Trusts, Explained: A Plain-Language Primer for Ontario Families

What a trust actually is, the main types Ontarians use, and how to tell whether one is worth the cost.

Who this is for & what you'll get: Anyone in Ontario who has heard the word "trust" and wondered whether they need one — parents of young or disabled children, people planning around probate, business owners, and adult children helping aging parents. You'll get the five things you actually need to understand, a quick-reference table of the common trust types, and a short FAQ.

⚖️ This is a general guide, not legal advice. It can't account for your specific situation. Use it to get oriented, then confirm the details with a licensed Ontario lawyer.

Trusts have a reputation for being complicated and only for the wealthy. Neither is quite true. A trust is really just a set of instructions for someone to hold money on someone else's behalf — and ordinary Ontario families use them all the time, often without realizing it. Here are the five things to understand.

1. What a trust is (three people, one pot of money)

A trust is a legal relationship involving three roles:

• The settlor — the person who creates the trust and puts property into it. (In a will-based trust, that's you.)
• The trustee — the person (or company) who holds and manages the property and must follow the trust's rules. They are the legal owner on paper, but they don't own it for themselves.
• The beneficiary — the person the trust is for. They get the benefit of the property — the income, the use, or eventually the capital — under the terms the settlor set.

The whole point is separation: the person controlling the money (trustee) is not the same as the person who benefits from it (beneficiary). That gap is what makes a trust useful — it lets you provide for someone without simply handing them a pile of cash.

One person can wear more than one hat. A grandparent might be settlor and trustee of a trust for a grandchild. But there must always be a beneficiary who is someone other than the trustee acting purely for themselves, or there's no real trust.

Plain version: A trust is a box. The settlor fills it, the trustee guards it and follows the label, and the beneficiary is who it's for.

2. The big divide: living trusts vs. will trusts

Almost every trust falls into one of two families, and the difference comes down to when it's created.

Inter vivos trust ("living trust"). Created during your lifetime. You set it up, transfer assets into it now, and it operates while you're alive. Examples below include family trusts and alter-ego trusts.

Testamentary trust ("will trust"). Created by your will and only springs into existence when you die. The classic examples are a trust for your minor children or a spousal trust — nothing happens until your estate is administered, at which point the trust is funded and the trustee takes over.

This timing distinction drives almost everything else — including the tax treatment and what the trust can be used for. When you tell a lawyer which problem you're trying to solve, the "living vs. will" question is usually the first fork in the road.

3. The common types Ontarians actually use

You don't need to memorize trust law. You need to recognize which job matches your situation. Here are the trusts that come up most.

Henson trust — protecting a beneficiary on disability supports

This is the one every family with a disabled member should know about. A person receiving the Ontario Disability Support Program (ODSP) can lose their benefits if they hold or receive too much money or property. Leaving an inheritance directly to a disabled child can therefore knock them off the very supports they rely on.

A Henson trust solves this. It is a special kind of absolute discretionary trust: the trustee has full discretion over whether and when to give the beneficiary anything, and the beneficiary has no enforceable right to the funds. Because the beneficiary can't demand the money, it generally is not counted as their asset for benefit purposes — so it can supplement their life (extras, comforts, equipment) without disqualifying them from ODSP.

⚠️ The rules around asset and income limits for ODSP change, and a Henson trust must be drafted precisely to do its job. This is not a do-it-yourself trust. Get it drafted by a lawyer and verify the current ODSP limits with the program.

Family trust — splitting income and protecting assets

A family trust (a type of inter vivos trust) holds assets — often shares of a private company or investments — for the benefit of family members. Owners use them to potentially split income among family members in lower tax brackets, to hold growth in a business for the next generation, and to add a layer of asset protection. The tax rules here are detailed and have anti-avoidance limits (income-splitting rules in particular have tightened in recent years), so a family trust is something to design with a tax advisor.

Spousal trust — supporting a spouse, controlling the remainder

A spousal trust (which can be created in your will or while living) gives your spouse the income, and often the use of assets, for life — and then passes whatever remains to people you chose, typically your children. It's the cornerstone of blended-family planning and can carry tax advantages when structured correctly.

Trust for minors — money for children who are too young to receive it

In Ontario, children can't manage a significant inheritance, and you generally don't want an 18-year-old receiving a lump sum the day they're legally an adult. A trust for minors, built into your will, holds a child's inheritance and lets the trustee pay for their needs (education, housing, support) until they reach an age you pick — often staggered (say, part at 21, part at 25, the rest at 30). It also lets you name who manages the money, rather than leaving that to a court process.

