Understanding the Difference Between Wills and Trusts in Ontario Estate Planning
The difference between wills and trusts in Ontario is essential to understand for effective estate planning. Both tools allow you to pass assets on to loved ones, but they function differently in terms of timing, structure, legal obligations, and taxation. This guide breaks down the primary distinctions and helps you determine when and how to use each in your Ontario estate plan.
When Does Each Take Effect?
- Will: Becomes effective only after the testator’s death.
- Trust: Can be effective during the settlor’s lifetime (inter vivos) or upon death (testamentary trust).
Creation and Structure
Wills
- Must be in physical written form in Ontario (typed or holograph).
- Signed by the testator and must clearly distribute assets.
- Creates a fiduciary responsibility for the estate trustee (executor).
Trusts
- Can be created in writing, orally, or by operation of law.
- Must meet the “Three Certainties” to be valid:
- Certainty of Intent
- Certainty of Subject Matter
- Certainty of Objects (Beneficiaries)
- Creates fiduciary responsibilities for trustees.
Legal Nature
| Feature | Will | Trust |
|---|---|---|
| Legal Form | Document (not a legal entity) | Legal entity |
| Ownership of Assets | Estate holds assets until distributed | Trust owns assets directly |
| Taxation | Estate is taxed during administration | Trust is taxed separately as its own entity |
Key Uses and Limitations
Unique Uses of Trusts
- Protect inheritance from spendthrift beneficiaries
- Preserve ODSP benefits for disabled beneficiaries
- Provide privacy by avoiding probate (wills become public)
- Enable asset management without capacity assessments
- Allow extended asset control after death (e.g. for blended families)
Unique Uses of Wills
- Appoint guardians for minor children
- Outline personal and cultural rituals
- Trigger court oversight and transparency
- Access personal tax credits
- Help challenge unfair distributions
Choosing Between a Will and a Trust
When to Use a Will
If your estate is simple, you have minor children, or you want court oversight, a will is essential. It’s also a legal requirement in Ontario to appoint guardians for children.
When to Use a Trust
Use a trust if you’re planning long-term asset control, wish to minimize taxes, or need to provide for beneficiaries without interfering with government support programs.
Frequently Asked Questions
1. Is a trust better than a will in Ontario?
Neither is “better”—they serve different purposes. Trusts offer more flexibility and privacy, while wills are essential for guardianship and basic estate planning.
2. Can I have both a will and a trust?
Yes, many people use both. A will can address overall estate administration, while a trust can be used for specific assets or beneficiaries.
3. Does a trust avoid probate in Ontario?
Yes, assets in a trust generally do not go through probate, which can save time, taxes, and preserve privacy.
4. Is a trust taxed differently than a will?
Yes, trusts are considered separate legal entities and are taxed accordingly, often at different rates than an estate under a will.
5. What happens if I only have a trust but no will?
You may still need a will to handle assets not included in the trust or to name guardians for children. A trust alone may not be sufficient.
Conclusion
Understanding the difference between wills and trusts in Ontario is crucial for building an effective estate plan. While a will provides legal direction after death, a trust offers more flexible control during life and beyond. Ideally, consult with an estate planning lawyer to determine how best to combine these tools to protect your assets, minimize taxes, and ensure your wishes are carried out smoothly.
