British Columbia Law
Living Trusts - Estate Planning Before Death
A "living" trust can ensure assets are well managed until it is the right time for your intended beneficiary to receive the benefit or ownership of those assets. Created during your lifetime, an inter vivos trust is one of the most flexible and powerful tools in BC estate planning.
A living trust is created during your lifetime — more accurately known as an "inter vivos trust", which is Latin for "between the living." If a trust is created after your death, such as by your Last Will and Testament, it is called a "testamentary trust." Both types are legally recognized in BC, but they serve different purposes and have different tax and probate consequences.
The Three Essential Parties in Any Trust
Every trust — whether living or testamentary — has three essential parties:
- The Settlor (or Grantor): The person who creates the trust and transfers assets into it. In a living trust, you are typically the settlor.
- The Trustee: The person or institution who holds legal title to the trust assets and has the responsibility to manage them in accordance with the trust deed (the written document that creates and governs the trust). The trustee owes strict fiduciary duties to the beneficiaries.
- The Beneficiary: The person or persons who benefit from the trust — who receive income or capital from the trust assets according to the trust's terms.
In many living trusts, the settlor also serves as the initial trustee and beneficiary during their lifetime — maintaining full control of and benefit from the assets — while naming successor trustees and beneficiaries to take over according to the trust's terms upon death or incapacity.
Advantages of a Living Trust in BC
1. Probate avoidance: Assets held in a living trust at the time of death do not form part of the estate and do not go through the BC Supreme Court probate process. This means no probate fees (which in BC are approximately $14 per $1,000 of estate value over $50,000), no waiting for a Grant of Probate, and no public disclosure of those assets in the probate application.
For large estates — particularly those with significant real estate — probate avoidance through a living trust can save tens of thousands of dollars.
2. Continuity of management: If you become incapacitated, your successor trustee steps in immediately to manage the trust assets — without the need for a court process (unlike the Committee Order required to manage assets outside a trust). This is a powerful benefit that supplements your Enduring Power of Attorney.
3. Privacy: A Will that goes through probate becomes a public document. A living trust does not — the trust deed and its terms remain private.
4. Multi-jurisdictional assets: If you own property in more than one province or country, a living trust may allow assets in each jurisdiction to be transferred without a separate probate process in each.
5. Control over distribution: A trust allows you to set specific conditions on when and how beneficiaries receive assets. You can specify that a child receives income until age 30, that capital is available for specific purposes (education, home purchase), or that assets are held for a beneficiary who is not yet capable of managing them independently.
Important Tax Considerations
Trusts are subject to complex tax rules in Canada, and a living trust is not automatically a tax-saving device. Key tax considerations include:
- Attribution rules: If you transfer income-producing property to a trust for the benefit of your spouse or a minor child, the income may be "attributed back" to you for tax purposes under the Income Tax Act.
- 21-year deemed disposition rule: Under the Income Tax Act, a trust is deemed to dispose of all its capital property at fair market value every 21 years. This can trigger significant capital gains tax if not planned for.
- Alter ego and joint partner trusts: These are special types of living trusts available to persons over 65 that defer the 21-year deemed disposition and the capital gains tax on death, while still achieving probate avoidance.
This is why tax advice from an experienced CPA is essential before establishing a living trust. The legal and tax aspects must be co-ordinated carefully.
Testamentary Trusts: An Alternative or Complement
A testamentary trust — created by your Will — does not avoid probate (because the assets must pass through your estate first), but it provides the same distribution control benefits after your death. Testamentary trusts are commonly used for:
- Minor children, to avoid assets being paid to the Public Guardian and Trustee until age 19
- Adult beneficiaries with disabilities who receive government support and cannot receive large direct inheritances without losing that support
- Spouses in second marriages — a spousal trust can provide income for the surviving spouse during their lifetime while preserving the capital for children from a prior relationship
Sea to Sky Law™ Can Help
Sea to Sky Law™ serves all of BC, offering estate planning advice including the use and drafting of both living and testamentary trusts. Every trust is drafted to match your specific family situation, tax position, and estate planning goals. Contact Andrew Liggett BA JD CD to explore whether a living trust is right for your estate plan.
This article is general information, not legal or tax advice. Meetings are by appointment only, by phone or secure video.