Testamentary Trusts in Canadian Wills — When They Make Sense
For Canadian families with specific circumstances — minor children, disabled beneficiaries, second marriages, substantial estates — testamentary trusts in the will provide structure that simple bequests can't. This article covers when they fit and how they work.
What a testamentary trust is
A trust created by the will at the testator's death. The will specifies:
- The trust's purpose
- The trustee
- The beneficiary
- Distribution rules (how much, when, for what)
- Termination conditions (when the trust ends and assets distribute)
The trustee holds and manages assets per the trust terms until distribution.
Common testamentary trust types
Minor children's trust. Holds children's inheritance until they reach age of access (often 18, 21, 25, or staged — some at 18, more at 25). Trustee uses funds for children's care during minority.
Henson trust (disability trust). Used for disabled beneficiaries who receive provincial disability benefits (ODSP in Ontario, AISH in Alberta, similar elsewhere). Typically an absolute discretionary trust under which the beneficiary cannot compel distributions or unilaterally control the trust property. Whether the beneficiary's interest is counted as an asset for eligibility purposes depends on the wording and structure of the particular benefits program. See our Henson trust article.
Spendthrift trust. Protects beneficiary from themselves (gambling, substance abuse, financial irresponsibility). Trustee controls distributions per will terms.
Spousal trust. Provides surviving spouse with income from estate during their lifetime; remainder passes to children (or other beneficiaries) at spouse's death. Common in blended family situations.
Multiple beneficiary trust. Holds funds for multiple beneficiaries (often siblings) with specific distribution rules.
Tax treatment
Graduated Rate Estate (GRE) window — first 36 months after death. Trust taxed at graduated rates similar to individual. Same as estate taxation in the same window.
After 36 months — trust taxed at top marginal rate (currently ~47-54% combined federal-provincial depending on province) on all income. Significant tax cost compared to individual taxation.
Exception — Henson trusts with qualifying disabled beneficiary. Can elect to be a "qualified disability trust" with graduated rates instead of top marginal rate.
When to use testamentary trusts
Minor children — almost universally appropriate. Children shouldn't receive substantial inheritance at age 18 unmanaged.
Disabled beneficiaries — Henson trust often essential, drafted against the specific benefits program, since whether the interest counts as an asset depends on that program's wording.
Blended families — spousal trust providing for surviving spouse while protecting children's inheritance.
Spendthrift concerns — when a beneficiary's history suggests structured distributions are needed.
Substantial estates — when family wealth across generations is the goal.
When not needed
Adult capable beneficiaries receiving outright bequests — no trust needed. Simple distribution works.
Modest estates where trust administration cost exceeds benefit.
Beneficiaries who would resent the implied lack of trust — sometimes the message ("we don't trust you with money") harms the relationship more than the protection helps.
Lawyer or DIY?
Simple trusts (children's age-staged distribution) can be handled by online will services like It's Simple Will.
Complex trusts (Henson, spousal trust, multi-generational family wealth structures) typically need lawyer drafting. Trust drafting errors can have significant consequences; the modest cost of professional drafting is usually justified.
What we focus on at It's Simple Will
The will questionnaire handles minor children's trusts with age-staged distribution. For Henson trusts, spousal trusts, and other complex structures, we encourage consultation with an estate planning lawyer for proper drafting.
Related guides
Citations & sources
- [1]Canada Revenue Agency — Trusts — Canada Revenue Agency
- [2]Canadian Bar Association — Wills, Estates and Trusts Section — Canadian Bar Association
Frequently asked questions
What is a testamentary trust?
A trust created at the time of the testator's death, with terms specified in the will. The trustee (named in the will) holds assets and manages them per the will's instructions for the named beneficiary. Common in Canadian estate planning for specific situations.
Common uses for testamentary trusts?
Several — (1) Holding minor children's inheritance until they reach age of access (often 18, 21, 25, or staged); (2) Henson trust for a disabled beneficiary, drafted around the specific provincial disability benefit program; (3) Spendthrift trust protecting beneficiary from themselves; (4) Spousal trust providing surviving spouse with income while eventually transferring to children; (5) Long-term family wealth management.
What is a Henson trust?
A specific type of testamentary trust used for disabled beneficiaries — gives the trustee absolute discretion over distributions, so the beneficiary cannot compel distributions or unilaterally control the trust property. Whether that interest is counted as an asset for eligibility purposes depends on the wording and structure of the particular benefits program (ODSP, AISH and the rest each apply their own definitions). See our dedicated Henson trust article.
How are testamentary trusts taxed?
For the first 36 months after the testator's death, the trust qualifies as a Graduated Rate Estate (GRE) and benefits from graduated tax rates. After 36 months, the trust is taxed at the top marginal rate on all income. Specific exceptions for Henson trusts and others.
When is a testamentary trust appropriate?
When the beneficiary needs structured management — minor children, disabled adults, spendthrifts. Or when the family wants protection across generations (spousal trust then children). Or when specific tax outcomes require trust structure. For straightforward distributions to capable adult beneficiaries, no trust is needed.
Lawyer or DIY?
Trust drafting is complex. Most testamentary trusts benefit from lawyer drafting to ensure proper trust language, trustee powers, distribution mechanics, and tax compliance. Online will services handle simple trust structures (children's age-staged distribution); complex trusts (Henson, spousal trust) typically need lawyer involvement.