Trusts that decide how and when, not just who.

What a trust does

A trust separates who owns property from who benefits from it. One person, the trustee, holds money or property and manages it under written terms for the benefit of someone else, the beneficiary. Ontario’s estate planning guidance describes a trust created in a will as one that holds money, property or personal items for people named in the will, managed by a trustee who must act in those people’s interests. It gives three common reasons to use one: providing for people under 18, providing for an adult who may not be able to manage money or property, and addressing tax.

The value of a trust is control over timing and purpose. Instead of an inheritance arriving all at once, the terms can say how the money is used, when it is paid out, and who decides. Trusts are one part of a plan, and the trusts in an estate plan section of our estate planning page shows where they fit.

Trusts we commonly set up

• A testamentary trust, set out in your will, that takes effect when you die.
• A trust that holds an inheritance for children until they reach an age you choose. Without one, money left to a minor may be paid into court until they turn 18.
• A Henson trust for a beneficiary who receives Ontario Disability Support Program payments, which can generally protect their eligibility.
• Trusts created during your lifetime, where your plan calls for one.

Most of the trusts we draft sit inside a will, which is why they are planned alongside your wills and powers of attorney. A trust in a will only works if the will itself is valid, so the signing rules in what makes a will valid in Ontario matter as much as the trust wording.

Trusts for children

A child cannot manage an inheritance, and Ontario law does not simply hand a child’s money to a parent. Ontario’s guidance on a child’s money says that, generally, it is paid into court with the Accountant of the Superior Court of Justice, who holds and invests it and pays it out when the child reaches the required age, usually 18. In most cases, $35,000 or less can be paid to the parent the child lives with, and above that a court-appointed guardian of property is the alternative. Section 36(6) of the Trustee Act is one of the provisions that lets the person who owes a minor money pay it into court.

A trust in your will avoids that route. The Office of the Children’s Lawyer explains that where there is a will, a child receives their share as the will states, usually at a set age, and the estate trustee cannot pay out the child’s money unless the will allows it. That is why the terms matter: they should say what the money can be used for before the payout age, such as education or health. Without a will, the intestacy rules decide the child’s share, and a share over $35,000 is generally paid into court, as described in who inherits if you die without a will in Ontario.

Trusts and disability support

The Ontario Disability Support Program has asset limits. Under section 27(1) of O. Reg. 222/98, the basic limit for a single person is $40,000. Section 28 lists assets that are not counted. One of them is a person’s beneficial interest in a trust funded by an inheritance or life insurance and available for maintenance, but section 28(3) caps that exclusion, together with the cash surrender value of life insurance, at $100,000. An outright inheritance, or a simple trust, can therefore affect a beneficiary’s eligibility.

A Henson trust is the structure many families use instead, and it can generally protect the beneficiary’s eligibility. The regulation itself does not describe Henson trusts, so whether one suits your family depends on the beneficiary’s situation and should be checked when the plan is made, not assumed.

How a trust in your will works, step by step

1. You set the terms while you are capable. The will names the trustee and a backup, the beneficiary, what the trustee may pay for, and when the trust ends.
2. Your estate trustee administers the estate. After your death, the estate is gathered, debts are paid and, where needed, probate is obtained. Our probate page explains that stage.
3. The trust is funded. The share set aside for the trust passes to the trustee to hold on the will’s terms. The estate trustee and the trustee can be the same person.
4. The trustee invests and manages it. The Trustee Act requires the care of a prudent investor, sets criteria to consider and requires diversification (section 27).
5. The trustee reports for tax. The Canada Revenue Agency says a trust resident in Canada that is an express trust, and not a listed trust, must file a T3 return each year, even with no income, and that a T3 return is due 90 days after the trust’s tax year-end.
6. The trust ends. At the age or event the will sets, the trustee pays out what is left. The CRA says a clearance certificate should be obtained before the trust property is distributed.

How we approach it

We start with what the trust needs to do, then work through who should act as trustee, what powers they need, and how the trust fits with the rest of your estate plan. Unclear wording can undo a trust’s purpose, so we keep it precise.

