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ESTATE & TRUST PLANNING GUIDE

Trust Planning in Ontario

A practical guide to testamentary, family, discretionary, spousal, alter ego and other trusts—what they can solve, who controls them and what tax and reporting obligations can follow.

A trust is not automatically a tax strategy or a better will. It is a legal relationship that separates control of property from the benefit of that property. The right question is not “Should I have a trust?” but “What problem is the trust supposed to solve?”

Prepared by Tatyana Trusz, Trusz Law • Updated July 2026 • 16 min read

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QUICK ANSWER

When does a trust make sense?

A trust can make sense where property should be managed by one person for another person, where control needs to continue over time or where a specific estate, disability, family, tax or succession issue requires more structure than an outright gift.

A trust also creates administration. There may be trustees, accounts, tax returns, investment decisions, reporting duties and long-term judgment calls. The benefit should justify that complexity.

IN THIS GUIDE

01 What a trust does

02 Common trust types

03 Children & young beneficiaries

04 Disability planning

05 Spousal & alter ego trusts

RELATED ESTATE PLANNING

Will Drafting →

Power of Attorney for Property & Personal Care →

Estate Planning for Families & Business Owners →

Estate Administration & Probate →

CONSIDERING A TRUST?

Start with the problem the trust is meant to solve.

Control, tax, disability, succession and family protection require different trust structures.

THE SHORT ANSWER

A trust separates legal control from beneficial enjoyment

A trust generally involves:

settlor: the person who creates or contributes property to the trust;
trustee: the person or institution that legally controls and administers the trust property; and
beneficiary: the person or group intended to benefit.

The trust terms determine how much discretion the trustee has, when income or capital can be distributed, what happens on death and how long the arrangement continues.

The more control the trust is designed to create, the more important the drafting, trustee selection and administration become.

KEY TAKEAWAYS

At a glance

Trusts can be created during life or under a will.
A testamentary trust can manage an inheritance after death.
Fully discretionary trusts can be useful where a beneficiary should not have an automatic enforceable right to distributions.
Spousal, alter ego and joint spousal/common-law partner trusts have specialized legal and tax requirements.
Trustees owe duties and should be capable of long-term administration and record-keeping.
Many trusts face ongoing tax and T3 reporting obligations.
Current bare-trust reporting rules changed again for 2025 and 2026 taxation years, so filing obligations should be checked annually.

COMMON TRUST TYPES

What kinds of trusts are used in estate planning?

Trust type	Common purpose
Testamentary trust	Created through a will to hold and manage property after death.
Trust for children	Delays outright inheritance and permits controlled use for education, health and support.
Fully discretionary trust	Gives trustees discretion over whether and when distributions are made.
Spousal or common-law partner trust	Can provide benefits for a spouse or partner while preserving a later plan for other beneficiaries.
Alter ego trust	Special lifetime trust available only where statutory age and benefit requirements are met.
Joint spousal/common-law partner trust	Special lifetime trust structured for the settlor and spouse or partner under federal tax rules.
Family or inter vivos trust	Created during life for defined family, ownership, succession or other planning objectives.
Bare trust	A nominee or title-holder generally holds legal title while acting on the beneficiary’s instructions.

The label is only the beginning. The legal rights, tax result and reporting duties depend on the actual terms and facts.

TRUSTS FOR CHILDREN

Why not simply leave a child an outright inheritance?

A testamentary trust can allow a trustee to manage property for a young beneficiary instead of distributing everything immediately.

The will can address:

the age or ages of capital distribution;
use of funds for education, health, housing or support;
whether the trustee can make unequal distributions based on need;
investment powers;
what happens if the beneficiary dies before full distribution;
who acts as trustee; and
whether the trust continues for a vulnerable adult beneficiary.

A rigid trust can be as problematic as no trust at all. A child’s future education, health and circumstances cannot always be predicted decades in advance, so trustee discretion and clear guidance often need to be balanced.

DISABILITY & DISCRETIONARY PLANNING

What is a fully discretionary or Henson-style trust?

A fully discretionary trust gives the trustee genuine discretion over whether and when property is distributed to the beneficiary.

This kind of planning may be considered for a beneficiary with a disability or other vulnerability where direct ownership could create management or benefits concerns.

The Supreme Court of Canada has confirmed that, in the Henson-trust context it considered, a beneficiary with no enforceable right to compel distributions did not own the trust assets merely because they could benefit from the trustee’s discretion.

But the phrase “Henson trust” should not be treated as a magic clause. The drafting, trustee discretion, remainder provisions, applicable benefits program and beneficiary’s circumstances all matter.

Disability planning should be coordinated with benefits, tax, RDSP and professional advice where appropriate.

SPECIALIZED LIFETIME TRUSTS

How do spousal, alter ego and joint partner trusts differ?

Spousal or common-law partner trusts
These can be used to provide income and other benefits for a spouse or partner while preserving a later plan for children or other beneficiaries. Federal tax treatment depends on strict statutory conditions.

Alter ego trusts
The Income Tax Act contains specialized rollover rules for qualifying transfers by individuals who are at least 65 years old. The settlor must retain the prescribed lifetime income and capital rights.

Joint spousal or common-law partner trusts
These are also specialized lifetime trusts with statutory requirements concerning who may receive income or capital while the settlor and spouse or partner are alive.

These structures can sometimes support continuity, privacy or probate planning, but they also create tax, administration and control issues. They should be modelled against a simpler will-based plan rather than assumed to be automatically better.

“A trust should earn its complexity. The control, protection or planning benefit should be clear enough to justify the administration that follows.”

— Trusz Law

CHOOSING THE TRUSTEE

Who should control and administer the trust?

The trustee may need to make decisions for years or decades.

