Understanding the Difference Between a Will and a Trust

Wills and trusts are common estate planning tools; however, they serve distinct functions and have different mechanisms of creation and application. In this guide, we highlight some of the differences for you to consider as they relate to your estate planning in Ontario.

When is it Effective?

A will is a legal document that goes into effect upon the testator’s death, designating how the testator’s property is to be distributed. A trust, however, can be funded and administered to deal with assets either while the settlor is still alive (inter vivos) or at their death (testamentary).

How Are They Created?

Wills: In Ontario, a will must be a written, signed document of the testator that provides instructions for distributing the estate after death.

Trusts: A Trust may be formed in a variety of ways—evidenced by a written document, an oral declaration, a commitment implied by law, or a provision within a will.

Legal Document vs. Legal Entity

A will is nothing more than a list of instructions, and it does not hold or control assets. In contrast, a trust is a different kind of legal entity that owns the property, manages it, and is responsible for paying taxes as necessary. Trustees serve as an overseer of the trust, responsible for caring for and managing a trust’s assets and operating in the best interest of the recipient(s) of the trust, which often comes with more judgment, discretion, and fiduciary responsibility as a will executor.

Key Legal Requirements

Wills in Ontario must:

• Be expressed in writing (digital or oral wills are not recognized).
• Be signed by the testator.
• Dispose of assets explicitly.

Trusts must meet the “Three Certainties of Trusts”:

• Certainty of Intention – Manifest an intention to create a trust.
• Subject matter certainty – Excerpt to the identification of the subject?
• Certainty of Objects – Ascertainment of beneficiaries.

Uses of Wills and Trusts

Both instruments serve particular functions in estate planning.
Trusts are often used to:

• Secure assets for beneficiaries who may be experiencing financial difficulties or require government aid, such as ODSP.
• You can control the distribution of an inheritance by young or disabled beneficiaries.
• Create tax-saving strategies, reduce the cost of probate and provide privacy.
• Ensure that the assets are not squandered in the future.

Wills are ideal for:

• Designating guardians for minor children.
• Wishing for cultural or family traditions.
• Ensuring judicial confirmation of estate administration.
• Providing transparency to the parties that do not receive the estate.

Will vs. Trust: Pros and Cons

Wills and trusts both play essential roles in estate planning. Which one is right depends on your needs, such as asset management, tax considerations, privacy concerns, and family dynamics. Speaking with an estate attorney will help you understand which is best for your needs.