What Is the Best Kind of Trust in Canada?

Is There One “Best” Kind of Trust in Canada?

There isn’t one “best” trust in Canada.

The right option depends on your wealth level, what you want to achieve, your family structure, and how exposed you are to taxes. Different trusts also suit different goals. For example, some trusts are better for probate avoidance, while others are better for managing powers of attorney or blended families. 

A TEP can help tailor the type of trust to your specific situation.

Written By Tiffany Woodfield, Financial Advisor, TEP®, CRPC®, CIM®

What Are the Main Types of Trusts Used in Canada?

Family Trusts

A family trust is used to hold assets for the benefit of family members.  

It can offer flexible distributions, tax-planning opportunities, and potential protection against certain creditors. It is complex and needs to be set up by a professional, or you could face unexpected consequences.

Spousal Trusts

A spousal trust can be created during your lifetime (intervivos) or after death (testamentary). 

An inter vivos spousal trust is used to provide for a spouse with the terms set by you. When a spousal trust is created after death, it is usually used to provide income or support for a surviving spouse while preserving assets for children later. There are strict setup rules and tax implications, so speaking to a professional is wise. 

Alter Ego and Joint Partner Trusts

An Alter Ego Trust is used by one person who must be the only person entitled to income or capital during their lifetime. 

Joint Partner trusts are used by a couple, and the settlor and/or spouse is entitled to all income or capital. They are designed to manage assets during life and pass them outside probate after death. 

The advantage of these trusts is that assets are usually put in at their adjusted cost base and don’t cause a major taxable event. To set up, specific rules apply, and getting professional guidance is a smart move.

Testamentary Trusts

Testamentary trusts are created through a will and come into effect after death.  

These trusts allow control over how and when assets are distributed to beneficiaries. They can add probate considerations and administrative work, but offer lasting guidance aligned with your wishes after death.

Who Are Trusts Typically Best Suited For?

Business Owners and Entrepreneurs

A trust can be very helpful for business owners, as they can place business assets, such as company shares, into the trust. The trust owns the business, but you can still run it or appoint someone to run it for you. A trust can make succession management easier.

High Net Worth Families With Complex Estates

High-net-worth families can use trusts to bundle all their assets and have a single plan to govern their management and distribution. They protect assets from creditors, support privacy, advance charitable goals, and facilitate a smooth handoff to the next generation. 

Blended Families and Second Marriages

Trusts are useful for blended families, as they can reduce conflict and ensure your wishes are followed when you’re no longer around.  They create more flexibility with planning for a current spouse and making sure children from a previous marriage are still taken care of. 

Aging Canadians Focused on Estate Efficiency

A trust reduces the delays and costs of probate and can create an easier transfer to beneficiaries on death. During your lifetime, if you have a trust set up properly, it can allow for management of your wishes if you become incapacitated. 

What Factors Determine the Best Trust for Your Situation?

The best trust for you depends on where you live and where your beneficiaries live, because laws and taxes vary by location. 

You should consider the complexity of your estate because different kinds of property often need more detailed trust provisions. If you have a blended family, you may want a trust that clearly balances support for a current spouse with protections for children from prior marriages. 

If you own a business, this can affect your need for tax-planning features, creditor protection, and buy-sell provisions.

In addition, certain trusts are available once you reach the age of 65, so this can be a planning opportunity.  

Finally, family dynamics and any vulnerable individuals shape who should be named as trustees and beneficiaries, as well as how control and access are phased in over time.

📖 Related Post: What Is the Biggest Mistake Parents Make When Setting Up a Trust Fund?

Case Study: A Trust Isn’t Right for Everyone

As a Canada-based cross-border advisor and TEP, I have extensive experience working with clients who have lived in the US and used revocable trusts to avoid probate. 

I recently met with a family that held their home and investments in a revocable trust in the US. 

They had decided to use the trust to avoid probate and to ensure their kids received the assets in a timely manner.  

When the family moved to Canada, they were surprised that trusts don’t work the same way in Canada.

They wanted to create an estate plan similar to what had worked in the US. However, as US citizens and residents of Canada, they were at risk of double taxation if they set up a similar trust in Canada.  

If they had just searched online for info about the best trusts and not spoken with a professional, they may have made a serious error. Trusts are complex, and there’s no one-size-fits-all approach.

This is why it is essential to get proper advice before setting up a trust.  

Figure out what matters most to you and know why you want a trust. Then speak to your accountant, an estate planning attorney or TEP, and your financial advisor. 

Summary of Key Points 

• No single trust is best for everyone because the right choice depends on your goals and situation.
• Common trusts include family, spousal, alter ego, joint partner, and testamentary trusts.
• Trusts work well for business owners, high-net-worth families, and blended families.
• Cross-border families face unique tax risks — a Canadian trust is not the same as a US revocable trust.
• Start with your goals, then work with an estate planner to find the right structure for you

Final Thoughts

There isn’t a single “best” type of trust because the trust you use depends on your specific situation.

If you’re really concerned about family conflict and protecting loved ones, a trust can create peace of mind. If you cringe at the thought of your assets becoming public knowledge when you pass, a trust can provide privacy and allow for easier transfer to your loved ones.

Start by asking yourself the following questions:

• Why do I want to set up a trust? 
• What are my goals and fears?
• What outcome do I want to achieve?

Next, go through the following steps: 

• List any potential conflicts you can anticipate.
• Talk with an estate planner to discuss the best structure for your situation.
• Choose a plan for ongoing management and communication with your family so everyone understands the strategy.

I love trusts because they create a structure that helps you feel confident and comfortable with your estate plan. A trust offers greater freedom and flexibility to ensure your wishes are carried out. 

When I think of my boys, and a time when my husband and I are no longer alive, I want to know that the sacrifices we made won’t be wasted and that what we’ve built won’t fall into the wrong hands. I want my kids to be protected and still feel guided, even when I’m not around to help them.

So what’s your reason for wanting a trust?

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