What Is a Testamentary Trust in a Saskatchewan Estate?

If someone told you that your inheritance, or a child's inheritance, will be held in trust, you probably have more questions than answers. Who controls the money? For how long? And how is this different from the trusts people sometimes hear about for tax planning?

This article explains in plain words what a testamentary trust is, how it compares with a living trust, and where it fits in the estate process in Saskatchewan. The exact terms of any trust come from the wording of the will itself, so a lawyer should read the document before you rely on it.

This article covers the law of Saskatchewan.

What a testamentary trust is

A testamentary trust is a trust that is created by a will and takes effect only after the person dies. The will names a trustee, who manages the property, and one or more beneficiaries, who receive money or benefits from it, often over time instead of all at once.

The details of any trust, such as what goes into it, who receives income or capital, at what ages or events, and when the trust ends, depend on the wording of the will. The executor and the trustee can be the same person, or different people.

Testamentary trust versus living trust

The main difference is timing and how the trust is created. A living trust (sometimes called an inter vivos trust) is set up while the person is alive. A testamentary trust does not exist until the death.

Tax treatment can differ between the two types, so ask an accountant or lawyer about your own situation rather than assuming.

When testamentary trusts are used

People commonly choose a testamentary trust when they do not want a beneficiary to receive a large lump sum immediately. Typical reasons include:

• Children who are too young to manage money, with the trustee paying for education and living costs until a set age.
• A beneficiary with a disability or other vulnerability who may need ongoing support.
• A spouse who is to have the use of the money, with what is left going to children later.
• A beneficiary who has creditors, addiction concerns or difficulty budgeting.

If any beneficiary is under 18 or a dependent adult, the Notice to Public Guardian and Trustee (Form 16-12, two copies) is required with the probate application. The executor's listed duties also include notifying the Public Guardian and Trustee where minors or dependent adults may have an interest.

How the trust fits into estate administration

How and when a trust in a will receives its property depends on the will and the facts of the estate, so it is worth confirming with a lawyer. The province lists executor duties such as finding the will, identifying and valuing assets, applying for Letters if required, publishing a Notice to Creditors, paying debts, filing returns and obtaining a CRA Final Clearance Certificate.

Debts must be paid before any gifts in the will go to beneficiaries. If tax is owing and an executor distributes assets before getting the CRA clearance certificate, they can be held personally liable up to the value of what was distributed. Final distribution cannot occur until that certificate is received.

Once the estate is ready, the executor must account to beneficiaries within two years, or pass the accounts at the court house if they are disputed. Income an estate earns after death is reported on a T3 trust return. How income earned inside the trust itself is taxed afterward is a question for an accountant.

What to do next

• Get a copy of the will and read exactly how the trust is described, including who the trustee is and when the trust ends.
• Ask who is named as trustee and whether a backup is named.
• Make a list of any beneficiaries under 18 or who are dependent adults.
• Talk to a lawyer about whether the trustee has the powers needed, such as paying for education or housing.
• Speak with an accountant about the final return and the estate's T3 return.

Frequently asked questions