Alter-ego and joint-partner trusts — probate planning at 65+

If you are 65 or older, you can use two special living trusts: an alter-ego trust (for one person) or a joint-partner trust (for you and your spouse together). You transfer assets into the trust during your life; you keep the benefit of them while you're alive; and when you die, the assets pass under the trust's terms without going through probate. That can mean privacy, a smoother transition, and savings on Ontario's Estate Administration Tax — though there are costs and tax wrinkles to weigh, so these aren't automatically a good deal for everyone.

4. What a trustee actually has to do

Being a trustee is a real legal job, not an honorary title. A trustee owes fiduciary duties — the highest standard of good faith the law recognizes. In broad strokes a trustee must:

• Follow the trust's terms and the law.
• Act in the beneficiaries' best interests, not their own, and avoid conflicts.
• Be even-handed between beneficiaries (for example, the spouse who gets income today and the children who get the remainder later).
• Invest prudently and keep the trust property safe.
• Keep careful accounts and be ready to account for every dollar.

Choose trustees who are organized, trustworthy, and willing to take this on for what may be many years. For larger or longer trusts, families sometimes appoint a trust company or pair a family member with a professional.

5. Trusts and tax (the high-level version)

This is the part where you should lean hardest on professional advice — but here is the shape of it.

• Trusts are generally taxed at the top marginal rate. Most trusts don't enjoy the graduated brackets individuals do; income retained in a trust is typically taxed at the highest rate. (Certain trusts — such as a graduated rate estate in the years right after death, or a qualified disability trust — can be exceptions. Confirm eligibility with a tax advisor.)
• Income can often be "flowed out" to beneficiaries and taxed in their hands instead, which is frequently where the planning value lives.
• The 21-year rule. Many trusts are treated as if they sold their capital property every 21 years, triggering tax on accrued gains even though nothing was actually sold. This is a major planning milestone for long-running family trusts. The details and any exceptions change — do not rely on a rule of thumb; verify the current treatment with a tax professional.
• Setting up and running a trust has costs: drafting fees, annual trust tax returns, trustee time or fees, and accounting.

⚠️ Tax is the area where well-meaning DIY trusts do the most damage. The figures, rates, and rules referenced here change — treat them as concepts to ask about, not numbers to act on.

Quick-reference table

When is a trust worth the cost?

A trust adds expense and administration, so it should earn its keep. It's usually worth serious consideration when:

• You have a beneficiary with a disability receiving (or likely to receive) ODSP — strongly consider a Henson trust.
• You have minor children or young adults who shouldn't receive a lump sum.
• You're in a blended family and need to support a spouse while protecting your own children.
• You own a business or significant investments and want income-splitting or succession structure.
• You're 65+ and want privacy and to reduce probate.
• You want to provide for someone who can't manage money themselves (for any reason).

If none of those apply and your estate is straightforward, a well-drafted will may do everything you need — without a trust. The honest answer is "it depends," and a short consultation will usually tell you which camp you're in.

Mini-FAQ

Do I have to be rich to use a trust? No. The most common reasons families use trusts — protecting a child's disability benefits, holding a minor's inheritance, supporting a spouse — have nothing to do with wealth.

Can I be the trustee of my own trust? For some living trusts, yes (an alter-ego trust is a good example). For others it defeats the purpose or causes tax problems. It depends entirely on the type and goal.

Is a trust the same as a will? No. A will is your instruction sheet that takes effect when you die. A trust is an ongoing arrangement to hold property — it can be created during your life or by your will. Many wills contain trusts inside them.

What's the 21-year rule and should I worry about it? Many trusts are deemed to dispose of their property roughly every 21 years, which can trigger tax. It mainly affects long-running family trusts and is something your advisor plans around well in advance. The specifics change, so confirm the current rule rather than relying on memory.

How Treadstone Law can help

We design and draft trusts that fit the job — Henson trusts that protect ODSP eligibility, spousal trusts for blended families, trusts for minor children, and probate-planning trusts for clients 65 and over — and we coordinate them with your will, your tax advisor, and your family's reality.

• Flat, transparent fees — no surprises.
• Online intake and virtual service across Ontario — get it done from anywhere.
• Office in Mississauga, serving clients province-wide.

Start your file online at treadstonelaw.ca/start-file, explore treadstonelaw.ca/wills-estates and treadstonelaw.ca/pricing, or call 1-844-900-1070 to find out whether a trust is right for you.

This is not legal advice

This guide is general information, not legal advice. Reading it does not create a lawyer-client relationship. Ontario laws, tax rates, and government programs change, and how the law applies depends on your specific facts. For advice about your situation, speak with a licensed Ontario lawyer. Treadstone Law is licensed by the Law Society of Ontario — reach us at 1-844-900-1070 or start a file online.