Understanding the Difference Between a Will and a Trust

Wills and trusts are essential tools in estate planning, but they differ significantly in their purpose, creation, and uses. This guide outlines key distinctions to help you understand their roles in planning your estate in Ontario.

When is it Effective?

A will is a document that takes effect after the testator’s death, outlining how their assets will be distributed. In contrast, a trust can be set up to manage and distribute assets either during the settlor’s lifetime (inter vivos) or after their death (testamentary).

How Are They Created?

• Wills: In Ontario, a will must be a written document signed by the testator and include instructions for distributing assets after death.
• Trusts: Trusts can be created in several ways—through a written document, an oral declaration, a legal operation, or within a will itself.

Legal Document vs. Legal Entity

A will is simply a set of instructions and does not hold or manage assets. Conversely, a trust is a legal entity that owns the property, manages it and pays taxes as required. Trustees are appointed to oversee the trust, manage its property, and act in the best interests of its beneficiaries, often requiring more discretion and fiduciary care than an executor of a will.

Key Legal Requirements

Wills in Ontario must:

• Be in written form (digital or verbal wills are not valid).
• Be signed by the testator.
• Dispose of assets explicitly.

Trusts must satisfy the “Three Certainties of Trusts”:

1. Certainty of Intent – Clear intention to create a trust.
2. Certainty of Subject Matter – Specific identification of the assets involved.
3. Certainty of Objects – Identification of beneficiaries.

Uses of Wills and Trusts

Both tools have unique purposes in estate planning.
Trusts are often used to:

• Protect assets for beneficiaries who may have financial challenges or require government support like ODSP.
• Manage inheritance for young or incapacitated beneficiaries.
• Implement tax-saving strategies and avoid probate, offering privacy and reduced costs.
• Provide long-term control over the distribution of assets.

Wills are ideal for:

• Designating guardians for minor children.
• Expressing wishes for cultural or family traditions.
• Ensuring court oversight during estate administration.
• Allowing transparency for those not benefiting from the estate.

Choosing Between a Will and a Trust

Both wills and trusts serve vital roles in estate planning. Deciding which is best depends on your specific needs, such as asset management, tax implications, privacy preferences, and family dynamics. Consulting with an estate lawyer can help clarify which option aligns with your goals.