Living Trust vs Will Canada: Understanding the Differences
Planning what happens to your assets after death is an important financial decision for Canadians. Two main tools are used for this: inter vivos trusts (also known as living trusts) and wills.
Both help transfer wealth to loved ones, but they work in different ways. An inter vivos trust takes effect during your lifetime and allows you to manage and distribute assets without probate.
A will only becomes active after death and usually requires court validation. Inter vivos trusts offer privacy since they remain confidential, but wills become public records once filed.
Inter vivos trusts can also manage assets if someone becomes unable to make decisions, though a Power of Attorney serves this purpose more commonly in Canada. The choice between these options depends on factors like asset complexity, family structure, and privacy concerns.
Some Canadians benefit from using both tools together for complete protection. Understanding how each option works helps families make informed decisions about protecting their wealth and providing for beneficiaries.
Understanding Living Trusts and Wills in Canada
Inter vivos trusts (living trusts) and wills are the two main legal documents in Canadian estate planning. Each functions differently to manage and transfer assets.
Inter vivos trusts take effect during a person's lifetime. Wills only activate after death.
What Is an Inter Vivos Trust?
An inter vivos trust is a legal document that allows someone to place assets under the management of a trust during their lifetime. The term "inter vivos" means "during life" in Latin. The person who creates the trust (the settlor) transfers ownership of their assets into the trust and can name themselves as the trustee.
Inter vivos trusts operate immediately after creation. For Canadians aged 65 and over, Alter Ego Trusts and Joint Partner Trusts are the most common types used for estate planning and probate avoidance.
These specialized trusts allow assets to transfer at cost (tax-deferred) and bypass probate. They're specifically authorized under the Income Tax Act for this purpose.
Assets in the trust bypass probate court, meaning beneficiaries receive their inheritance faster and with more privacy. The trust continues to function if the settlor becomes mentally incapacitated.
A successor trustee steps in to manage the assets according to the trust terms. This feature makes inter vivos trusts valuable for people concerned about losing capacity to manage their own affairs.
However, most Canadians use a Continuing Power of Attorney for Property as the primary tool for managing incapacity, rather than relying solely on a trust.
What Is a Will?
A will is a legal document that specifies how a person's assets should be distributed after death. It names an executor who handles the estate and can designate guardians for minor children.
Wills only become active upon death. Courts must validate them through probate, a public process that can take months.
In Ontario, this process is formally known as obtaining a Certificate of Appointment of Estate Trustee with a Will. For smaller estates valued at $150,000 or less, Ontario offers a simplified Small Estate Certificate process introduced in 2021.
The probate process involves filing the will with the court, notifying beneficiaries, paying debts, and distributing assets under court supervision. Without a will, provincial laws determine how assets get divided, which may not match the deceased person's wishes.
Legal Status and Role in Canadian Estate Planning
Both documents hold legal weight in Canada, but provinces govern their use differently. Each province has specific laws about creating, validating, and executing these estate planning tools.
A complete estate plan often includes multiple documents working together:
An inter vivos trust (such as an Alter Ego Trust) to handle major assets
A will to cover remaining items and name guardians for children
A Continuing Power of Attorney for Property to manage incapacity
A Power of Attorney for Personal Care for health decisions
Estate planning professionals can structure these tools to work together, reducing probate fees and protecting assets for beneficiaries.
Key Differences Between Living Trusts and Wills
Inter vivos trusts and wills differ in how they operate, when they take effect, and how they handle asset distribution. These differences impact probate requirements, privacy levels, and the ability to manage assets during incapacity.
Timing and Operation
An inter vivos trust takes effect as soon as it's created and signed. The person who creates the trust transfers assets into it during their lifetime.
A trustee manages these assets according to the trust's terms. A will only becomes active after the person dies.
Until that point, the document has no legal effect. The will simply sits as a statement of intentions for future asset distribution.
This timing difference matters because an inter vivos trust can manage assets immediately. A will waits until death to do anything at all.
