Planning your legacy is about more than numbers—it’s about ensuring your family remembers you and your values are honoured for many years to come.
Dealing with estate planning and trusts in Canada can feel overwhelming, especially if it’s your first time. Take the time to review this page and start creating your estate planning to-do list.
Canada does not have a direct estate tax, but taxes on assets and income after death can significantly reduce the value of an estate.
When someone passes away, their estate must settle outstanding tax obligations before distributing assets to beneficiaries. This includes capital gains tax on investments and real estate, income tax on registered accounts like RRSPs/RRIFs, and probate fees in certain provinces.
You can minimize taxes by:
In Canada, there is no direct inheritance tax, but beneficiaries may still face taxation depending on the type of assets they inherit.
Beneficiaries do not have to report an inheritance as income to the CRA.
However, if the inherited assets generate income—such as dividends from stocks, rental income from inherited property, or interest from inherited cash—this income must be reported and taxed.
Additionally, selling an inherited property or investments may result in capital gains tax on any appreciation after the inheritance date.
Inheriting property in Canada can come with significant tax implications, particularly capital gains tax.
If the inherited property was a principal residence, it is tax-free. However, if it was a rental, vacation home, or investment property, the estate must pay capital gains tax on any increase in value from the time the deceased acquired it until their death.
The beneficiary may also owe capital gains tax if the property appreciates in value after they inherit it and later sell it.
Trusts are one of the best tools for reducing estate taxes.
A living trust (inter vivos trust) allows assets to be transferred outside of the estate, avoiding probate and reducing taxes. Alter ego trusts and joint partner trusts (for those 65 and older) allow deferral of capital gains tax until the surviving spouse passes away.
Trusts can also provide greater control over asset distribution, helping to protect wealth and minimize tax burdens for beneficiaries.
Life insurance is also an effective way to cover estate taxes.
Since life insurance payouts are tax-free and bypass probate, the proceeds can be used to cover capital gains tax, income tax on RRSPs/RRIFs, and other estate obligations. This prevents heirs from having to sell assets to cover unexpected tax bills and ensures a smooth transfer of wealth.
Read More on How to Avoid Capital Gains Tax on Inherited Property >
In Canada, estates are primarily taxed through capital gains tax and income tax rather than a direct estate tax.
Upon death, the Canada Revenue Agency (CRA) treats all assets as if they were sold at fair market value, triggering capital gains tax on investments, real estate, and certain assets.
Additionally, registered accounts like RRSPs and RRIFs are taxed as income in the year of death unless transferred to a spouse or dependent child. Probate fees may also apply, depending on the province.
The best type of trust to avoid probate in Canada is a living trust (inter vivos trust).
Unlike a will, a living trust allows assets to be transferred to beneficiaries without going through probate, ensuring privacy and avoiding unnecessary fees.
Alter ego trusts and joint partner trusts are also effective for individuals over 65, as they allow assets to pass directly to beneficiaries while deferring capital gains tax until the surviving spouse passes away.
Certain assets bypass probate automatically, meaning they can be transferred to beneficiaries without legal delays or probate fees.
These include assets held in joint ownership with rights of survivorship, life insurance policies with named beneficiaries, registered accounts like RRSPs, RRIFs, and TFSAs with designated beneficiaries, and assets held in a trust. Planning ahead by structuring assets correctly can save beneficiaries time and money.
Yes, you can place your house in a living trust in Canada.
By transferring ownership of the property to the trust, you can ensure it bypasses probate and is managed according to your wishes.
This process involves legally changing the title of the house to the trust’s name, which requires careful planning and professional guidance to ensure compliance with provincial laws.
Placing your house in a trust offers several benefits, including avoiding probate fees, maintaining privacy, and ensuring a smooth transfer to beneficiaries.
The cost of setting up a living trust in Canada typically ranges from $2,000 to $15,000 when done through a legal professional. This price depends on the complexity of your financial situation and the assets being placed in the trust.
Read More about Living Trusts >
In Canada, trusts are generally taxed at the highest marginal tax rate for individuals unless they qualify as graduated rate estates (GREs) or certain other exceptions.
This means income retained in the trust is taxed heavily, but income distributed to beneficiaries is taxed at their individual rates. Trusts must file annual tax returns, and proper planning can help manage the tax burden effectively.
One of the main disadvantages of a trust is the cost and complexity involved in setting it up and maintaining it.
Legal and administrative fees can be higher than those of a simple will. Trusts also require ongoing management, including the transfer of assets into the trust, which can be time-consuming.
