"Trust" tends to conjure one of two images: a dynasty protecting inherited wealth across generations, or a shortcut that keeps an estate out of the probate process. Neither image is wrong exactly, but neither is the full picture either. A trust is a legal structure with real costs, real paperwork, and a genuine 21-year tax deadline built into it. For some families it solves a problem no other tool can. For many others, especially in Quebec, it adds complexity to a problem that a properly drafted will already solves for free.

The Core Question: What a Trust Actually Does

A trust separates legal ownership of an asset from who benefits from it. The person who sets it up (the settlor) transfers property to a trustee, who holds and manages it according to the trust's terms for the benefit of named beneficiaries. Once that transfer happens, the trustee, not the settlor, legally owns the asset, even if the settlor is also the trustee and beneficiary, as in an alter ego trust.

There are two basic categories: trusts created while you're alive (inter vivos trusts), and trusts created by your will, taking effect only after you die (testamentary trusts). The distinction matters because the two are used for very different jobs.

People typically reach for a trust for one of a handful of reasons: to control when and how a beneficiary receives money (an inheritance received outright at 19 versus paid out in stages at 25, 30, and 35), to protect a beneficiary with a disability or vulnerability, to hold shares in a business for succession or tax purposes, to plan around incapacity rather than just death, or to keep the terms of an estate private. Probate avoidance is also commonly cited, but that reason carries very different weight depending on where you live, and in Quebec it often barely applies at all.

The Quebec Wrinkle

Most of the “avoid probate with a trust” advice circulating online is written for Ontario or British Columbia, where probate can run 1.4% to 1.5% of an estate's value; on a $1 million estate, that's $14,000 to $15,000 gone before a dollar reaches anyone. In Quebec, a notarial will, drafted and signed before a notary, is treated as an authentic act under the Civil Code and generally does not need to be probated or verified by a court. For the majority of Quebec residents who already use a notarial will rather than a holograph or witnessed one, that means no percentage-based fee, no waiting for a certificate, and no public court filing for the core estate. It's not a total exemption from every after-death formality, though: transferring title on Quebec real estate still requires a notarial declaration of transmission, and any assets held outside Quebec may still be subject to that other province's probate process. But for the majority of Quebec residents who already use a notarial will, the core problem a trust is often sold to solve doesn't exist in the first place.

That doesn't make a trust pointless here. It does mean the honest starting question for a Quebec family isn't “how do I avoid probate,” it's “what am I actually trying to control that my will doesn't already handle.”

The Technical Breakdown

The 21-year rule is a deadline, not a footnote

Most personal trusts in Canada are subject to what's known as the 21-year deemed disposition rule. On the 21st anniversary of a trust's creation, the trust is treated as having sold all its capital property at fair market value and immediately bought it back, whether or not anything was actually sold. If that property has grown significantly, in a family trust holding private company shares, for example, the resulting capital gain is taxed inside the trust at the top marginal rate, currently in the low 50s combined federal and provincial. Trustees typically manage this by distributing appreciated assets to beneficiaries before the anniversary date, but that planning needs to start years in advance, not the year it comes due. Recent federal budget changes have also closed off a common workaround where families used a second trust to effectively restart the clock, so the older “exotic planning” playbook is narrower than it used to be.

Income splitting through a trust isn't what it was

For years, a family trust holding investments or business shares was a straightforward way to move income to lower-earning family members and reduce the household's overall tax bill. Since 2018, the tax-on-split-income (TOSI) rules have closed most of that door. Dividends or other split income paid to a spouse or adult child through a trust are now taxed at the top marginal rate regardless of that person's actual income, unless they qualify for a specific exclusion, most commonly by being genuinely and substantially active in the business, generally at least 20 hours a week, in the current year or any five prior years. There's also an exemption once the business owner turns 65, allowing income splitting with a spouse again. What TOSI doesn't touch is the multiplication of the lifetime capital gains exemption: a family trust holding qualifying small business shares can still allocate a capital gain across multiple beneficiaries at sale, and each can shelter close to $1.25 million of it. For a business owner planning an eventual exit, that's often the more durable reason to use a trust than income splitting ever was.

Alter ego and joint partner trusts, for those 65 and over

If you're a Canadian resident 65 or older, you can transfer assets into an alter ego trust on a tax-deferred basis and remain the only person entitled to the income and capital during your lifetime. A joint partner trust works the same way for you and a spouse or common-law partner, and only one of you needs to meet the age requirement. Assets properly transferred into either trust generally bypass probate on death and pass according to the trust's terms rather than the will. In provinces with high probate fees, that's often the headline benefit. In Quebec, where a notarial will already avoids the equivalent process, the more relevant benefit is usually continuity through incapacity: a successor trustee can step in and manage the trust's assets immediately if you're no longer able to, without anyone needing to invoke a protection mandate or ask a court to confirm anything.