Asset Distribution Processes
Assets in an inter vivos trust bypass probate entirely. The trustee can distribute assets to beneficiaries right away, following the trust's instructions without court involvement.
A will must go through probate in most cases. This is a court process that validates the will and oversees asset distribution.
Probate can take months or even years, depending on the estate's complexity and provincial requirements.
Probate Fees by Province:
| Province | Approximate Probate Fees |
|---|---|
| Ontario | $0 on first $50,000, then $15 per $1,000 (1.5%) on value exceeding $50,000 |
| British Columbia | 1.4% on estates over $50,000 |
| Nova Scotia | Variable rates up to 1.7% |
| Alberta | Fixed fee (under $525) |
Families who want to avoid probate often choose inter vivos trusts for this reason. The time and cost savings can be significant, especially in provinces with higher fees.
Privacy and Public Record
Inter vivos trusts remain private documents. They don't become part of any public record, so the details of assets and beneficiaries stay confidential.
No one outside the trust parties needs to know what's in it. Wills become public documents once they enter probate.
Anyone can request and view a probated will at the courthouse. This means asset values, beneficiary names, and distribution instructions become accessible to the public.
For people who value privacy, this distinction matters. Business owners, individuals with complex family situations, or those with significant assets often prefer the privacy an inter vivos trust provides.
Incapacity and Management of Assets
An inter vivos trust allows for continuous asset management if the person who created it becomes incapacitated. The trustee simply continues managing the trust assets without any court intervention.
However, in Canada, the standard tool for managing incapacity is a Continuing Power of Attorney for Property. This legal document appoints someone to manage your financial affairs if you become unable to do so.
If you have a Power of Attorney, your family does not need to go to court for guardianship. The designated attorney manages your assets according to your instructions.
A will provides no help during incapacity because it only works after death. If someone with only a will and no Power of Attorney becomes incapacitated, the family must apply for a court-appointed guardian to manage assets.
This process takes time and involves legal costs. Most comprehensive estate plans include both a Power of Attorney and, when appropriate, a trust structure for additional asset protection and management.
Types of Trusts in Canadian Estate Planning
Canadian estate planning involves several types of trusts, each serving different purposes and offering distinct advantages. Understanding the specific types used in Canada helps ensure proper tax treatment and legal compliance.
Alter Ego Trusts and Joint Partner Trusts
For Canadians aged 65 and over, Alter Ego Trusts and Joint Partner Trusts are the primary inter vivos trust options used for estate planning.
An Alter Ego Trust can only be created by someone who is 65 years of age or older. The settlor must be the sole beneficiary entitled to receive all income and capital from the trust during their lifetime.
A Joint Partner Trust works similarly but allows a settlor and their spouse or common-law partner (both 65 or older) to be joint beneficiaries during their lifetimes.
These trusts are specifically authorized by the Income Tax Act to:
Allow assets to transfer into the trust at cost (tax-deferred)
Avoid triggering immediate capital gains
Bypass probate when structured properly
Provide continuity if the settlor becomes incapacitated
The deemed disposition for these trusts occurs at the death of the settlor (or the last surviving partner in a Joint Partner Trust), not at the typical 21-year mark that applies to other trusts.
Revocable vs. Irrevocable Trusts: Canadian Tax Considerations
While revocable inter vivos trusts are common in the United States, they're rarely used for probate planning in Canada due to tax attribution rules.
Under Section 75(2) of the Income Tax Act, if a trust is revocable by the settlor, all income and capital gains are attributed back to the settlor for tax purposes. This eliminates most of the tax planning benefits.
For this reason, Alter Ego Trusts and Joint Partner Trusts used by Canadians are typically irrevocable but include specific provisions that allow the settlor to access capital and income during their lifetime.
An irrevocable trust cannot be changed or cancelled once it's established without the consent of the beneficiaries. The settlor transfers assets permanently into the trust and gives up certain controls.
