A will ensures your heirs get exactly what you want them to, but a trust can simplify the process of transferring these assets to your heirs. The main difference between the two is that a trust lets you transfer assets to beneficiaries while you’re still alive, and a will transfers your assets when you die.

A trust is a legal entity that owns some or all of your assets, such as bank accounts, real estate, stocks and bonds, mutual fund units and private businesses. The terms of a trust are more legally binding than those of an ordinary will, which can be challenged in a court of law as to whether it fulfils the deceased’s “moral obligation.” A trust also allows you to avoid the probate process, where the contents of your will are made publicly available.

Types of Trusts.
The main type of trust in estate planning is a revocable living trust, so-called because you can change or revoke the terms of the trust at any time while you’re alive. The trust instructs the trustees how to distribute your assets to beneficiaries while you’re alive, after death or if you become incapable.

Both you and your spouse can be trustees and manage the trust’s assets. This feature of a living trust may be important, for example, if a family business is placed in a trust and you want to continue to have some control over its operations. When one spouse dies, the surviving spouse continues as trustee, but the trust becomes irrevocable in that only limited changes can be made to the terms of the trust.

A living trust established after June 17, 1971, is subject to tax on all income at the highest marginal rate of tax in the province of residence. In most Canadian provinces, this rate can range from 39-50% on the first dollar of income. In contrast, a testamentary trust, which operates only after death, is taxed at the personal provincial tax rate.

Assets that are transferred into or out of a Canadian trust are generally treated as if they have been sold and taxed on any increase in value (appreciation) from the purchase date. However, two relatively recent trust structures, the alter-ego trust and joint-spousal trust, allow you to avoid capital gains taxation.