A living trust is an arrangement you create while you are alive: you move assets into a trust, a trustee manages them, and your beneficiaries receive them under the terms you set. In British Columbia it can keep assets out of your estate and away from probate, but it does not erase tax, and it costs more to set up and run than a will.
A living trust, or inter vivos trust, is a legal structure you set up during your lifetime to hold and manage assets for the people you choose. Canadians use them to keep property out of probate, to keep the details private, and to control how and when beneficiaries receive what you leave behind. This guide covers how living trusts work in Canada, the types available, what they cost, the tax rules that catch people out, and how they compare with a will.
Thinking about the family home? That has its own process, its own mortgage complications, and its own costs, so we cover it separately in our guide to putting a house in a trust.
What Is a Living Trust in Canada?
In Canada, a living trust (also known as an inter vivos trust) is a legal arrangement created during a person’s lifetime to manage and distribute assets. Unlike a will, which only takes effect after death and typically requires probate, a living trust operates during the settlor’s lifetime and can continue after death.
Putting assets in a living trust usually means that they are not part of the estate. This can help Canadians avoid probate, accelerate the process, and keep their information private, since trust details usually don’t become public. While testamentary trusts are created through a will and begin after death, living trusts are set up ahead of time to give ongoing control, flexibility, and efficient property management.
Who Does What: Settlor, Trustee, and Beneficiary
In a living trust, the settlor is the person who makes the trust. They put assets into it and decide how those assets should be handled and given out. The trustee holds legal title to the trust property and is responsible for managing it according to the trust agreement and Canadian trust law, including making distributions to beneficiaries and handling any administrative duties.
Trustees have broader ongoing powers than those of executors, who only manage estate assets after death. Unlike a testamentary trust, which is created through a will and takes effect only after death, a living trust operates during the settlor’s lifetime.
Beneficiaries are the people or groups who get the trust’s benefits. These benefits can be income or property, given out as the settlor has instructed. While beneficiaries do not control the assets, they are entitled to enforce the trust terms if the trustee fails to act in their best interest. A clear understanding of these roles ensures the trust operates smoothly and fulfills its intended purpose.
Types of Living Trusts in Canada
There are many types of living trusts, such as alter ego trusts, joint partner trusts, and mutual fund trusts. The type of trust that is right for you depends on your family circumstances, your goals, and your wishes. Your wishes can include providing for a surviving spouse or a surviving owner of jointly held property. An experienced estate planning lawyer in BC can explain the options and help you decide which is right for you.
One key distinction to be aware of is between revocable and irrevocable trusts. A revocable living trust is more flexible. It allows the person who created the trust to maintain control over the trust property. The settlor may also act as the trustee, revoke the trust, and change its terms and beneficiaries while alive.
An irrevocable trust, on the other hand, can’t be changed or canceled while the person who made it is still alive, except in very rare cases. The person creating the trust can’t be a trustee and must relinquish ownership and control over the trust property. An irrevocable trust is less flexible, but it offers stronger protections for the property in the trust (e.g., against lawsuits or claims by creditors) and can reduce the settlor’s tax burden.
Living Trust vs. Other Estate Planning Tools in Canada
In Canada, living trusts and wills are the most common ways to plan your estate, but they do not provide the same level of privacy, control, or probate avoidance. A will doesn’t go into effect until after death, and it usually has to go through probate, which can mean court fees, delays, and public disclosure.
A living trust, on the other hand, works while the settlor is still alive, lets assets pass outside of probate, and gives more privacy and continuity of management. However, it usually costs more to set up and run.
Constructive trusts and resulting trusts are two additional types of trusts that arise from specific legal circumstances rather than from intentional estate planning. Courts impose constructive trusts to fix unfairness or wrongdoing, while resulting trusts usually show what the parties in a property ownership dispute probably meant to do. Living trusts are more flexible and give you more control than court-set trusts, but they require more careful legal planning to set up and maintain.
