning a will that leaves property in trust for a spouse, one of the biggest choices is who will run it. The trustee holds the property, makes decisions and deals with the tax filings for years, sometimes decades.
This article looks at how the tax rules for a spousal trust shape that choice, and at the conflict risks when the spouse is also the trustee. It is general information. Who can act, and what duties apply, depends on the will and the law, so confirm the details with a lawyer.
What a spousal trust is, and why the trustee's powers matter
A testamentary spouse trust is created by a will. To qualify for the favourable tax treatment, the spouse must be entitled to all income arising before death, and no one but the spouse may receive or use any income or capital of the trust during the spouse's lifetime.
That wording matters for trustee selection. Whoever is trustee cannot be given powers that would let others benefit during the spouse's lifetime, or that would let the trustee hold back income from the spouse.
Powers a trustee should not have
Income that becomes payable to the spouse is included in the spouse's income for the year, even if it is retained, unless an election under s. 104(13.1) is made. Income not payable to the spouse is taxed in the trust.
A trust whose terms let the trustee restrict income payments to the spouse does not qualify. Discretion over income must rest solely with the spouse. So a trustee, whoever it is, should not be given power to decide whether the spouse gets the income.
- Do not give the trustee discretion to withhold income from the spouse.
- Do not allow anyone but the spouse to receive or use income or capital while the spouse is alive.
- Make sure the property vests in the spouse or the trust within 36 months of death for the rollover.
Who might serve as trustee
People commonly consider the spouse, an adult child, another relative, a trusted friend, a professional advisor or a trust company. Each has trade-offs in cost, availability, objectivity and continuity. Whether a particular person can legally act, and what duties they owe, depends on the will and on trust law, and should be confirmed with a lawyer.
| Option | Possible advantage | Possible concern |
|---|---|---|
| The spouse | Knows the family and the property | Conflicts if others are entitled to what is left |
| An adult child | Familiar and trusted | May be caught between a parent and siblings |
| A professional or trust company | Neutral and continuous | Fees and less personal knowledge |
| More than one trustee | Checks on each other | Slower decisions and possible disagreement |
Conflict risks when the spouse is trustee
Where the spouse is the income beneficiary, the spouse's interests may differ from those of the people who will receive what is left after the spouse dies. A person who is both trustee and beneficiary can face hard choices, for example about spending, investing or selling property.
Families handle this in different ways. Others add a co-trustee to bring balance. Whether a spouse can act as trustee, and any conflict rules that apply, should be confirmed with a lawyer, since they depend on the wording of the will.
What to do next
- List the people and organizations you would trust to manage the trust for a long period.
- Think about who will benefit after the spouse's lifetime and where interests might clash.
- Ask a lawyer to review the trust terms so the trustee has no power to restrict the spouse's income.
- Name a backup trustee in case the first choice cannot act.
- Tell the people you choose, so the role is not a surprise.
Frequently asked questions
Can the spouse be the trustee?
It depends on the will and the circumstances, and a lawyer should confirm it. Naming the spouse can raise conflict questions, so it is worth getting advice before you decide.
Can the trustee decide to withhold income from the spouse?
Not if you want the trust to qualify. A trust whose terms let the trustee restrict income payments to the spouse does not qualify.
Can children receive money from the trust while the spouse is alive?
For the trust to qualify, no one but the spouse may receive or use income or capital during the spouse's lifetime.
Is there a deadline for the property to go into the trust?
For the rollover, property must vest indefeasibly in the spouse or the trust within 36 months of death.
Sources
- CRA – Income Tax Folio S6-F4-C1 — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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