This permanent transfer is what allows irrevocable trusts to:
Qualify for special tax treatment under the Income Tax Act
Protect assets from certain creditor claims
Provide clear succession planning
Avoid probate fees
Testamentary Trusts
A testamentary trust is created through a person's will and only comes into effect after their death. The will contains instructions for establishing the trust and names the trustee who will manage it.
These trusts go through the probate process as part of the estate. Testamentary trusts work well for leaving assets to minor children or beneficiaries who need help managing money.
The trustee can distribute funds according to the will's instructions over time rather than in a lump sum. This provides control over how and when beneficiaries receive their inheritance.
These trusts can also protect beneficiaries from creditors or relationship breakdowns. Assets held in trust remain separate from the beneficiary's personal assets.
The creation process is simpler than setting up an inter vivos trust since it's done through the will.
Inter Vivos Trusts
An inter vivos trust is established during the settlor's lifetime, as opposed to taking effect after death. The term "inter vivos" means "during life" in Latin.
Alter Ego Trusts, Joint Partner Trusts, and other irrevocable trusts fall under this category since they're created while the settlor is alive. These trusts begin operating immediately upon creation and funding.
The settlor transfers assets to the trustee, who manages them for the named beneficiaries. This immediate operation distinguishes inter vivos trusts from testamentary trusts.
Inter vivos trusts avoid probate because the assets are already held in trust when the settlor dies. They can provide asset management if the settlor becomes incapacitated.
The settlor must actively transfer assets into the trust for it to be effective. Simply creating the trust document isn't enough without proper funding.
Avoiding Probate and Reducing Fees
Probate fees and administrative costs can reduce the value of an estate in Canada. Inter vivos trusts offer a way to bypass the probate process, while wills must go through court validation that adds time and expense.
Probate Process in Canada
Probate is the legal process where a court validates a will and grants an executor the authority to distribute estate assets. In Ontario, this is formally known as obtaining a Certificate of Appointment of Estate Trustee with a Will.
The executor must submit the will to the provincial court along with required documentation about the deceased's property and debts.
The process typically takes several months to over a year, depending on estate complexity and provincial requirements. During this time, assets remain frozen and beneficiaries cannot access their inheritance.
Each province sets its own probate rules and timelines. Some provinces like Ontario and British Columbia require probate for most estates, while Quebec offers notarial wills that bypass this requirement.
For smaller estates in Ontario valued at $150,000 or less, a simplified Small Estate Certificate process is available as of 2021. This streamlined procedure reduces costs and complexity for qualifying estates.
The executor must gather asset valuations, notify creditors, and file estate accounts with the court.
How Inter Vivos Trusts Help Avoid Probate
An inter vivos trust transfers asset ownership from an individual to the trust during their lifetime. Since the trust owns the assets, these assets do not form part of the probated estate when the person dies.
Assets in an inter vivos trust transfer directly to beneficiaries without court involvement. This means faster access to inheritance and complete privacy, as trust documents never become public records.
The trustee can distribute assets immediately after death according to the trust terms. Real estate, investments, and bank accounts held in the trust all bypass probate.
For Canadians 65 and over, Alter Ego Trusts and Joint Partner Trusts provide these benefits while maintaining favourable tax treatment under the Income Tax Act.
However, any assets not transferred into the trust before death will still require probate unless other strategies apply.
Probate Fees and Administrative Costs
Probate fees vary across Canadian provinces. In Ontario, the Estate Administration Tax is calculated as:
$0 on the first $50,000 of estate value
$15 per $1,000 (which equals 1.5%) on the value exceeding $50,000
For example, an estate worth $500,000 would pay:
$0 on the first $50,000
$6,750 on the remaining $450,000 ($450,000 × 1.5%)
Total: $6,750 in Estate Administration Tax
British Columbia and Alberta charge much lower flat fees regardless of estate size. Administrative costs extend beyond government fees.
Legal fees for probate applications usually range from $2,000 to $10,000 or more for complex estates. Executor fees, accounting costs, and court filing expenses add further charges.