Common Misconceptions About Living Trusts in Canada
It is a common myth that living trusts can eliminate estate or income taxes. In reality, trusts are subject to Canadian tax rules, and while they can offer planning opportunities like deferring capital gains, income splitting, or limited tax avoidance strategies, they do not eliminate tax liability.
Non-residents should be especially aware of Canada’s inheritance tax rules, as trusts do not automatically shield foreign beneficiaries from these obligations. Get legal and tax advice on how a trust would affect your own situation before you commit to one.
Another common mistake is thinking that only wealthy individuals can benefit from living trusts. In fact, Canadians of various income levels can use a living trust to avoid probate, maintain privacy, and control how assets are distributed, while potentially managing their tax liabilities more efficiently. Living trusts are a versatile estate planning tool, and their value depends on your goals rather than the size of your estate.
Benefits and Limitations of Living Trusts in Canada
Living trusts in Canada offer several key benefits that make them an appealing estate planning tool. They can help avoid probate, allowing assets to be transferred to beneficiaries more quickly and privately, while providing flexibility in how and when distributions are made.
A living trust also keeps things private, since trust assets generally do not become part of the public probate record. These features make living trusts especially useful for individuals with complex estates or a desire to maintain control over how their property is managed after death.
However, living trusts also come with limitations. They can be more complex and costly to set up and maintain than a simple will, and the rules can vary between provinces, which may complicate planning. Some common misconceptions, such as believing trust eliminates taxes, can lead to unrealistic expectations. In certain situations, such as for smaller estates or straightforward asset distributions, a will may be simpler and more practical than establishing a living trust.
How to Set Up a Living Trust in Canada
Creating a trust in Canada involves clear legal steps and careful planning to ensure your assets are managed and transferred according to your wishes. While the process is similar across the country, some requirements vary by province, so the basics are worth knowing. You must take important steps to ensure the living trust meets your goals and maintains its legal validity.
- Confirm legal eligibility
You must be of legal age and mentally capable of creating a living trust. The trust must be established voluntarily and for a legitimate purpose. - Consult an Experienced Estate Planning Lawyer
The next step is to consult a lawyer in British Columbia who specializes in estate planning and can advise you on trust rules and legal requirements. Your lawyer can also help you determine the type of trust that is best in your situation.
- Select the trustee
You can choose one or more trustees, and you can appoint alternate trustee(s). You can act as your trustee during your lifetime and appoint a successor trustee to manage and distribute assets after death or incapacity. You must think carefully about who you trust to manage and distribute assets to the trust’s beneficiaries.
- Draft the Trust Agreement
It’s strongly recommended that you work with an estate planning lawyer to draft the trust document. As trust laws and tax laws are complex, this is where professional advice pays for itself: a homemade trust that is not legally valid gets tested at the worst possible moment.
- Transfer Property Ownership and Register the Trust
Placing a house in a living trust requires the registration of a title change and provides details such as the names of the beneficiaries. It may also be necessary to register for a trust account number from the Canadian tax authorities.
- Account for provincial differences
Provincial laws can affect land transfers, probate rules, and tax treatment. For example, British Columbia has different probate fees and land title requirements than Ontario, making local legal advice especially important. - Notify Relevant Parties
It’s important to inform beneficiaries and other involved parties about the trust to ensure they understand their roles, rights, and any actions they may need to take regarding the trust’s assets and administration.
Living Trust vs. Other Estate Planning Tools in Canada
In Canada, living trusts and wills are the most common ways to plan your estate, but they serve different purposes. A will doesn’t go into effect until after death, and it usually has to go through probate, which can mean court fees, delays, and public disclosure. A living trust, on the other hand, works while the settlor is still alive, lets assets pass outside of probate, and gives more privacy and continuity of management. However, it usually costs more to set up and run.
Constructive trusts and resulting trusts are two additional types of trusts that arise from specific legal circumstances rather than from intentional estate planning. Courts impose constructive trusts to fix unfairness or wrongdoing, while resulting trusts usually show what the parties in a property ownership dispute probably meant to do. Living trusts are more flexible and give you more control than court-set trusts, but they require more careful legal planning to set up and maintain.