In some cases, there may be limited flexibility if circumstances change, depending on the type of trust established. Additionally, trusts may not directly reduce taxes unless combined with specific tax-saving strategies, which might add another layer of planning.
A living trust is a legal document that takes effect during your lifetime, allowing you to manage and distribute your assets without going through probate.
In contrast, a will only comes into effect upon your death and typically requires probate to validate. Living trusts provide privacy as they are not made public, whereas wills become public records once filed.
Additionally, living trusts can manage assets if you become incapacitated, while wills cannot. Both are essential tools, but they serve different purposes depending on your estate planning needs.
A living trust and a will serve different purposes, and one isn’t necessarily better than the other.
A living trust allows you to avoid probate, maintain privacy, and manage your assets during your lifetime. A will is simpler and ensures your final wishes are carried out, such as appointing guardians for minor children. The right choice depends on your financial situation and goals—for many, a combination of both is ideal.
Estate
The total sum of a person’s assets, including real estate, investments, cash, personal belongings, and liabilities, at the time of their death.
Will
A legal document that outlines how a person’s assets will be distributed after death. It also allows for the appointment of an executor and guardians for minor children.
Learn more about wills in Canada
Probate
The legal process of validating a will, settling outstanding debts, and distributing assets to beneficiaries. Probate fees apply in some provinces, such as Ontario and British Columbia.
Executor (Estate Trustee in Ontario)
The person appointed in a will to manage the estate, pay debts, and distribute assets according to the will’s instructions.
Beneficiary
A person or organization named in a will, trust, or insurance policy to receive assets, money, or property upon the owner’s passing.
Power of Attorney (POA)
A legal document that allows an appointed person to make financial or medical decisions on behalf of another, either immediately or upon incapacity.
Read about Power of Attorney rules in Canada
Living Trust (Inter Vivos Trust)
A trust created during a person’s lifetime that holds assets for beneficiaries, often used to avoid probate and manage wealth transfer efficiently.
Testamentary Trust
A trust created through a will that only takes effect upon the testator’s death. It is often used for minor children, disabled dependents, or ongoing wealth management.
Alter Ego Trust
A type of living trust available to Canadians aged 65 and older that allows assets to be transferred to the trust while deferring capital gains tax until death.
Joint Partner Trust
Similar to an Alter Ego Trust but designed for spouses or common-law partners, allowing assets to pass directly to the surviving partner without probate.
Capital Gains Tax
A tax on the increase in value of assets (such as real estate or investments) from the time they were acquired until they are sold or transferred upon death.
More about capital gains tax in Canada
Principal Residence Exemption
A tax benefit that allows Canadians to sell or transfer their primary home without paying capital gains tax.
Probate Fees (Estate Administration Tax)
A provincial fee charged on the total value of an estate before assets can be distributed. The rate varies by province.
Estate Freeze
A tax strategy used to lock in the current value of assets for tax purposes while allowing future growth to pass to beneficiaries tax-efficiently.
RRSP/RRIF Taxation at Death
Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are fully taxable upon death unless transferred to a spouse or dependent child.
Understand RRSP & RRIF taxation
Life Insurance Beneficiary
A designated person or entity who receives the proceeds of a life insurance policy tax-free upon the policyholder’s death.
Survivorship Rights
A legal designation in joint property ownership that allows assets to transfer automatically to the surviving owner, bypassing probate.
Gifting Assets Before Death
A strategy to transfer wealth to beneficiaries before passing to reduce the taxable estate and avoid probate.
Guardian for Minor Children
A person named in a will to take care of minor children if both parents pass away.
Family Trust
A discretionary trust set up to hold assets for family members, often used for tax planning, creditor protection, and estate planning.
Learn more about family trusts
An estate plan does the following:
Reduces or eliminates taxes and probate fees
Provides a quick and easy estate settlement
Avoids potential family disappointments and animosity
Schedule a complimentary 30-minute call with an Ontario estate planning expert.
Take control of your financial future today. We’ll help you explore options like Living Trusts to safeguard your assets and provide lasting peace of mind for your family. Connect with Strategic Wealth Protection Partners to see how we can help you secure your legacy.
Our Living Estate Plan is designed to:
SWPP helps families and business owners in Ontario with comprehensive estate planning.
SWPP’s Living Estate Plan service ensures Ontario families have an estate plan or living trust that protects their assets from unnecessary taxes and fees, including probate.
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