Inter vivos trusts require upfront legal costs between $1,500 and $5,000 to establish. Estates exceeding $500,000 in high-fee provinces often save money overall by avoiding probate.
The savings increase for larger estates worth over $1 million.
Core Benefits and Limitations
Inter vivos trusts and wills each offer distinct advantages in estate planning, but they also come with specific drawbacks. An inter vivos trust provides privacy and avoids probate.
A will offers simplicity and affordability for straightforward estates.
Benefits of an Inter Vivos Trust
An inter vivos trust allows individuals to bypass the probate process entirely. Assets held in the trust transfer directly to beneficiaries without court involvement, which saves time and money.
The trust remains private and does not become part of public records. Control over assets continues during the person's lifetime and after death.
The trust creator can specify detailed conditions for distributions, such as age requirements or specific purposes for funds. This is valuable for families with minor children or beneficiaries who need ongoing support.
Asset protection becomes stronger through an inter vivos trust structure. The trust can shield assets from certain legal claims that might apply to a will.
Trust management continues without interruption even if the creator becomes incapacitated. Tax planning opportunities exist with certain types of trusts, particularly Alter Ego Trusts and Joint Partner Trusts for Canadians 65+.
Professional trustees can manage complex assets and investments according to the trust terms. Beneficiaries receive their inheritance faster since no probate delays occur.
Advantages of a Will
A last will and testament costs less to create than an inter vivos trust. Most people find wills straightforward to understand and update as circumstances change.
Lawyers can draft a basic will quickly and affordably. Wills allow individuals to name guardians for minor children, which an inter vivos trust cannot do on its own.
The executor named in the will handles all estate matters and ensures wishes are followed. This simplicity works well for people with modest estates and uncomplicated family situations.
Provincial laws like Ontario's Succession Law Reform Act provide clear rules for will creation and enforcement. Two witnesses can validate a will without extensive legal procedures.
Changes to a will require minimal paperwork compared to trust amendments.
Disadvantages of Each Approach
The 21-Year Deemed Disposition Rule: A Critical Tax Warning
Inter vivos trusts require significant upfront costs and ongoing administration. The trust creator must transfer property titles into the trust name, which involves paperwork and fees.
Trustees need to maintain detailed records and file separate tax returns.
Most importantly, family trusts face a major tax disadvantage that wills do not: the 21-Year Deemed Disposition Rule. Under Canadian tax law, most trusts (except Alter Ego and Joint Partner Trusts) are deemed to have sold all their capital property every 21 years. This triggers capital gains tax on the appreciated value of all trust assets, even though nothing was actually sold.
This can create a massive tax bill that beneficiaries must pay to keep the trust operating. For example, if a trust holds a cottage that has appreciated by $500,000, the trust would owe capital gains tax on that $500,000 gain at the 21-year mark, potentially requiring the sale of the property just to pay the taxes.
Key points about the 21-Year Rule:
Applies to most inter vivos trusts (except Alter Ego and Joint Partner Trusts for those 65+)
Triggers capital gains tax as if all assets were sold, even if they weren't
Can force families to sell assets just to pay the tax bill
Repeats every 21 years as long as the trust exists
Does not apply to wills or estates (only to ongoing trusts)
For this reason, Alter Ego Trusts and Joint Partner Trusts are strongly preferred for Canadians aged 65 and over, as the deemed disposition only occurs at death (not every 21 years). For younger Canadians, this 21-year rule makes traditional family trusts much less attractive for estate planning.
The complexity demands professional legal assistance, which increases expenses.
Dual Wills Strategy for Business Owners
For business owners looking to avoid probate fees, Dual Wills (also called Primary and Secondary Wills or Multiple Wills) offer a superior alternative to inter vivos trusts in many cases.