Consider whether the trustee is:

trustworthy and conflict-aware;
financially organized;
able to keep accounts and records;
capable of investing or working with advisors;
able to interpret the trust terms;
willing to make difficult discretionary decisions;
available over the expected life of the trust; and
able to manage beneficiary expectations and family conflict.

Possible structures include:

one individual trustee;
multiple family trustees;
an independent trustee;
a trust company; or
a combination of family knowledge and professional administration.

Multiple trustees can create oversight but also deadlock. The document should address decision-making, replacements, resignation and what happens when one trustee can no longer act.

TAX & REPORTING

What tax and reporting obligations can a trust create?

Trusts can have separate tax and information-reporting obligations.

Depending on the trust, issues can include:

T3 Trust Income Tax and Information Returns;
Schedule 15 beneficial-ownership reporting;
allocation of income or capital to beneficiaries;
tax on income retained in the trust;
dispositions of capital property;
the 21-year deemed-disposition rule for many trusts; and
special rules for spousal, alter ego and joint partner trusts.

The 21-year rule is especially important in long-term trusts because the Income Tax Act can deem many trusts to dispose of capital property at fair market value on a recurring statutory schedule.

Current bare-trust reporting note.
CRA states that bare trusts are not subject to the enhanced trust-reporting rules for taxation years ending in 2024 or 2025. Certain bare trusts may be required to file for taxation years ending on or after December 31, 2026. These rules have changed more than once, so filing obligations should be confirmed for each tax year.

Trust planning should involve tax advice before property is transferred—not only after the trust is created.

PROBATE, PRIVACY & CONTROL

Can a trust avoid probate?

Property validly transferred to a lifetime trust may not form part of the deceased person’s estate in the same way as property held personally at death.

That can create potential probate, continuity or privacy benefits in some circumstances. But transferring property during life can also change:

legal control;
tax treatment;
creditor exposure;
family-law consequences;
eligibility for exemptions or benefits;
financing and insurance arrangements; and
the person’s ability to change the plan later.

A trust should not be created solely because someone has heard that “trusts avoid probate.” The value, cost and legal consequences of the actual assets should be compared with the simpler alternatives.

COMMON TRUST-PLANNING MISTAKES

Problems that appear when the structure is created before the purpose is clear

Creating a trust with no specific problem to solve.
Complexity becomes the plan.

Choosing trustees who cannot work together.
Long-term deadlock can make the trust unworkable.

Giving the trustee discretion without guidance.
The document may be legally flexible but practically directionless.

Ignoring the 21-year tax issue.
A long-term trust can create a future tax event that nobody planned for.

Transferring property before tax and financing advice.
The transfer itself can create consequences.

Assuming a trust automatically protects assets from every creditor or family claim.
Protection depends on the law, timing, control and facts.

Using a Henson-style trust without checking the actual benefits program.
Program rules and trust terms both matter.

Failing to maintain accounts and tax filings.
A good trust document cannot fix poor administration.

Not reviewing changing bare-trust reporting requirements.
The filing rules have changed repeatedly and remain date-specific.

HOW TRUSZ LAW CAN HELP

Design the trust around the problem, the people and the administration it will require.

Trusz Law helps Ontario individuals and families assess whether a trust should form part of the estate plan and how the trust should interact with the will, powers of attorney, business arrangements and beneficiary designations.

Depending on the matter, that may include testamentary trusts, trusts for children, discretionary planning, spousal planning, business succession, trustee selection and coordination with tax and accounting advisors.

The goal is not to create the most sophisticated structure. It is to create the simplest structure that reliably achieves the intended control, protection or succession objective.

FREQUENTLY ASKED QUESTIONS

Trust-planning questions people often ask

What is a trust?

A trust is a legal relationship in which trustees hold and administer property for one or more beneficiaries according to the trust terms.

What is a testamentary trust?

It is a trust created through a will and generally begins after death. It can hold an inheritance for children or other beneficiaries instead of distributing property outright.

What is a family trust?

“Family trust” is a broad informal label for a trust created for family-related planning. The actual legal rights, tax result and reporting duties depend on the trust terms and facts.

What is a Henson trust?

The term commonly refers to a fully discretionary trust used in some disability planning. The beneficiary generally has no enforceable right to compel distributions, but the exact drafting and applicable benefits rules matter.

What is an alter ego trust?

It is a specialized lifetime trust recognized under federal tax law for qualifying individuals who are at least 65 and satisfy statutory lifetime-benefit conditions.

What is a joint spousal or common-law partner trust?

It is a specialized lifetime trust structured under federal tax rules so the settlor and spouse or partner have the prescribed rights during their lifetimes.

Can a trust avoid probate in Ontario?

Property validly held in a lifetime trust may not pass through the estate in the same way as personally owned assets, but the tax, control and administration consequences must also be considered.

What is the 21-year rule for trusts?

The Income Tax Act can deem many trusts to dispose of capital property at fair market value on a recurring 21-year schedule, potentially creating tax even without an actual sale.

Does a trust need to file a tax return?

Many trusts have T3 filing and information-reporting obligations. The answer depends on the trust type, activity, exemptions and current tax year.

Do bare trusts need to file a T3 return in 2026?

CRA states that bare trusts are not subject to the enhanced rules for taxation years ending in 2024 or 2025, while certain bare trusts may be required to file for taxation years ending on or after December 31, 2026.

Who should be a trustee?

Choose someone who can act loyally, keep records, make long-term decisions and manage beneficiary expectations. An independent or professional trustee may be appropriate in some cases.

When should I speak with a lawyer about trust planning?

Legal advice is especially useful where there are young or vulnerable beneficiaries, disability planning, a blended family, significant private-company assets, complex succession goals or a proposed lifetime transfer of property.

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