Do Trusts Avoid Probate in Alberta? What Really Works

Many people hear that a living trust "avoids probate" and wonder whether it is the answer for their family. The truth is more careful than the slogan, because what matters is which assets sit inside your estate when you die.

This article explains how probate works in Alberta, which assets already pass outside it, where a living trust may or may not help, and what risks come with the idea.

This article covers the law of Alberta.

What probate is and which assets it covers

With a will, a grant of probate asks the Court of King's Bench to confirm the named executor's authority. Without a will, an interested person may request a grant of administration.

Property is inside the estate where there is no beneficiary designation and no surviving joint owner. Property outside the estate passes directly to another person without estate administration. So the question is not whether you have a trust. It is which assets will be left in your name alone at death.

Assets that already pass outside the estate

• Property with a named beneficiary designation.
• Jointly owned property that passes to the surviving owner.
• Plan property where a beneficiary was designated by signed instrument or by will.

There are limits. A designation in a will is effective only if it refers to the plan, and revoking the will revokes the designation in it. Joint owners with a right of survivorship who die simultaneously or in uncertain order are deemed tenants in common unless a contrary intention is found, so the survivorship transfer does not apply and the property falls into the estates.

Where a living trust fits

An inter vivos trust is any trust that is not a testamentary trust, and the CRA describes it as one set up during the settlor's lifetime. Property that has genuinely been transferred into such a trust is held by the trustee, not in your personal name. Whether a particular trust holds assets outside the estate depends on proper funding and on the trust deed.

A trust that was signed but never funded, or one where you forgot to retitle an account or a property, may leave those assets in your estate. That is the most common gap between the promise and the reality.

A testamentary trust is a different thing. Federal tax law defines it as a trust that arose on and as a consequence of the death of an individual. The CRA describes it as one generally created on and as a result of a person's death, such as under a will or court order. A testamentary trust can be treated as an inter vivos trust for tax purposes if it incurs certain debts owed to non-arm's-length parties, although some debts are excluded.

Risks and costs to weigh

• Tax. For a spousal trust, the deemed disposition of trust capital property at fair market value occurs on the death of the spouse or common-law partner, while other trusts face a deemed disposition 21 years after creation. These rules vary by trust type, so an accountant can confirm which applies to yours. A trust that is not a graduated rate estate or qualified disability trust pays tax at the highest individual percentage.
• Ongoing filing. A T3 return is due within 90 days of the trust's year-end, with any balance owing due in the same period.
• Trustee duties. A trustee must act in good faith, with ordinary prudence, and solely in the interests of the beneficiaries, and must not knowingly allow a conflict with personal interest unless the law or the trust instrument permits it.
• Reporting. A trustee must deliver a report for each fiscal period to qualified beneficiaries within 2 months after the end of the period.
• Liability. A trustee who breaches the trust can face court applications, and a former trustee remains liable for breaches committed while in office.

If you name yourself as trustee of your own trust, these duties still apply to you, and the Trustee Act applies to trusts created before, on or after the date its section 2 came into force. The current Act is the Trustee Act, SA 2022, c T-8.1, in force since February 1, 2023.

A trustee who is also a beneficiary must not use the office to gain a personal benefit beyond what the law or the trust instrument expressly permits. A will or trust deed can expressly allow a named trustee to also take as a beneficiary, because the trust instrument generally takes priority over the Act unless the Act provides otherwise. Some Act rules, such as section 84, cannot be overridden by the trust instrument.

What to do next

• List each asset and note how it is titled and whether it has a named beneficiary.
• Check that beneficiary designations are current and match your wishes.
• Be cautious about adding joint owners, since survivorship may not apply in every case.
• Ask a lawyer and an accountant whether a living trust adds value for your situation, given the tax and ongoing duties.

Frequently asked questions