Under Ontario law, business owners can create two separate wills:
Primary Will: Covers assets that require probate (real estate, bank accounts, publicly traded investments)
Secondary Will: Covers assets that don't require probate (shares in private corporations, partnership interests, certain business assets)
Benefits of the Dual Wills Strategy:
Avoids probate fees on private company shares and business interests
No 21-year deemed disposition (unlike family trusts)
Simpler and less expensive than setting up and maintaining an inter vivos trust
No annual T3 trust tax returns required
Assets remain under your direct control during your lifetime
More straightforward to update as business circumstances change
The Law Society of Ontario recognizes this as an effective probate planning tool. For many business owners, Dual Wills provide the probate savings of a trust without the ongoing administrative burden and 21-year tax complications.
Wills must go through probate in most cases (unless the estate qualifies for Ontario's Small Estate Certificate process). This process takes months and incurs probate fees based on estate value.
Court proceedings become public record, exposing family financial details. Assets freeze during probate, preventing immediate access by beneficiaries.
A will offers no protection if someone becomes incapacitated before death. However, a Continuing Power of Attorney for Property addresses this need in most comprehensive estate plans.
Dependents can challenge will provisions in court more easily than trust terms. Estate administration taxes apply to probated estates in some provinces.
Family Considerations and Asset Protection
Both wills and inter vivos trusts offer different benefits for protecting family members and managing complex family situations. The right choice depends on whether someone has minor children, deals with blended family dynamics, or needs specific control over asset distribution.
Providing for Minor Children
A will allows parents to name a guardian for minor children, which an inter vivos trust cannot do on its own. This makes a will essential for any parent with children under 18.
An inter vivos trust can work alongside a will to manage financial assets for children. Parents can set up a trust that controls when and how children receive their inheritance.
For example, the trust can release funds at specific ages like 21, 25, and 30 instead of giving everything at once. The trust can also specify what the money can be used for while children are minors.
This includes education, healthcare, and living expenses. A trustee manages these funds according to the instructions set out in the trust document.
Blended Families and Complex Estates
Blended families often face unique challenges when planning estates. A spouse from a first marriage may want to provide for a current spouse while ensuring children from a previous relationship receive certain assets.
Inter vivos trusts offer more control in these situations than wills alone. The trust can specify that a surviving spouse receives income from assets during their lifetime, with the remaining capital going to children from a first marriage after the spouse dies.
Trusts can also protect assets from family disputes that sometimes arise in blended families. Since trusts remain private and avoid probate, there is less opportunity for beneficiaries to challenge the distribution.
Clear instructions in a trust document help prevent conflicts between stepchildren and surviving spouses.
Naming Guardians and Trustees
An executor named in a will manages the estate after death and ensures assets go to beneficiaries. A trustee manages assets held in a trust and follows the specific instructions set out in the trust document.
Parents should name both a guardian for their children and a trustee to manage financial assets. These can be the same person or different people depending on who has the right skills.
A guardian provides day-to-day care while a trustee handles financial decisions. The trustee role requires financial knowledge and responsibility since they control assets on behalf of beneficiaries.
Many people choose a trusted family member, professional trustee, or trust company for this role.
Tax Implications and Estate Planning Strategies
Both inter vivos trusts and wills have different tax consequences in Canada. Understanding how trusts are taxed and how they interact with Canada's tax rules helps create more effective estate plans.
Tax Considerations for Inter Vivos Trusts
Inter vivos trusts in Canada are subject to specific tax rules under the Income Tax Act. When structured properly as Alter Ego Trusts or Joint Partner Trusts, assets can transfer into the trust at cost without triggering immediate capital gains.
The deemed disposition for these trusts occurs at the death of the settlor (or the last surviving partner in a Joint Partner Trust), rather than when assets are first transferred into the trust.
Principal Residence Exemption: An inter vivos trust can hold a principal residence and still qualify for the Principal Residence Exemption in many cases. This means no capital gains tax on the home when properly structured.
However, trusts face their own tax rules. An inter vivos trust must file annual tax returns (T3 returns) and pay tax on any income it generates.
