Sherman Law LLP

Testamentary Trusts

When preparing a Will, many inexperienced lawyers will overlook the benefits of testamentary trusts. Placing assets in trust can provide significant estate planning benefits as part of an overall estate plan. While testamentary trusts no longer provide the significant favourable tax benefits that they once provided, there are still many advantages to incorporating them in your estate planning.

Circular diagram of estate planning

What is a testamentary trust?

A testamentary trust is any trust that arises on death through a Will. A testamentary trust creates a legal relationship between the settlor (the “testator”) of the trust and the trustee (often the “executor” of the Will) and the beneficiaries of the trust (often family members or other individual beneficiaries of the testator or charities.) The terms of the trust can provide for the payment of income or capital or both to the beneficiaries. Either the interests of all beneficiaries can be fixed in the trust or discretion to allocate the income and/or capital among the beneficiaries can be left to the trustee.

What are spousal testamentary trusts?

In a spousal testamentary trust, a testator leaves assets to a testamentary trust for the benefit of the testator’s spouse, usually for the spouse’s lifetime. The terms of the trust will provide that all or part of the income be paid or be payable to the spouse during his or her lifetime, and may include access to the capital in the trustee’s discretion or at the request of the spouse. On the spouse’s death, the assets pass to other specified beneficiaries (typically children or charities) either outright or in a continued trust.

A trust established in this way provides additional tax benefit in that the assets initially transferred to the spousal testamentary trust are “rolled” into the trust at the testator’s adjusted cost base. In this way, the tax that would otherwise be payable on any capital gain inherent in those assets is deferred until the second spouse’s death.

When should I consider using a testamentary trust?

A testamentary trust can be useful in many situations including:

  • To protect and arrange for financial security for a disabled or dependant child.

  • For assets that are not necessarily income producing, but where continuity of ownership and control is important. For example, this could apply to a cottage or share of a small family business or corporation.

  • Where the estate plan includes benefiting a charity or charities, but where the assets are required to continue support for a spouse or children.

Do you want to learn more about testamentary trusts?

For over 40 years, clients have trusted in our ability to explain their rights and obligations with respect to testamentary trusts and estate planning. We are confident that you will appreciate our professional and personalized service. We invite you to browse our website and read the positive things others have to say about us. To benefit from our knowledge and experience with respect to your separation or divorce, please contact 519-884-0034 or send us an email. Many of our clients are referred to us by former and current clients, as well as by lawyers, accountants, and financial advisors. We serve clients in Kitchener, Waterloo, Cambridge, Guelph and surrounding areas.

Connect with a lawyer in our firm with expertise in this area

Aubrey J.  Sherman

Aubrey J.  Sherman

Kenneth L. Sherman

Kenneth L. Sherman