Do You Need a Trust or Just a Will? Key Considerations for Canadian Estate Planning
When planning your estate in Canada, one of the most common questions is whether a will alone is sufficient or if a trust is also necessary.
While a will outlines how your assets should be distributed after death, a trust can offer greater control, privacy, and potential tax benefits during your lifetime and beyond. The right choice depends on your financial situation, family structure, and long-term goals.
This article explores the key differences between wills and trusts and outlines when each may be appropriate for your estate planning needs.
Understanding Wills
Wills are legal documents that outline how your property and assets are distributed after your death. Understanding what a will can do, the legal steps required to make one, and the rules that apply in Canada helps you make informed estate planning decisions.
Purpose of a Will
A will gives you control over who will inherit your money, property, and personal items. You can name beneficiaries—such as relatives, friends, or even charities—and state what each person should receive.
A will also lets you choose a guardian for minor children. This ensures that someone you trust will care for them if you pass away while they are still young.
In addition, you can appoint an executor in your will. The executor is responsible for carrying out your instructions after your death. This includes paying any debts and taxes, as well as distributing your assets as you have directed.
A will can be simple or complex, depending on your needs. If you die without a will, provincial laws decide how your estate is divided, which may not match your wishes.
Legal Requirements for Wills
In Canada, your will must follow certain rules to be valid. These rules can vary depending on the province or territory where you live. Generally, the following requirements apply:
Age: You must be at least 18 years old, though some provinces allow younger people to make wills under special circumstances.
Mental Capacity: You must understand what a will is, the nature of your assets, and who your beneficiaries are.
Writing: Most wills must be written, and some provinces allow for handwritten (holograph) wills.
Witnesses: Two people, who are not beneficiaries, often need to sign the will alongside you. There are exceptions in specific cases, such as a valid holograph will.
If your will does not meet these requirements, a court may declare it invalid, and your assets will be handled through intestacy laws.
How Wills Work in Canada
When you die, your will serves as a guide for the court and your executor. Your executor must usually submit the will to a probate court, which reviews it to ensure it is valid and genuine. Probate is the legal process that allows your executor to manage your estate.
The executor collects your assets, pays your debts and taxes, and then distributes your property according to your instructions. Probate can take time and may involve some extra costs, but it offers a clear legal process for settling your affairs.
If you own property or have accounts in more than one province, the probate process may be needed in each location. For many Canadians, a will is a common choice for estate planning, though trusts are sometimes used for privacy and to avoid probate.
Understanding Trusts
A trust is a legal arrangement that allows you to manage the distribution of your assets both during your life and after your death. This tool can help protect your wealth, maintain privacy, and support financial planning goals.
Purpose of a Trust
A trust serves many functions. It helps you transfer property, minimize estate taxes, and decide when and how your beneficiaries receive their inheritance. Trusts can be set up to provide for children until they reach adulthood, care for a person with special needs, or give to a charity.
Privacy is another important benefit. A trust allows your estate to avoid the public process of probate, keeping your asset information private. Trusts may also help avoid delays in distributing your assets after death since court approval is often not required.
You can also use a trust to set rules for your assets. For example, you might hold funds for a child’s education or protect money from future creditors. These features make trusts a useful part of estate planning for those with specific wishes or complex family situations.
Types of Trusts
There are several types of trusts you can create. The two main types are revocable trusts and irrevocable trusts. A revocable trust lets you change or cancel it at any time. This allows you to adjust your plan if your circumstances change.
An irrevocable trust cannot be changed after it is created. This type offers greater asset protection and may reduce estate taxes, but you give up control over the assets placed in the trust.
Other common trusts include family trusts, testamentary trusts, and special needs trusts. Each has different rules and purposes, so choosing the right one depends on your financial goals.
Legal Considerations for Trusts
When you set up a trust, you must select a trustee. The trustee is responsible for managing the trust’s assets and following Canadian trust laws. This person must act in the best interest of your beneficiaries and follow the trust’s written instructions.
Trusts require careful legal wording. Mistakes can lead to disputes or assets not being transferred as you intended. It is strongly recommended that you work with a qualified estate lawyer who knows provincial and federal trust laws.