The 21-Year Deemed Disposition Rule
The most significant tax disadvantage of using most inter vivos trusts is the 21-Year Deemed Disposition Rule. Under the Income Tax Act, trusts (other than Alter Ego and Joint Partner Trusts) are deemed to dispose of all capital property every 21 years at fair market value.
This creates a taxable capital gain on any appreciated assets, even though nothing was actually sold. The trust must pay tax on these gains at the highest marginal rate.
Example: A family trust holds a cottage purchased for $200,000 that is now worth $700,000. At the 21-year mark, the trust is deemed to have realized a $500,000 capital gain. At a 50% inclusion rate and a top tax rate of approximately 53%, the tax bill could exceed $132,000. The family may need to sell the cottage just to pay this tax.
Why the 21-Year Rule Matters:
Creates forced taxation every 21 years regardless of actual sales
Can result in tax bills that exceed available cash in the trust
May force the sale of family assets (cottages, investment properties, business interests)
Repeats indefinitely as long as the trust exists
Does not apply to Alter Ego Trusts, Joint Partner Trusts, or estates/wills
This is why Alter Ego Trusts and Joint Partner Trusts are strongly preferred for Canadians aged 65 and over. These trusts defer the deemed disposition until the death of the settlor (or last surviving partner), avoiding the 21-year taxation cycle entirely.
Source: Canada Revenue Agency - The 21-year rule for trusts
Key tax points for inter vivos trusts:
Alter Ego/Joint Partner Trusts allow tax-deferred asset transfers for those 65+
Principal Residence Exemption may still apply
Annual T3 trust tax returns required
21-year deemed disposition applies to most trusts (except Alter Ego/Joint Partner until settlor's death)
Income taxed at highest marginal rate if not distributed to beneficiaries
These factors make it important to work with an estate planning lawyer and accountant who understand trust taxation. They can help structure the trust properly and plan for these tax events.
Reducing Taxes and Administrative Expenses
Inter vivos trusts help reduce costs by avoiding probate fees. In Ontario, the Estate Administration Tax can reach 1.5% of estate value over $50,000.
This saves money during estate administration, leaving more for beneficiaries. However, the 21-year deemed disposition rule can create tax bills that exceed probate savings for many families.
For business owners, the Dual Wills Strategy often provides better tax efficiency:
Avoids probate fees on private company shares
No 21-year deemed disposition tax
Lower setup and maintenance costs than trusts
Simpler administration
Source: Law Society of Ontario - Multiple Wills Strategy
The real tax benefits come from combining appropriate estate planning tools with other strategies. An estate planning lawyer can integrate tax-efficient investments, income splitting with beneficiaries, and strategic timing of asset distributions.
Making capital distributions to beneficiaries before the 21-year anniversary can minimize tax consequences.
Ways to reduce taxes and costs:
Avoid probate fees through inter vivos trusts or Dual Wills
Distribute income to beneficiaries in lower tax brackets
Time asset transfers strategically
Use tax-efficient investment vehicles
Structure trusts as Alter Ego or Joint Partner Trusts for favourable tax treatment
Administrative expenses also decrease because inter vivos trusts allow faster asset transfer without court involvement. This speeds up the process of distributing assets to heirs.
Integrating Trusts, Wills, and Powers of Attorney in a Comprehensive Estate Plan
A comprehensive estate plan often uses multiple legal tools together. An inter vivos trust handles most assets and manages them during life and after death.
The will covers anything outside the trust, names guardians for minor children, and acts as a safety net. A Continuing Power of Attorney for Property manages financial affairs during incapacity.
This combination provides maximum flexibility. Assets in the trust bypass probate while the will addresses items that cannot or should not be in the trust.
An estate planning lawyer can ensure all documents work together without conflicts. The will can also include a "pour-over" provision that transfers any remaining assets into the trust after death.
