Trusts in Ontario: Family Trusts and Testamentary Trusts

A trust lets you give property for someone’s benefit without handing it to them outright. One person, the trustee, holds and manages the property on terms you set, for the benefit of another, the beneficiary. Trusts are used for children, for blended families, for beneficiaries who need help with money, and in business and tax planning. This page explains the main kinds of trust used in Ontario. Law Wise is based in Mississauga and serves the entire GTA and Ontario.

How a trust works

• The settlor is the person who creates the trust and puts property into it. In a will, this is the person making the will.
• The trustee holds legal title to the property and must manage it for the beneficiaries, following the trust’s terms and the law.
• The beneficiary is the person for whose benefit the property is held. There can be several, entitled at the same time or one after another.
• The terms say what the trustee may do with income and capital, when, and for whom. They can be fixed, or they can give the trustee discretion.

A trust is a relationship, not a company. It has no legal existence apart from the trustee, who signs contracts and holds assets in their capacity as trustee.

Two ways to create a trust

A testamentary trust is created by a will and takes effect on death. Most family trusts are of this kind. An inter vivos trust, sometimes called a living trust, is created during the settlor’s lifetime by a trust deed and the transfer of property to the trustee. The two are treated differently for tax and for probate: property placed in a properly established living trust is no longer part of the settlor’s estate, while a testamentary trust is funded from the estate after death.

Common uses

• Trusts for children. Without a trust, a child is generally entitled to an inheritance at 18. A trust can hold the share until a later age, or pay it in stages, and allows the trustee to use funds for education and support in the meantime.
• Spousal trusts in blended families. A spouse can be given the income and use of property for life, with the capital passing to the children of an earlier relationship when the spouse dies.
• Trusts for a beneficiary with a disability. A fully discretionary trust can protect entitlement to ODSP. See Henson trusts.
• Protective trusts. For a beneficiary who is vulnerable to pressure, has creditor or addiction problems, or is going through a separation.
• Alter ego and joint partner trusts. Living trusts available under federal tax law to people aged 65 or older, used to pass assets outside the estate and to plan for incapacity.
• Family trusts for a business. Often used with a reorganization of a private company so that future growth belongs to the next generation. See corporate and commercial.
• Insurance trusts. A trust that receives life insurance proceeds on death and holds them for the beneficiaries.

Choosing a trustee

The choice of trustee matters as much as the wording of the trust. A trust for a young child or a person with a disability may last for decades. The trustee will invest, keep records, file tax returns, and decide when to say yes or no to a beneficiary’s request. Think about the person’s judgement, their relationship with the beneficiaries, their age and health, where they live, and whether they have the time. A trustee who is also a beneficiary, such as a surviving spouse with power over capital that will eventually pass to stepchildren, is in a position of conflict that the trust should address directly. Many people name two trustees, or a family member together with a professional, and always name a replacement. A trust company can act where there is no suitable individual, at a cost. Whoever is chosen, speak with them first. Nobody is obliged to accept the role, and a trust without a willing trustee ends up before the court.

Tax points to raise with your accountant

• A trust is a separate taxpayer and must generally file an annual return.
• Income kept in most trusts is taxed at the highest personal rate, with limited exceptions, including a graduated rate estate in its first 36 months and a qualified disability trust.
• Most trusts are treated as having sold their capital property every 21 years, which can produce tax if nothing is done beforehand.
• Transferring property into a living trust is usually a sale for tax purposes, with exceptions for alter ego, joint partner and spousal trusts.
• Reporting rules for trusts have changed more than once in recent years. Confirm the current filing requirements before a trust is set up.

These are federal Income Tax Act rules. Law Wise prepares the legal documents and works with your accountant on the tax design.

Setting up a trust

1. PurposeWe identify what the trust is meant to achieve and whether a simpler tool would do.
2. DesignWho the beneficiaries are, what discretion the trustee has, when the trust ends, and who receives what is left.
3. TrusteesWho will act first, who replaces them, and how decisions are made.
4. DraftingThe trust provisions in your will, or a trust deed for a living trust.
5. FundingFor a living trust, the property must actually be transferred to the trustee. A trust with nothing in it is not a trust.
6. AdministrationBank account, records, tax number and annual filings.

Your file is handled by a Law Wise lawyer licensed by the Law Society of Ontario. Service is available in English, Urdu, Punjabi and Hindi, and, if you retain the firm, fees are explained and confirmed in writing before work starts.

Common questions about trusts

This page is general legal information for Ontario, current as of 11 October 2026. It is not legal or tax advice and does not create a lawyer-client relationship. For advice about your situation, please speak with a lawyer.