Estate Planning Strategies: 7 Common Uses for Trusts

Ontario Securities Commission
Get Smarter About Money
September 18th, 2023

Whether it’s best to establish a trust during your lifetime or upon your death will depend on the intended use and your personal situation. Here are 7 common uses for trusts in estate planning:

1. You have children from a previous marriage:
   If you remarry, a trust can provide support for your spouse during their lifetime, while ensuring that your children from a previous marriage eventually inherit any remaining assets.
2. Your spouse lacks financial expertise:
   If your spouse needs help with money management after you die, a testamentary trust allows a qualified trustee to manage the trust assets on behalf of your spouse.
3. Your spouse or child is disabled:
   A trust can be used to ensure a disabled spouse or child receives an appropriate level of care and has sufficient assets to maintain this care after you die.
4. 4. You want to provide a gift to minors:
   You can use a trust to provide income to minor beneficiaries (for example, children or grandchildren) in their younger years and to pay out the capital when they reach a specified age.
5. Tax planning:
   Income earned in an inter vivos or living trust is taxed at the highest marginal tax rate, but any trust income that is distributed to adult beneficiaries is taxed in their hands. So if your beneficiaries are in a lower tax bracket, the investment income can be taxed at their lower rate.
6. You want to provide a future gift to charity:
   You can use a trust to provide trust income to your beneficiaries for their lifetime. Upon their death, the remaining money in the trust is donated to the charity you’ve specified.
7. You want to bypass probate:
   With a living trust (but not a testamentary trust), you bypass probate for any assets held in the trust, and gain the certainty of knowing that assets are transferred and distributed as you intended. This also offers greater privacy for trust assets, as probate is a public process and anyone can access these records.

Trusts are sophisticated arrangements that can involve a number of tax and estate planning issues. A trust must be properly structured to achieve your estate planning goals.