Essential documents in a complete estate plan:
Inter vivos trust (Alter Ego or Joint Partner Trust for those 65+), OR Dual Wills for business owners
Will (including guardianship provisions and pour-over clauses)
Continuing Power of Attorney for Property
Power of Attorney for Personal Care
Proper coordination between these tools creates a stronger plan that protects assets and simplifies estate administration for executors and trustees.
Conclusion
Choosing between a will and an inter vivos trust depends on your specific situation, assets, and goals. Both tools serve important purposes in estate planning across Canada.
Wills remain essential for everyone, while inter vivos trusts offer additional benefits like privacy, probate avoidance, and asset management during incapacity. However, a Continuing Power of Attorney for Property is the standard Canadian tool for managing incapacity.
Critical considerations for trusts:
The 21-Year Deemed Disposition Rule creates significant tax consequences for most trusts
Alter Ego and Joint Partner Trusts (for those 65+) avoid this rule
Business owners should consider Dual Wills as an alternative to trusts
Key factors to consider include:
Provincial regulations that affect probate fees and trust administration
Asset types and values you need to protect
Family dynamics and potential complications
Privacy concerns and your comfort with public disclosure
Cost considerations both upfront and long-term
Age (Alter Ego and Joint Partner Trusts require settlor to be 65+)
The 21-year tax implications for family trusts
Many Canadians benefit from using multiple estate planning tools together: a will, an inter vivos trust (when appropriate), and Powers of Attorney. This combination provides comprehensive protection and flexibility.
The right choice requires understanding your province's specific laws and how they apply to your circumstances.
If you need guidance on wills and inter vivos trusts in Ontario, contact us at B.I.G. Probate Law Ontario at (289) 301-3338 or Info@probatelaw-ontario.ca.
Our experienced team can help you create an estate plan that meets your needs. Visit probatelawgroup.ca or book a free call to discuss your options with a professional who understands Ontario's estate planning requirements.
Frequently Asked Questions
Choosing between an inter vivos trust and a will in Canada depends on individual circumstances, asset complexity, and estate planning goals. Both tools serve distinct purposes, and understanding their costs, benefits, and legal requirements helps Canadians make informed decisions.
Is a will or trust better in Canada?
Neither option is universally better than the other. The right choice depends on specific needs and circumstances.
A will works well for people with straightforward estates and modest assets. It names guardians for minor children and clearly documents final wishes.
Most Canadians can manage their affairs effectively with just a will and Powers of Attorney. An inter vivos trust makes more sense for those aged 65 or older with complex estates, significant assets, or blended families.
Alter Ego Trusts and Joint Partner Trusts avoid probate, maintain privacy, and provide tax-deferred asset transfers. People who own property in multiple provinces or want beneficiaries to receive assets quickly often benefit from this option.
However, business owners should strongly consider Dual Wills instead. This strategy avoids probate on private company shares without the ongoing costs and 21-year tax complications of a trust.
Many Canadians use multiple tools together: a trust or Dual Wills for valuable assets, a will for everything else (including guardianship appointments), and Powers of Attorney for incapacity planning.
What is the main difference between an inter vivos trust and a will in Canada?
An inter vivos trust takes effect immediately when created and operates during a person's lifetime. A will only becomes active after death.
Inter vivos trusts (particularly Alter Ego and Joint Partner Trusts) avoid the probate process entirely. Assets transfer directly to beneficiaries without court involvement.
The trust remains private and never becomes part of the public record. Wills must go through probate in most cases (unless the estate qualifies for Ontario's Small Estate Certificate for estates under $150,000).
This process validates the document through the court system. Once filed, wills become public records that anyone can access.
Inter vivos trusts can manage assets if someone becomes incapacitated, though a Continuing Power of Attorney for Property is the more common Canadian tool for this purpose. Wills have no power during a person's lifetime and cannot help with incapacity planning.
Do I still need a will if I have an inter vivos trust in Canada?
Yes, most people need both documents. An inter vivos trust does not replace a will entirely.
A will addresses matters that a trust cannot handle. It names guardians for minor children, which requires a will in Canada.
