Trusts
A trust is an arrangement in which one person (the settlor) transfers property to another (the trustee), who holds and manages it for the benefit of others (the beneficiaries) according to a trust deed or a will. Family trusts are private trusts set up for family members, unlike charitable trusts, which benefit the public.
Common Types of Family Trusts
Inter vivos (living) trust — set up during the settlor's lifetime, usually with a trust deed prepared by a lawyer, and effective right away.
- Property can be added to the trust over time.
- Assets held in the trust are outside the settlor's estate, so they do not go through probate when the settlor dies.
Testamentary trust — created by a will and takes effect only on the settlor's death.
- The settlor can change it at any time by updating the will.
- The assets in a testamentary trust pass through the settlor's estate, so they are generally subject to probate (Ontario Estate Administration Tax) and the tax on deemed dispositions at death.
Other trusts we often see include alter ego and joint partner trusts (for people aged 65 or older) and Henson trusts for beneficiaries with disabilities.
Who Might Benefit From a Trust?
Trusts are not only for the very wealthy. Common reasons include:
- Holding assets for children or grandchildren — for example, to fund education — until they are old enough to manage them
- Protecting a child's inheritance in a blended family or after a separation
- Supporting a family member with a disability without affecting their government benefits
- Holding shares of a family business as part of an estate freeze or succession plan
- Keeping assets out of probate and private
Tax Rules to Know
- How trusts are taxed: income kept in a trust is generally taxed at the top marginal rate, while income paid or payable to beneficiaries is taxed in their hands.
- 21-year rule: every 21 years, a trust is deemed to dispose of its capital property at fair market value. Planning should start well before the anniversary.
- Annual T3 return and beneficial ownership reporting: most trusts must file a T3 return every year — even with no income — including Schedule 15, which reports the settlors, trustees, beneficiaries and anyone who can control the trust. Bare trusts were not required to file for 2025, but certain bare trusts must file starting with the 2026 tax year (first returns due March 31, 2027). Penalties apply for late or missing filings.
- Alternative Minimum Tax: unlike individuals, most trusts do not get the basic AMT exemption, so a trust that realizes and keeps large capital gains may pay AMT. See Alternative Minimum Tax (AMT).
If you'd like to learn more about trusts or explore how they can benefit your family, please feel free to contact us for expert guidance.
Partnerships
A partnership is not taxed on its own — its income or loss is allocated to the partners, who report it on their own returns. Most partnerships with corporate partners, combined revenues and expenses over $2 million, or assets over $5 million must file a T5013 Partnership Information Return.
We help with:
- Preparing the T5013 return and T5013 slips for each partner
- Allocating income, losses and capital cost allowance under the partnership agreement
- Partnership financial statements and adjusted cost base tracking
- Choosing between a partnership, a corporation or a joint venture for real estate and investment projects
Contact us to discuss your trust or partnership filing.