Trusts created through your will — how they work, their tax advantages, and the situations where they are the right estate planning tool.
A testamentary trust is a trust that comes into existence at death, through the provisions of a will. Unlike an inter vivos trust (created during the settlor's lifetime), a testamentary trust does not exist until the will-maker dies. It is then established by the executor as part of the estate administration process, and can continue for years or decades after death.
A testamentary trust is created by including specific trust provisions in your will. The will must:
The trust only receives assets after the estate has been administered — after debts are paid, taxes settled, and the executor distributes assets per the will. The trust then operates independently under the trustee's management.
The most common use. Rather than leaving assets outright to children who might receive them at 18 — often too young to manage a large inheritance wisely — a testamentary trust holds the assets until a specified age (e.g., 25 or 30). The trustee manages funds for the child's education, health, and welfare in the meantime.
Without this trust, a minor child who inherits must have a court-appointed trustee manage the funds until age of majority — then receives everything outright at 18 or 19.
Provides income (and sometimes capital) to a surviving spouse during their lifetime, with the remaining assets passing to other beneficiaries (typically children from the current or a prior relationship) at the spouse's death. Common in blended families to balance spousal care with children's inheritance rights.
A qualifying spousal trust also allows assets to roll over from the deceased spouse's estate on a tax-deferred basis — deferring capital gains until the surviving spouse's death.
A testamentary trust for a beneficiary with a severe disability qualifies as a QDT if the beneficiary and trustee jointly elect. QDTs are taxed at graduated rates (like an individual) rather than the top marginal rate — a significant tax advantage. Only one QDT can be designated per disabled beneficiary.
Technically not a testamentary trust but closely related — the estate itself is taxed at graduated rates for the first 36 months after death, provided it qualifies as a GRE. After 36 months, the estate (if ongoing) is taxed at the top marginal rate. The GRE designation provides significant tax savings during the estate administration period.
| Trust Type | Tax Rate | Notes |
|---|---|---|
| Graduated Rate Estate (GRE) | Graduated (like individual) | First 36 months of estate only; one per deceased |
| Qualified Disability Trust (QDT) | Graduated (like individual) | Joint election with disabled beneficiary required; one per beneficiary |
| All other testamentary trusts | Top marginal rate (~53% in Ontario) | Income splitting via distributions to beneficiaries still possible |
| Factor | Outright Bequest | Testamentary Trust |
|---|---|---|
| Beneficiary control | Immediate and full | Trustee controls; beneficiary receives per trust terms |
| Protection from creditors | None once received | Assets protected while in trust |
| Protection from divorce | None once received | Assets may be protected while in trust |
| Age-appropriate distribution | All at once | Staggered based on age/milestone |
| Income splitting | No | Yes — distribute to low-income beneficiaries |
| Administration cost | None after distribution | Ongoing trustee and tax filing costs |
When including a testamentary trust in your will, key decisions include:
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Get KOHO Free — Use Code 45ET55JSYAThe assets that flow into the testamentary trust go through the estate first (and probate, if required). The trust itself does not go through probate — it is established after probate is complete.
Yes — while you are alive, you can change the trust provisions by updating your will. Once you die, the trust terms are fixed and can only be changed by court order or, in some cases, by a trust protector or under provincial trust variation legislation.
Most provinces do not have a strict rule against perpetuities for testamentary trusts (Ontario abolished the rule against perpetuities for trusts created after 2016). The trust lasts as long as the will specifies, subject to the 21-year deemed disposition rule.
Related guides: Inter Vivos Trusts | Henson Trust | Trusts Overview | Wills in Canada