The will also covers any assets not transferred into the trust. This companion will is often called a pour-over will.
It catches any forgotten assets and transfers them into the trust after death. Without this safety net, some property might end up in probate anyway.
The will also provides backup instructions for situations the trust does not cover. Together with Powers of Attorney, these documents create a complete estate plan.
How much does an inter vivos trust cost in Canada?
Inter vivos trusts cost more to set up than wills. Initial costs typically range from $1,500 to $5,000 or more, depending on complexity and professional fees.
Lawyers charge higher fees for inter vivos trusts because they require more time and expertise. The trust must be properly drafted and funded with assets.
People also need to transfer property titles, update financial accounts, and maintain accurate records. Wills cost less upfront, usually between $300 and $1,000 for professional preparation.
However, probate fees apply after death. In Ontario, the Estate Administration Tax is $0 on the first $50,000, then $15 per $1,000 (1.5%) on value exceeding $50,000.
Inter vivos trusts save money in the long term by avoiding these probate fees. However, the 21-year deemed disposition rule can create significant tax bills that exceed probate savings for trusts other than Alter Ego and Joint Partner Trusts.
For larger estates with the right type of trust, the probate savings often exceed the initial setup costs.
Does an inter vivos trust in Canada avoid probate and save taxes?
Inter vivos trusts avoid probate but have specific tax considerations in Canada, including a major tax disadvantage for most trusts.
Assets in a properly funded inter vivos trust transfer to beneficiaries without going through probate. This saves time and reduces legal fees. It also keeps the estate private. Beneficiaries receive their inheritance faster without court delays.
Tax Advantages (for the right type of trust):
For tax purposes, Alter Ego Trusts and Joint Partner Trusts (for Canadians 65+) allow assets to transfer at cost without triggering immediate capital gains. The deemed disposition occurs at the death of the settlor, not when assets enter the trust.
These trusts can hold a principal residence and still qualify for the Principal Residence Exemption, potentially eliminating capital gains tax on the home.
Major Tax Disadvantage (for most other trusts):
Most inter vivos trusts face the 21-Year Deemed Disposition Rule. Every 21 years, the trust is deemed to have sold all capital property, triggering capital gains tax on appreciated assets. This can create massive tax bills that force families to sell assets just to pay the taxes.
Only Alter Ego and Joint Partner Trusts avoid this 21-year rule, making them the preferred trust structure for Canadians aged 65 and over.
Canada has no federal estate tax, so this is not a concern. However, inter vivos trusts must file annual T3 tax returns. Income is taxed at the highest marginal rate unless distributed to beneficiaries.
Inter vivos trusts can work alongside tax-efficient strategies. Combining the trust with proper investment planning or income splitting may help minimize tax liability.
An estate planning professional can help structure these arrangements for maximum benefit.
When should I choose an inter vivos trust instead of just a will in Canada?
Several situations make inter vivos trusts worth considering. Complex estates benefit most from this planning tool.
People aged 65 or older with significant assets or multiple properties should consider an Alter Ego Trust or Joint Partner Trust. Those who own real estate in different provinces avoid dealing with probate in multiple jurisdictions.
For business owners: Before choosing a trust, strongly consider the Dual Wills Strategy. This approach avoids probate on private company shares without the 21-year deemed disposition tax that affects most trusts. It's simpler, less expensive, and often more tax-efficient than a trust.
Blended families often need inter vivos trusts to manage competing interests. The trust provides clear instructions for distributing assets among children from different relationships. This reduces the chance of disputes after death.
Anyone aged 65+ who wants probate avoidance and tax-deferred asset transfers benefits from these specialized trusts. If someone becomes unable to manage their affairs, the trust continues operating without interruption (though a Continuing Power of Attorney for Property is the more common Canadian solution for incapacity).
People who value privacy also prefer inter vivos trusts. Wills become public record after probate, but trusts remain confidential. This keeps financial information and family matters private.