What are the Tax Implications of Living Trusts in Canada?
A trust isn’t a separate legal entity, but it must file a tax return and report taxable income under the Income Tax Act. Different tax consequences apply depending on the type of trust. When a person sets up a living revocable trust, they are responsible for paying taxes on the property in the trust.
But with an irrevocable trust, the trust pays taxes on its income, which can help the person who set it up lower their own tax bill. Properly structured trusts can also take advantage of personal tax credits and distribute income to beneficiaries in lower tax brackets to optimize overall tax savings.
A living trust can be very helpful in many ways, such as putting off taxes, getting a lifetime capital gains exemption, freezing an estate, and splitting income. You might also need to get professional advice from a tax lawyer, accountant, or other financial advisor to make sure you get the most tax benefits and stay out of trouble with attribution rules.
What Is the 21-Year Rule?
The Income Tax Act contains the 21-year rule, which is also known as the deemed disposition rule. The rule is there to prevent trusts from holding property and deferring capital gains indefinitely. That means the trust’s assets are deemed to have been sold at a fair market value 21 years after it was created. The trust can continue beyond that but is subject to the deemed disposition rule and related tax liabilities every 21 years.
Putting Your House in a Living Trust
The family home is the asset Canadians most often ask about, and it is also the one with the most moving parts. Transferring a house means dealing with land title registration, any mortgage still registered against the property, provincial property transfer tax, and the loss of the principal residence exemption in some structures. None of that is a reason to avoid a trust, but it is a reason to go in with the sequence planned rather than improvised.
We walk through the whole process step by step, including what to do about an existing mortgage and what it realistically costs, in Put a House in a Trust: 2026 Guide.
Talk to a BC Estate Lawyer About a Living Trust
Whether a living trust is worth it depends on what you own, who you are providing for, and what you are trying to avoid. That is a conversation, not a form. Onyx Law Group drafts and administers trusts across British Columbia, and we will tell you plainly when a well-drafted will would serve you better than a trust.
Call (604) 900-2538 or send us a message to arrange a consultation with a BC estate lawyer.
Frequently Asked Questions
If you’re considering putting your house in a living trust in Canada, you likely have questions about the process, benefits, and legal implications. This FAQ section answers the most common concerns to help you make informed decisions about protecting and transferring your property.
What happens to a living trust after the settlor dies?
After the settlor dies, the living trust becomes irrevocable, and the successor trustee takes over to distribute the trust assets according to the trust’s terms. This process typically avoids probate, allowing assets to be transferred to beneficiaries more quickly and privately.
Can I change or revoke my living trust in Canada?
Yes, in Canada you can change or revoke a living trust at any time during your lifetime as long as you are mentally capable and the trust is revocable. Once you pass away or become incapable (depending on the trust terms), the trust generally becomes irrevocable.
How does a living trust avoid probate in Canada?
A living trust avoids probate in Canada because assets transferred into the trust are legally owned by the trust, not the individual, at the time of death. The trustee can distribute those assets directly to beneficiaries without going through probate, as they are not part of the estate.
What are the tax implications of a living trust in Canada?
In Canada, a living trust does not eliminate income tax, and the trust may be required to file its own tax return and pay tax on income it earns, often at the highest marginal rate. Upon the settlor’s death, there may be a deemed disposition of trust assets, potentially triggering capital gains tax.
Who can be a trustee in Canada?
In Canada, a trustee can be an individual (such as a family member, friend, or professional) or a trust company, as long as they are legally capable of managing property. Under Canadian trust law, trustees must be honest, organized, and able to act in the best interests of the beneficiaries.
What Is the Difference Between Living Trusts and Family Trusts?
The main difference between living trusts and family trusts is who the trust benefits. A settlor can choose anyone to be the beneficiary of a living trust, whereas the beneficiaries of a family trust are the family members of the settlor.
Have questions about a topic?
Onyx Law Group represents clients in family law throughout British Columbia, estate and trust litigation, estate planning and probate matters. Consult with our experienced BC team at
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