Canada: Trust Basics

A trust can be used for a wide variety of personal and commercial purposes. If you are considering a trust as part of your estate plan or business structure, it will be important to understand what a trust is, the duties and powers of trustees, and the rights of beneficiaries.

What is a trust?

A trust is not a legal entity, although it is treated as such for Canadian tax purposes. A trust is simply the word used to describe the relationship created when property is transferred by one person (the "settlor") to another (the "trustee") to hold for the benefit of specified persons (the "beneficiaries").

Subject to tax and certain legal considerations, it may be possible for the settlor and the trustee to be the same person. In some cases, a settlor or trustee might also be a beneficiary of the trust.

How is a trust created?

A trust can be created by an individual during his or her life (an "inter vivos trust") or as a consequence of his or her death (a "testamentary trust").

The terms of an inter vivos trust are usually set out in a document signed by the settlor. It will appoint a trustee or trustees and direct how assets are to be held, managed and distributed to or for the benefit if the beneficiaries. An inter vivos trust is created once the beneficiaries and terms of the trust have been settled by the settlor and the trustee with sufficient certainty, and property has be n transferred to the trustee to hold in accordance with the terms of the trust.

A testamentary trust, on the other hand, is generally created by an individual's Will or pursuant to a beneficiary designation made in respect of an insurance policy, a registered retirement savings plan or a registered retirement income fund. A testamentary trust only comes into existence on the death of the individual who made the Will or beneficiary designation.

Why do people create trusts?

People create trusts for many reasons, including for estate planning purposes, business succession planning, charitable giving and other purposes.

Sometimes trusts are used to protect a beneficiary who is a minor or who has a physical or mental disability, creditor concerns or a substance abuse problem.

Sometimes there is an off-shore component. An anticipated inheritance from a relative who lives abroad, assets in a foreign jurisdiction, or a beneficiary who has left or plans to leave Canada may all be reasons to consider a trust structure.

A trust can also offer income tax savings, and can be used to eliminate probate fees on the value of the assets transferred to the trustees. In some cases, a trust can be preferable to a power of attorney when it comes to incapacity planning. Finally, a trust can provide a measure of confidentiality for both the settlor and the beneficiaries that might not otherwise be achieved.

Role of the trustee

The trustee will control, administer and distribute the trust assets for the benefit of the beneficiaries in accordance with the terms of the trust and applicable law. Given the extensive powers of a trustee, it is important to choose someone who is trustworthy, but other factors should also be considered, including:

  • Whether the trustee has experience or skills relevant to the role of trustee and the nature of the trust assets
  • The age of the trustee
  • Where the trustee resides and his or her citizenship
  • The trustee's relationship to the beneficiaries
  • Whether the trustee's personal or financial circumstances might give rise to a conflict of interest in the context of the trustee's duties.

Duties of a trustee

The law imposes a number of duties upon trustees, including the duty to:

  • Act personally in exercising certain trustee powers
  • Avoid conflicts of interest and act exclusively for the benefit of the beneficiaries
  • Maintain an appropriate level of skill and prudence when carrying out their duties and exercising the discretionary powers conferred upon them by the terms of the trust or by law
  • Act impartially as between the beneficiaries, also known as the duty to maintain an even hand
  • Provide a full accounting to the beneficiaries concerning the administration of the trust and its assets.

How is a trustee compensated?

Unless the Will or trust document provides otherwise, the maximum that a trustee can claim as compensation under the law of British Columbia is an amount equal to 5% of the income and capital of the trust, plus an annual care and management fee not exceeding 0.4% of the average market value of the assets under administration. While, this is the maximum that can be claimed the courts have indicated that the actual amount awarded should reflect:

  • The value of the trust assets
  • The care and responsibility involved
  • The time actually spent by the trustee performing his or her duties
  • The skill and ability shown
  • The success resulting from the trustee's efforts in the administration of the trust.

Sometimes a Will or trust document will specify another formula for the calculation of compensation. For example, it might direct that a specific lump sum be paid annually, or that a trustee be remunerated for actual time spent on the basis of an hourly rate. Professional trustees, such as trust companies, often require that a fee agreement be signed and incorporated into the Will or trust document.

A trustee who wishes to be paid compensation will generally need to have the amount claimed approved by all of the beneficiaries who have an interest in the matter. If approval is not forthcoming, a trustee may also apply to the Court to have the compensation approved.

Compensation will be taxed in a trustee's hands as income, and where the Will or trust document appoints more than one trustee, it will be shared between them. Sometimes it is shared equally. In other cases, particularly where one trustee assumes most of the work and responsibility associated with the trust, it may be divided on some other basis.


If you would like to consider the possibility of a trust as part of your estate plan or business structure, contact us. We would be p out the opportunities that may be available given your circumstances.

About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see

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