Most people are familiar with the post mortem trust encapsulated by the last will and testament; that is, an arrangement whereby money or things are entrusted to the care of an executor (manager) for the benefit of those called the beneficiaries (sometimes referred to as the cestui que trust or “person entitled to the advantage” short for “cestui a que use le trust est crée” of “person for whose benefit anything is given in trust to another”). The importance here is to distinguish an arrangement meant to occur after one’s death and an arrangement made with living people or “inter vivos”. In both instances the root of the arrangement is a trust; that is, something for the benefit of others not necessarily for the benefit of the person managing the property (money or things).

The purpose of both the will and the inter vivos trust agreement is to transfer wealth from one person to another. Both involve the transfer of wealth from the owner to the beneficiary. Although a will only “speaks” from death, the inter vivos trust agreement (for convenience hereinafter referred to as the “trust agreement”), even if made between living persons, only effectively transfers wealth upon death of the owner. The trust agreement instructs the trustee (the manager) to transfer the property to the beneficiaries named in the will of the deceased.  So, what, you might ask, is the difference between transferring wealth upon death pursuant to the trust or a will?  The answer is the trust escapes probate fees.

Probate fees are calculated as a percentage of the estate value. Probate fees are incurred when having to prove (ratify or confirm) a will and its named executor and beneficiaries.  In the normal scheme of things, a will must be proven in order to complete the transfer of property from a deceased to the beneficiaries. If however, the property of the deceased is owned by the deceased and another as joint tenants (with right of survivorship), then upon death of the deceased the property automatically succeeds to the surviving joint tenant; and if that surviving joint tenant is impressed with a trust or agreement to hold that property for the benefit of those named in the will of the deceased as beneficiaries, then the surviving joint tenant (or trusteee) is able to transfer ownership of the property to the beneficiary without further obstruction (that is, without having to “prove” the will) and more significantly, without having to pay probate fees in the process.

The probate process, by contrast, requires the executor to “prove” the will because it is his or her indirect way to establish his or her entitlement to ownership of the property, and subsequently transfer ownership by logical conclusion to the beneficiary. This is unlike the trust agreement which already transfers that ownership to the trustee (manager) as the surviving joint tenant.

To accomplish this advantage the owner of the property must first transfer ownership of the property to himself and the trustee as joint tenants (with right-of-survivorship).  Because, prior to that transfer, the trustee had signed the trust agreement (in which it is categorically provided that the trustee holds the property for the benefit of those named in the will of the owner), the trustee does not acquire the beneficial interest in the property; accordingly, there is no capital gains tax payable upon the initial transfer from the owner to the trustee as joint tenants (essentially because there is no transfer of full ownership, but only impressing upon the trustee ownership for the benefit of the real owner until his or her death).

Naturally upon the death of the trustee, ownership of the property succeeds to the beneficiaries at which time capital gains tax is payable.  But until then the owner has avoided both capital gains tax and payment of probate fees (or what are sometimes referred to as “succession duties”).

Because the trust agreement defeats payment of probate fees (which flow to the provincial government through its estate department of the Superior Court of Justice where probate is normally conducted), the government has sought to challenge the trust agreement, asserting that upon death of the owner, the property is effectively transferred to the trustee for the benefit of the beneficiaries.  While this is true, the distinguishing feature of the trust is that it side-steps the necessity to prove (or probate) the will of the deceased (which is the grounds upon which probate fees are payable).

There is some concern advanced by others that the failure to prove the will of the deceased means that the executor is not legitimized, nor are the beneficiaries legitimized.  This however conveniently overlooks the reality that the authenticity of a will derives only from the fact that it is indeed the last will and testament of the deceased.  If that fact is considered certain, then there is little if any exposure to an assertion that there is another more recent will.  I have however encountered instances in which there was credible evidence that the deceased may have made another more recent will; and, as a result, it was considered more prudent to validate the will of the deceased for protection of all concerned.

A quick word about joint tenancy may be appropriate.  The term is normally employed in the context of real estate ownership whereby it signifies that upon the death of one joint owner, entitlement to the property automatically succeeds to the survivor. This form of ownership is contrasted with Tenants-in-Common by which two or more individuals own property without right of survivorship but independently and who as a result transfer ownership of his or her interest to another. To clarify joint ownership it is not uncommon to see it described as “Joint tenants with right-of-survivorship” or abbreviated to “JWROS”.

To address what sometimes arises as a subsequent concern, there is no exposure to one of the owners of the property (who is impressed with the trust) selling their interest in the property (though if they did so, they would of course violate the terms of the trust and therefore suffer criminal responsibility for their conduct).  It is for this reason that the trust agreement is sometimes called a “Family Trust” to imply that the arrangement is made with people who are to be trusted.  In any event, even if a will is probated there remains the possibility that the executor could behave illegally, so the exposure to such consequence is largely moot.

Finally another advantage of the trust agreement is that is avoids not only the time and expense of probate, it permits the executor to proceed immediately to administer the estate of the deceased.  Because the trust incorporates the will of the deceased by extension (that is, the trustee holds ownership upon the identical trusts of the will), the executor still has authority of the will, just as the beneficiaries named in the will are those for whom the trust exists upon death of the owner

The expediency of the process also diminishes any executor fees payable because those fees are normally calculated in accordance with time, care and trouble.

Pursuant to Sec. 92 of the British North America Act (the constitution of the Dominion of Canada), “property and civil rights” are under the jurisdiction of the provincial governments.  Accordingly this explanation of the Inter Vivos Trust Agreement is applicable to and bounded by the laws of the Province of Ontario; and, I am a member of the Law Society of Upper Canada, to the Bar of which I was called at Osgoode Hall, Toronto on March 1, 1975.

Because I am now retired from the practice of law and no longer contribute to nor pay the cost of Professional Errors & Omissions Insurance, nothing herein contained is to be considered or adopted as legal advice.

L. G. William Chapman, B.A., LL.B.
Barrister, Solicitor & Notary Public