- A testamentary trust is created by your will and only comes into existence on your death.
- Testamentary trusts are usually chosen for protection, not tax planning A common reason to build a testamentary trust into your will is to protect a beneficiary from themselves or from…
The word "trust" gets used loosely in estate planning conversations, but there are really two very different kinds, and the difference comes down to timing: does the trust start while you're alive, or only after you die? Understanding testamentary trusts vs. inter vivos trusts in Ontario matters because the two are set up differently, controlled differently, and used for different reasons — even though both end up doing the same basic job of holding property for a beneficiary under a trustee's management.
The Core Difference: When the Trust Comes Into Existence
A testamentary trust is created by your will and only comes into existence on your death. It doesn't exist while you're alive — it's simply a set of instructions in your will that says, in effect, "when I die, don't give this asset directly to this beneficiary; instead, hold it in trust, under these terms, managed by this trustee."
An inter vivos trust ("inter vivos" meaning "among the living") is created and funded while you're still alive. You transfer property into the trust now, a trustee (who may or may not be you, depending on the structure) manages it under the trust's terms, and it continues operating independently of your will and independently of your death.
Side-by-Side Comparison
| Testamentary trust | Inter vivos trust | |
|---|---|---|
| When it's created | On death, under the terms of your will | During your lifetime, once funded |
| How it's set up | As a provision within your will | As a separate trust document, executed and funded while you're alive |
| Who controls the assets before death | You, personally — the trust doesn't exist yet | The trustee, per the trust's terms, even if that trustee is you |
| Flexibility to change it | You can change the terms any time before death, simply by changing your will | Generally harder to change once established, depending on whether it's revocable or irrevocable |
| Common use cases | Providing for minor children, a beneficiary who needs protection from creditors or poor money management, or a beneficiary receiving means-tested disability benefits | Managing assets during incapacity, income splitting or estate structuring during life, or transferring specific assets outside of probate |
| Requires probate involvement | Generally arises through the same will that may need to go through the probate process | Assets already in the trust generally pass according to the trust's own terms, separate from the probate process for your other assets |
Why You'd Choose One Over the Other
Testamentary trusts are usually chosen for protection, not tax planning
A common reason to build a testamentary trust into your will is to protect a beneficiary from themselves or from outside pressure — a minor child who shouldn't receive a lump sum at 18, an adult beneficiary with a history of poor financial decisions or vulnerability to undue influence, or a beneficiary receiving means-tested government disability benefits. A fully discretionary testamentary trust — often called a Henson-type trust in that last scenario — is a well-established Ontario planning tool precisely because the beneficiary has no fixed entitlement the trustee is obligated to pay out, which can help preserve their eligibility for those benefits.
Inter vivos trusts are usually chosen for lifetime control and planning
An inter vivos trust is often used where you want structured management to start now — for example, a trust that holds property for a family member with a disability during your own lifetime, not just after you're gone, or a trust used as part of broader estate or asset-structuring planning during life. Because it's already in existence and funded, an inter vivos trust also generally continues operating without interruption on your death, rather than only coming into being at that point.
Tax treatment is a real factor — but get current, specific advice
Trusts are taxed under rules that are more involved than this general comparison can responsibly cover, and both trust taxation and the treatment of certain deemed dispositions have been subject to legislative change over time. Rather than stating any specific rate or rule here, the responsible guidance is this: if tax treatment is a significant part of why you're considering one type of trust over the other, get advice from a lawyer or accountant working from the current rules, applied to your specific numbers.
A Few Things Both Types of Trust Have in Common
- Both require a trustee who owes fiduciary duties to the beneficiaries — acting in their best interests, keeping proper records, and managing trust property separately from their own.
- Both can be structured with discretion (the trustee decides how much and when to distribute) or with fixed entitlements (the beneficiary is owed a set amount or share on a set schedule).
- Neither type of trust is something you should draft yourself from a template found online — the terms need to match your specific goals, family situation, and (for inter vivos trusts especially) tax and funding considerations.
Frequently asked questions
Can I have both kinds of trust in my estate plan?
Yes. It's common for someone to have an inter vivos trust already operating during their lifetime — for a specific purpose, like managing assets for a family member with a disability — while their will also creates one or more testamentary trusts to take effect on death for different beneficiaries or purposes.
Does a testamentary trust avoid probate?
Not on its own. A testamentary trust is created by your will, and the assets funding it generally pass through the same estate administration (and potential probate process) as the rest of your estate before landing in the trust. An inter vivos trust, by contrast, generally holds assets that are already outside your estate by the time you die.
Who can be the trustee of either type of trust?
The same general considerations apply to both — you want someone trustworthy, capable of managing the specific assets and terms involved, and willing to take on fiduciary responsibilities. For a testamentary trust, this is often the same person named as your estate trustee, though it doesn't have to be.
Is an inter vivos trust the same as a "living trust" you hear about in U.S. content?
The general concept is similar — a trust created and funded during your lifetime — but Ontario trust and estate law, and Ontario probate procedure, are meaningfully different from the U.S. rules that a lot of "living trust" content online is actually describing. Don't assume American planning advice about living trusts translates directly to Ontario.
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