You should also know that any property or assets not included in the trust may be subject to intestacy rules or need a will to transfer. Using both a will and a trust is common in many estates.
Key Differences Between Wills and Trusts
When choosing between a will and a trust, it is important to understand how each tool manages your assets. The differences focus on who controls the assets, when property is given to loved ones, and how private your affairs remain.
Control Over Assets
A will only takes effect after your death. During your lifetime, you keep full control of your property.
A trust lets you transfer assets to a trustee while you are alive or after you die. Your trustee manages those assets according to your instructions. If you use a trust, you can set detailed rules for how your money, property, or investments are managed and given out. This can give more control if you have minor children, beneficiaries with special needs, or complex family situations.
Trusts also allow for ongoing management. This is useful if you want to handle assets for many years, such as making regular payments to beneficiaries. By comparison, a will only gives instructions for a one-time transfer after you pass away.
Timing of Distribution
A key difference is when your assets are distributed.
Wills are activated after your death. The assets are usually transferred to beneficiaries all at once, after any debts and taxes are paid.
Trusts can start operating right away or after you pass away. You can set up a living trust to distribute assets while you are alive, or arrange how and when your beneficiaries will receive their inheritance. For example, you might instruct the trustee to provide money for education or living expenses at certain ages. This flexibility is not possible with a standard will.
Privacy and Probate Implications
A will goes through probate, which is a public and court-supervised process. This means your will becomes part of the public record. Anyone can access the details of your estate and beneficiaries. Probate can also be slow, sometimes delaying the transfer of assets.
A trust, on the other hand, avoids probate. The assets held in trust can be transferred to your beneficiaries privately and, in most cases, much faster. This can save your family time and keep financial matters confidential.
When You Need a Will
A will is often the main legal document used in estate planning, especially if your goals and family needs are straightforward. It gives you an effective way to outline your instructions and help ensure your wishes are followed.
Simple Estate Planning
If you have a modest estate or uncomplicated financial situation, a will provides clear direction on how your assets should be distributed after you die. With a will, you identify who gets your property, such as money, homes, or personal belongings. This can help reduce family disputes and ensure your wishes are respected.
A will lets you name someone to manage your estate. This person, called an executor, will make sure your instructions are carried out. You can also use a will to forgive debts or give special gifts to friends, charities, or organizations.
It is important to note that property listed in a will generally goes through probate, a legal process that can delay the transfer of assets. If you are not worried about probate delays or extra fees, a will is often enough for basic estate needs.
Guardianship of Minor Children
A will allows you to name a guardian for your children who are under 18. This is critical, as the court will look to your will for guidance on who should care for your children if you and the other parent are not available.
Choosing a guardian in your will helps avoid uncertainty or family conflict. It ensures your children will be cared for by someone you trust and who shares your values. If you do not choose a guardian in your will, a court may appoint someone without considering your wishes.
In your will, you can also provide instructions about your children's care, education, and financial needs. This lets you have a say in how your children are raised and supported. For families with minor children, a will is essential for peace of mind and legal clarity.
When You Need a Trust
A trust is useful if you have complicated financial situations or unique family needs. It gives you more control over how and when your assets are given to others.
Managing Complex Assets
If you own more than one property, a business, or investments in different countries, a trust can help organize and transfer these assets. Wills do not always handle complex or high-value assets efficiently and may lead to delays or extra fees. A trust allows assets to be managed by a trustee, following your detailed instructions even after your death.
Trusts can skip probate, which is the court process to settle estates. This makes things faster and can keep your financial details private. If you regularly buy and sell assets, a revocable living trust gives you flexibility to adjust your holdings while still keeping them in the trust’s name.
Key points for managing complex assets:
Avoids delays and court involvement
Keeps financial matters private
Offers flexibility in managing properties and investments
Can establish step-by-step distribution of large or complicated assets
Providing for Beneficiaries With Special Needs
If you have a family member with a disability, a trust is often a better choice than only a will. A trust can hold money for their needs without affecting their eligibility for government benefits.
