A trust separates who legally holds property from who benefits from it. In Ontario estate planning that solves four recurring problems: beneficiaries too young to inherit, a beneficiary on means-tested benefits, a second marriage, and probate on assets a court never needed to see.
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Young beneficiaries come first, because the default is bad. Money left outright to a child is paid into court and handed over at 18. A trust in the will names someone to manage the fund, sets the ages at which capital is released, and authorizes payments for school, housing and health in the meantime. This is the same problem the <a href="/guardianship-minor-children-ontario">guardian appointment</a> does not solve.
A beneficiary receiving disability benefits needs a fully discretionary trust, often called a Henson trust. The beneficiary has no fixed entitlement to income or capital and cannot demand payment, so the fund is not counted as their asset for means-tested benefit purposes. It only works if the trustee's discretion is genuinely absolute and the payments are then made in the right way — this is drafting, not a template.
Second marriages are the third. A spousal trust gives the surviving spouse the income, and the use of the home, for life, with the capital passing to the children of the first marriage on the survivor's death. It answers the problem outright gifts create, which is that the survivor can rewrite their own will the week after the funeral.
The fourth job is control. Property held in trust for a beneficiary is generally harder for that beneficiary's creditors to reach, harder to lose in a separation, and easier to protect where there is addiction or a pattern of poor decisions. Under the <a href="https://www.ontario.ca/laws/statute/90f03">Family Law Act</a> inheritances are treated differently from other property on a marriage breakdown, and a trust reinforces that separation rather than replacing it.
Trusts stopped being income-splitting tools. A testamentary trust is now taxed at the top marginal rate rather than at graduated rates, with two exceptions: a graduated rate estate, which is the deceased's own estate for a limited period after death, and a qualified disability trust for an eligible beneficiary. Under the <a href="https://laws-lois.justice.gc.ca/eng/acts/I-3.3/">Income Tax Act</a> everything else pays the top rate on income it retains.
Every trust is also deemed to dispose of its capital property at fair market value every twenty-one years and to reacquire it at that value, which produces a tax bill without a sale. Long trusts — a fund held for grandchildren, a cottage held for a generation — need a plan for that date built in at the drafting stage, not discovered later by a trustee.
Inter vivos alter ego and joint partner trusts are the exception worth knowing about. They are available from age 65, property can be transferred in at cost without triggering tax, and what is in the trust passes outside the estate on death. That means no probate delay, no public court file, and no estate administration tax on those assets.
That last point has a number attached. Estate administration tax is nil on the first $50,000 of estate value and $15 per $1,000 above it, so a $240,000 estate pays $2,850. A second will covering assets that do not require probate — private company shares, personal effects, loans to family — keeps those values outside the calculation entirely, which is why business owners in Ontario are usually advised to have two wills.
A trustee has to hold an even hand between the beneficiary receiving income now and the beneficiary receiving capital later, avoid any conflict between the trust's interests and their own, exercise discretion personally rather than delegating it, and invest as a prudent investor would under the Trustee Act. Those duties apply from the day the trust is funded, not from the day the trustee gets around to reading the will.
Trustees can be compelled to account for what they did, in the same way an estate trustee can be required to go through a <a href="/passing-of-accounts-lawyer-ontario">passing of accounts</a>, and their <a href="/executor-compensation-lawyer-ontario">compensation</a> is assessed on the same footing. A trustee who has not kept proper capital and revenue records for a fifteen-year trust is in a much worse position than one who has.
Choose the trustee separately from the guardian and separately from your executor if the right people are different. For a long trust, name successors, consider two trustees so nobody acts alone, and think about a trust company where the fund is large or the family is divided. A trustee who dies or resigns without a named successor sends the trust to court.
None of this needs to be complicated for most families. A single will with a straightforward trust for children covers the common case, and our flat fee for a lawyer-drafted single will is $563.87 with taxes included — see <a href="/pricing">pricing</a> or the <a href="/wills-estates">wills and estates overview</a> for packages and estate administration work.
For most families a will is enough, and the trust sits inside it. You need a separate structure only where there is a specific problem to solve: a beneficiary on disability benefits, a second marriage with children from the first, a business you want kept out of probate, or a beneficiary who should not receive capital directly. Otherwise a testamentary trust in the will does the work.
A fully discretionary trust for a beneficiary receiving means-tested disability support. Because the beneficiary has no enforceable right to any payment, the trust fund is not treated as their asset when benefit eligibility is assessed. The trustee decides what is paid and when. It has to be drafted with genuinely absolute discretion, and payments have to be made carefully, or the protection is lost.
A trust created in your will does not, because those assets pass through your estate first. A trust created while you are alive and properly funded does, because the property is already held by the trust when you die. That is the appeal of alter ego and joint partner trusts, alongside multiple wills for assets that do not require probate.
Every trust is treated as having sold its capital property at fair market value every twenty-one years, and as having bought it back at the same value. The tax is payable even though nothing was sold. Trusts intended to last a generation need a strategy for that date, usually distributing property to beneficiaries before it arrives so the gain rolls out with the asset.
For a trust you create during your lifetime, often yes, and alter ego trusts are usually set up exactly that way. It affects the tax treatment and the degree of protection the structure gives, so it is a decision to take with advice rather than by default. For a trust in your will, you are naming someone to act after your death.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.