Trust work varies a great deal from one family to the next, so the plan is shaped once your situation is clear.

What a trustee has to do

Being a trustee is a responsibility, not a title. The Trustee Act sets the baseline, and your will can add to it or limit it, because section 68 says the Act does not authorize a trustee to do what the trust’s express terms forbid.

• Invest prudently. Section 27(1) requires the care, skill, diligence and judgment of a prudent investor. Section 27(5) lists criteria such as inflation, tax consequences and the need for income or liquidity, and section 27(6) requires diversification suited to the trust.
• Delegate only with a plan. Under section 27.1, a trustee may hand investment decisions to an agent only with a written investment plan and a written agreement requiring regular reports.
• Ask the court when unsure. Section 60 lets a trustee apply to the Superior Court of Justice for advice on managing the trust, and acting on that advice protects them.
• Be paid fairly. Section 61 entitles a trustee to a fair and reasonable allowance allowed by a judge, unless the trust document fixes the amount.

If a trustee dies, wants to step down or cannot act, section 3 allows a replacement to be appointed in writing, and section 5 lets the court appoint one. A trustee who acted honestly and reasonably may be relieved of liability for a breach under section 35, but not for investment losses.

What changes the answer

Capacity

A trust in a will has to be put in place while you can still make a will. An attorney under a continuing power of attorney for property can manage your property, but section 7(2) of the Substitute Decisions Act, 1992 says they cannot make a will for you.

Company shares

If your estate includes shares of a private company, a trust for them may sit in a separate will. Our article on a secondary will for private company shares explains how that structure works.

The size and mix of the estate

For a small estate with adult beneficiaries, a trust may add cost without much benefit. The case for one gets stronger with minor children, a beneficiary on ODSP, a blended family or a business. Those risk areas are set out in do you need a lawyer to make a will in Ontario.

Assets outside the will

Life insurance and registered plans that name a beneficiary pass directly, not through the will, so a trust in the will does not reach them unless the designation is coordinated with it.

Common mistakes

• Leaving money outright to a minor. It may be paid into court and handed over in full at 18.
• Leaving an outright gift to a beneficiary on ODSP. It can push them over the asset limit.
• Vague terms. If the will does not say what the money can be used for, the trustee may be unable to help when it matters.
• Choosing a trustee for loyalty alone. The job can last years and needs organisation, record keeping and some financial judgment.
• Forgetting tax reporting. Many trusts must file a T3 return every year, even with no income.
• Not coordinating designations. Insurance paid directly to a child or to a beneficiary on ODSP bypasses the trust.

What to do this week

1. List anyone who would inherit from you and is under 18, receives disability support, or may struggle to manage money.
2. Decide at what age you would want a child to receive their share outright.
3. Think about who could act as trustee for years, and who would be the backup.
4. Check the beneficiary designations on your life insurance and registered plans.
5. Ask your accountant about the tax side of any trust you are considering.
6. Book a review of your will. A first consultation takes 30 minutes, by video or in person, and you can request one here.

Frequently asked questions

Sources

• Ontario.ca: Estate planning and wills (trusts in a will)
• Ontario.ca: Guardianship of a child’s money and property (payment into court, $35,000)
• Ontario.ca: Office of the Children’s Lawyer and estates and trusts matters (a child’s inheritance under a will)
• O. Reg. 222/98 under the Ontario Disability Support Program Act, 1997, ss. 27 and 28
• Trustee Act, R.S.O. 1990, c. T.23, ss. 3, 5, 27, 27.1, 35, 36, 60, 61 and 68
• Substitute Decisions Act, 1992, S.O. 1992, c. 30, s. 7(2)
• Canada Revenue Agency: Who should file a trust’s T3 return (testamentary and express trusts)
• Canada Revenue Agency: When to file a trust’s T3 return (90 days, clearance certificate)

Questions clients ask about trusts and beneficiaries

Each of these answers one question in more depth, with the Ontario law behind it.

• How do beneficiary designations on RRSPs, TFSAs and insurance work in Ontario? How designations on registered plans and insurance pass, and how they interact with your will.

This page is general information about Ontario law, not legal advice for your situation.