The bare trust reporting trap

A lot of Canadian families have informal arrangements that legally qualify as a bare trust without anyone ever calling it that: a parent added to a child's property title to help with a mortgage, an adult child added to a parent's bank account for convenience, a joint investment account where the money and the name on it don't match. Since 2023, expanded federal reporting rules have technically required many of these arrangements to file an annual trust tax return, including detailed ownership information. The CRA suspended that filing requirement for the 2023, 2024, and 2025 tax years while the rules were reworked, and confirmed trusts holding assets worth $50,000 or less will generally stay exempt going forward. But filing resumes for certain bare trusts for taxation years ending on or after December 31, 2026. If you have one of these arrangements and haven't looked at it since it was set up, this is the year to check whether it's caught.

For Business Owners

If your company's shares are held personally rather than through a family trust, an eventual sale concentrates the entire capital gain, and the entire tax bill, on you alone. A discretionary family trust set up ahead of a sale can hold those shares and, at the time of sale, allocate the resulting gain among multiple beneficiaries, each able to claim their own lifetime capital gains exemption against qualifying shares. On a meaningful exit, that can shelter several million dollars in gains that a single owner's exemption couldn't touch alone. The trade-off is timing: this only works if the trust and the share structure are in place well before a sale is on the table, ideally years before, since restructuring after a deal is signed is far more limited, and the 21-year clock starts running the moment the trust is created.

What This Means for You

A trust isn't a status symbol and it isn't free. It comes with legal fees to set up, a trustee who has real fiduciary obligations, its own tax filing, and in most cases a firm 21-year deadline that needs active management. The families for whom it earns its cost usually have one of a few specific problems: a business that will eventually sell and a family that could use more than one capital gains exemption, a beneficiary who needs protection or a controlled timeline rather than a lump sum, or a desire for financial continuity through incapacity that a will, by definition, can't provide because it only takes effect after death.

For a lot of Quebec families with a straightforward estate and a notarial will already in place, none of those problems exist, and a trust would just be an extra structure to maintain. The honest first step isn't deciding whether you want a trust. It's identifying the actual problem, if there is one, that only a trust can solve.

A Few Questions Worth Sitting With

• If probate avoidance is your main reason for considering a trust, have you confirmed what your existing will (or a notarial will, if you don't have one) already accomplishes in Quebec?
• If you own a business you expect to sell, is your share structure currently set up to allow more than one lifetime capital gains exemption at the time of sale, or is that opportunity sitting unused?
• Do you have an informal arrangement, a name added to a title or account, that could legally qualify as a bare trust once CRA reporting resumes?

If these questions raise more than they answer, that's exactly the conversation we're here to have. Reach out to the Farfaras Group to discuss your specific situation.

Christos

Christos Farfaras, CIM | Senior Portfolio Manager & Investment Advisor | T. 514-840-1418 | C. +1-263-770-7185 | christos.farfaras@rbc.com | www.christosfarfaras.com | Farfaras Group of RBC Dominion Securities Inc. | 1501 Avenue McGill College, Suite 2150, Montreal, QC H3A 3M8

Sources

• Canada Revenue Agency, T3 Trust Guide and Income Tax Folio S6-F2-C1, “Trusts – Taxable Dispositions” (21-year deemed disposition rule, Income Tax Act s. 104(4)). 
• Canada Revenue Agency, “Guidance on the Application of the Split Income Rules for Adults – Excluded Shares” (tax on split income, Income Tax Act s. 120.4). 
• Canada Revenue Agency, Line 25400 – Capital Gains Deduction (lifetime capital gains exemption, Income Tax Act s. 110.6). 
• Canada Revenue Agency, “Enhanced Reporting Rules for Trusts and Bare Trusts – Frequently Asked Questions”
• Department of Finance Canada, Budget 2025 (amendments to Income Tax Act s. 104(5.8)
• Gouvernement du Québec, Ministère de la Justice, “Notarial will.” 
• Éducaloi, “Les trois types de testaments” and “Rendre officiel un testament non notarié : la vérification.” 
• Civil Code of Québec.

This article is for general educational and informational purposes only and does not constitute, and should not be relied upon as, personalized financial, investment, tax, accounting, or legal advice, nor does it create any advisory, fiduciary, or professional relationship between the reader and Christos Farfaras, the Farfaras Group, or RBC Dominion Securities Inc. Trust, probate, and tax rules referenced reflect federal and Quebec provincial rules believed to be accurate as of the date of publication; these rules are reviewed and adjusted periodically by the CRA, Revenu Québec, the Department of Finance Canada, and the relevant legislatures, and may have changed since this article was written. Some measures discussed (including proposed bare trust reporting exemptions) were, at the time of writing, based on draft or proposed legislation that had not yet received Royal Assent and is subject to change before becoming law. Rules governing wills, mandates, and trusts in Quebec differ from those in the rest of Canada. Nothing in this article should be acted upon without first obtaining advice specific to your circumstances from a qualified notary, lawyer, accountant, and/or licensed financial advisor. Neither the author nor RBC Dominion Securities Inc. accepts any responsibility or liability for any loss or damage arising from reliance on this article.

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