Trust Planning

Trusts are among the most powerful and flexible tools available in estate and tax planning. Whether you are seeking to protect assets, minimize taxes, provide for a loved one with special needs, or control how and when your assets are distributed to beneficiaries after your death, a properly structured and administered trust can achieve objectives that a simple will cannot. At Goldstone Law Professional Corporation, we advise individuals, families, and business owners across Ontario on the creation, structuring, and administration of a wide range of trusts. Trust law is a specialized and technical area that requires careful drafting and expert advice. A trust that is improperly structured — or that fails to comply with the applicable provisions of the Income Tax Act (Canada) — can produce unintended legal and tax consequences. Our lawyers work closely with clients’ tax advisors and financial planners to ensure that every trust we establish achieves its intended purpose and remains in compliance with all applicable legal and regulatory requirements.

Types of Trusts We Advise On

Testamentary Trusts

A testamentary trust is a trust that is created under the terms of your will and comes into effect upon your death. Testamentary trusts are commonly used to control the timing and conditions of distributions to beneficiaries — for example, holding a child’s inheritance until they reach a specified age, or managing assets for a beneficiary who is not capable of managing their own finances. Graduated Rate Estates (GREs) — a special type of testamentary trust — are taxed at graduated personal income tax rates rather than the flat top marginal rate that applies to most inter vivos trusts, which can provide meaningful tax savings during the estate administration period.

Inter Vivos (Living) Trusts

An inter vivos trust is a trust created during the settlor’s lifetime, as opposed to a testamentary trust that arises on death. Inter vivos trusts are used for a variety of purposes, including income splitting, asset protection, probate minimization, and business succession planning. Most inter vivos trusts in Canada are taxed at the top marginal rate applicable to individuals, which limits their income-splitting utility — except in the case of specific trust types that qualify for preferential treatment.

Family Trusts

A family trust is a discretionary inter vivos trust in which the trustees have the discretion to determine how income and capital are distributed among the named beneficiaries (typically the settlor’s spouse and children or grandchildren). Family trusts are commonly used in the context of estate freezes and corporate reorganizations, allowing future growth in business value to be allocated to family members in a tax-efficient manner. The trustees must exercise their discretion in good faith and in accordance with the terms of the trust deed.

Henson Trusts

A Henson trust is a discretionary trust designed to benefit a person with a disability without disqualifying them from receiving government assistance under Ontario Disability Support Program (ODSP) or other needs-tested benefit programs. Under Ontario’s ODSP regulations, assets held in a properly structured Henson trust are not considered property of the beneficiary for the purposes of the asset limits that would otherwise affect their eligibility for benefits. A Henson trust is an essential planning tool for any family with a member who is living with a disability. We draft Henson trusts with care, ensuring that the trust terms satisfy the specific requirements for exclusion from ODSP asset testing.

Alter Ego and Joint Partner Trusts

An alter ego trust is available to individuals aged 65 and older. It is an inter vivos trust into which assets can be transferred on a tax-deferred basis (without triggering a deemed disposition at the time of the transfer) and that provides for the distribution of the trust assets after the settlor’s death. An alter ego trust can be used to avoid probate on the assets transferred into it, since those assets do not form part of the settlor’s estate on death. A joint partner trust is similar to an alter ego trust but is available to a couple — both spouses or common-law partners must be aged 65 or older. The trust provides for distributions during the lifetimes of both partners and distributes the remaining assets after the death of the survivor. Like alter ego trusts, joint partner trusts can be used to avoid probate and to provide for the efficient distribution of assets without the delay and cost of the estate administration process.

The 21-Year Deemed Disposition Rule

Inter vivos trusts in Canada are subject to a deemed disposition rule that treats the trust as having disposed of all its assets at fair market value every 21 years after the trust was created. This rule can trigger significant capital gains tax liability if the trust holds appreciated assets and proper planning is not done before the 21st anniversary. We advise trustees and families on planning strategies to address the 21-year rule, including the distribution of assets to beneficiaries before the anniversary date and other trust wind-up strategies.

Frequently Asked Questions — Trust Planning

What is the difference between a trustee and a beneficiary?

A trustee is the person or entity that holds legal title to the trust assets and is responsible for managing those assets in accordance with the terms of the trust deed and the applicable legal obligations of a trustee. A beneficiary is the person or persons for whose benefit the trust assets are held. The trustee has a fiduciary duty to act in the best interests of the beneficiaries. In some trusts, the same person may be both a trustee and a beneficiary, subject to certain restrictions.

How is a trust taxed in Ontario?

Most inter vivos trusts in Canada are taxed as separate taxpayers at the top marginal rate of income tax — currently approximately 53.53 percent in Ontario. Certain specific trust types, including alter ego trusts and joint partner trusts, are taxed on a different basis. Graduated Rate Estates (a type of testamentary trust) are taxed at graduated personal income tax rates for up to 36 months following the date of death. We advise clients to work closely with their tax advisor when establishing a trust to ensure that the tax implications are fully understood.

Contact Goldstone Law to discuss trust planning for your estate. We establish and administer trusts for individuals and families throughout Ontario with care, precision, and deep knowledge of Ontario trust law.