Special needs trusts allow you to set rules for how money is spent, protecting beneficiaries who may not manage finances themselves. The trustee can pay for education, housing, or care as you direct, giving you peace of mind about your loved one’s future. You can choose someone you trust to oversee the money on their behalf.
Using a trust for someone with special needs helps ensure their needs are met and their assets are protected. For more details on this topic, consult professional planners who understand trusts for special situations.
Choosing Between a Will or a Trust
When deciding between a will and a trust, it is important to look closely at your personal and financial needs. Each option offers different features that may affect how your property is managed, protected, and handed down.
Assessing Your Estate Planning Goals
A will is a legal document that states who gets your assets after you die. It is suitable if you want basic instructions about your estate, such as naming guardians for minor children or stating who receives certain items.
A trust, on the other hand, allows you to transfer assets during your lifetime or after death. With a trust, you may avoid probate, keep your details private, and lay out more complex instructions. Trusts can be helpful for larger estates, family businesses, or if you want more say in how your assets are controlled and distributed over time.
If your situation is straightforward, a will may be enough. If your goals include protecting privacy, reducing probate costs, or managing unique family needs, consider a trust in Canada.
Cost and Maintenance Factors
Wills are less expensive to create and maintain compared to trusts. Most people can have a will made with a lawyer or use an online template at a reasonable cost.
Trusts usually require more work and higher upfront costs. Setting up a trust often involves more detailed planning and input from legal or financial professionals. In addition to the initial expense, managing a trust also comes with ongoing duties, such as record-keeping, filing, and possible tax returns.
You will need to weigh if the extra cost and effort of a trust matches the benefits it offers. For many families, the cost of a simple will makes it the standard choice, but those with more assets or special instructions may find the extra investment in a trust worthwhile.
Common Estate Planning Mistakes
Not having a will is one of the most significant mistakes in estate planning. Without a will, provincial laws decide how your assets are distributed, which may not reflect your wishes. This can also lead to family disputes and delays.
Failing to update your estate plan is another common error. Your life and relationships may change. Marriage, divorce, or the birth of children can affect your plans. Make sure to review and update your documents regularly.
Forgetting to name contingent beneficiaries is often overlooked. If your main beneficiaries cannot inherit, not having backups can complicate matters. Always list backups for each asset or policy.
Many people do not plan for incapacity. Without a power of attorney or personal directive, your loved ones could face legal challenges to make healthcare or financial decisions for you.
Common mistakes to avoid:
Not having a will
Outdated documents
No backup beneficiaries
Ignoring incapacity planning
Drafting documents with unclear or vague terms also leads to confusion. Use plain and specific language in your will and other estate tools.
Some believe estate plans are only for the wealthy. In reality, almost everyone owns assets or has loved ones they want to support.
Seeking advice from professionals can help reduce mistakes. Lawyers and estate planners in Canada have the expertise to guide you through the process safely and correctly.
Working With a Canadian Estate Planning Professional
When planning your estate in Canada, consulting with a qualified professional can help you make informed decisions. These experts provide guidance on complex topics, such as choosing between a trust or a will, and understanding legal requirements across provinces.
A Canadian estate planning professional can help you with:
Drafting wills and setting up trusts
Reviewing tax implications
Meeting provincial laws and rules
Reducing errors or unintended consequences
Trusts, for example, can be complex to manage. An experienced advisor will ensure your assets are handled according to your wishes and that documents are correctly prepared. Professionals are also able to explain how asset management tools like living trusts or family trusts work in your specific situation.
Some professionals you may work with include:
You may need more than one advisor if your financial situation is more complex. In some situations, especially in Quebec, the law may require the appointment of an independent trustee for a trust.
Working with a professional helps ensure your estate plan aligns with your goals and follows current laws and best practices. They can also help keep your documents up to date as rules or personal circumstances change.
The Final Verdict
Whether you need a trust, a will, or both depends on the complexity of your estate, your personal goals, and the level of control you wish to maintain. A well-crafted estate plan may include both tools to ensure your wishes are carried out effectively and efficiently.
For personalized advice on whether a trust, a will, or a combination of both is right for you, contact the lawyers at Parr Business Law. Our team can guide you through your options and help you create a tailored plan that protects your legacy and provides peace of mind.
