Living Trusts vs. Wills in Canada: A Provincial Guide to Understanding Your Options

Understanding the differences between wills and living trusts in Canada is essential for effective estate planning. Unlike other countries, particularly the United States, Canada's legal framework treats these instruments differently. While both play a role in estate planning, their functions, benefits, and legal implications vary depending on your province.

Understanding the Basic Differences

Think of a will as a set of instructions that takes effect only after your death, whereas a living trust (inter vivos trust) acts as a legal container that holds and manages assets during your lifetime and after your death. This fundamental distinction impacts how these tools operate within Canadian estate planning.

Key Characteristics of Wills in Canada

A will serves as your primary estate planning document and includes:

• Distribution instructions for your assets after death
• Appointment of an executor to administer your estate
• Guardianship designations for minor children
• Specific gifts or bequests
• Funeral and burial preferences

However, wills must go through probate, a court process that validates the document and authorizes asset distribution. Probate rules and fees vary by province.

Key Characteristics of Living Trusts

A living trust, on the other hand:

• Takes effect during your lifetime
• Continues after your death, managing and distributing assets
• Allows for immediate asset transfers
• Can provide ongoing asset management
• Has different tax implications compared to wills

Provincial Variations and Considerations

Each Canadian province has unique rules affecting how wills and living trusts function. Below is a breakdown of some key differences by province.

Ontario

• Estate Administration Tax (Probate Fees): Can be significant, making trusts attractive for tax planning. Learn more
• Trust Laws: Must comply with the Trustee Act and other legislation.
• Family Law Considerations: Special rules apply to family property and matrimonial homes.
• When to Consider a Trust:
• To reduce probate fees
• To maintain privacy (wills become public documents)
• To facilitate immediate asset transfers
• For complex family planning (blended families, second marriages)

British Columbia

• Governed by the Wills, Estates and Succession Act (WESA).
• Probate fees are relatively low compared to Ontario.
• Strong protections exist for wills through formal validity requirements.
• Alter Ego & Joint Partner Trusts: Specific tax-efficient trust structures available.
• When to Consider a Trust:
• If asset management during incapacity is a priority
• For business succession planning
• If tax planning opportunities exist
• If privacy is a concern

Quebec

• Civil law system differs from common law provinces.
• Living trusts operate under different legal principles than in other provinces.
• Governed by the Civil Code of Quebec.
• Notarial wills have special legal status and do not require probate. More details
• When to Consider a Trust:
• If estate planning involves international assets
• To integrate with Quebec’s civil law concepts
• For protecting family patrimony

Alberta

• Probate fees are low, reducing tax-driven motivation for trusts.
• Strong family law protections impact estate planning.
• Governed by the Trustee Act (Alberta).
• When to Consider a Trust:
• For business succession planning
• If asset protection is a priority
• If complex family dynamics exist
• If privacy is an issue

Comparing Effectiveness for Different Goals

Privacy Protection

• Wills become public documents once probated.
• Trusts remain private, with no public record of asset distribution.

Asset Management

• Wills only take effect after death.
• Trusts provide ongoing asset management in case of incapacity or disability.

Tax Planning

• Wills may lead to higher probate fees.
• Trusts can reduce taxes and offer different income taxation options.

Family Protection

• Wills provide a clear legal framework but may be challenged.
• Trusts allow for ongoing control and better protection against disputes.

Making Your Choice: Will or Trust?

Asset Considerations

• The type, value, and location of assets affect the best choice.

Family Situation

• Complex family structures may benefit from trust planning.
• Blended families or dependent children may require more flexibility.

Cost Comparison

• Wills: Less expensive initially, but probate costs apply.
• Trusts: Higher upfront costs but potential long-term savings.

Both wills and living trusts play important roles in Canadian estate planning. Their effectiveness depends on your unique circumstances, provincial laws, and estate objectives. While wills are essential, trusts can provide additional benefits, particularly for tax planning, privacy, and incapacity protection.

To ensure your estate plan is structured effectively, consult with a legal or financial professional who understands the nuances of wills and trusts in your province. Using multiple estate planning tools together often provides the best outcome.

Disclaimer: This guide provides general information about wills and living trusts in Canada. Provincial laws and personal circumstances vary. Consult a professional for tailored advice.