The Pros and Cons of Using a Trust in Alberta

Trusts come up frequently in estate planning conversations — sometimes as a solution being considered, sometimes as something an advisor has recommended, sometimes as something a client has heard about but is not sure applies to them.

The honest answer is that trusts are genuinely useful in certain situations and unnecessarily complex in others. Understanding when a trust adds value — and when it does not — saves time, money, and administrative burden.

The Main Types of Trusts Used in Alberta Estate Planning

Testamentary Trust

Created through your will, takes effect on your death. Assets flow into the trust rather than directly to beneficiaries. Trustees manage the assets and distribute them according to the terms you set — which can include conditions, timing, and restrictions.

Common use: leaving assets to minor children, managing assets for a beneficiary who lacks financial maturity or has a disability, or controlling the pace of distribution for a large inheritance.

Alter Ego Trust / Joint Partner Trust

Established during your lifetime, typically after age 65. You transfer assets into the trust during your life and can be both the trustee and the beneficiary while alive. On death, assets pass to named beneficiaries outside the will — avoiding probate.

Common use: probate avoidance, privacy (wills are public; trusts are not), and succession planning without the delays of estate administration.

Spousal Trust

A testamentary trust that provides income to a surviving spouse for life, with remaining capital passing to children (or others) on the spouse’s death. Often used in blended families where one spouse wants to provide for the surviving partner while ensuring children from a prior relationship ultimately receive the estate.

Henson Trust (Discretionary Trust for Persons with Disabilities)

A discretionary trust that holds assets for a beneficiary with a disability without disqualifying them from government disability benefits (AISH in Alberta). The trustee has full discretion over distributions, so the trust assets are not counted as the beneficiary’s resources for benefit calculation purposes.

The Pros of Using a Trust

• Control over distribution. Unlike a straight inheritance, a trust lets you set conditions — age minimums, purpose restrictions, or trustee discretion — over how and when assets reach beneficiaries.
• Protection from creditors. Assets in a properly structured trust may be protected from a beneficiary’s creditors, divorcing spouse, or financial mismanagement.
• Probate avoidance. Assets in an alter ego or joint partner trust bypass probate on death — faster distribution, lower fees, and privacy (wills are public record in Alberta; trust documents are not).
• Income splitting. Testamentary trusts are taxed as separate taxpayers in Canada, with their own graduated tax rates. This can allow income to be distributed to beneficiaries in lower tax brackets.
• Protecting disabled beneficiaries. A Henson trust preserves AISH and other disability benefit eligibility for beneficiaries who would otherwise be disqualified by a direct inheritance.

The Cons of Using a Trust

• Cost to establish. Setting up a trust requires a lawyer and, depending on complexity, can cost $2,000–$10,000 or more. An alter ego trust requires transferring assets and potentially triggering tax on unrealized gains at the time of transfer.
• Ongoing administration. Trusts require annual tax returns, trustee record-keeping, and potentially trustee fees. This is ongoing administrative work that does not exist with a simple will.
• 21-year deemed disposition rule. In Canada, trusts are subject to a deemed disposition every 21 years — meaning all assets in the trust are treated as sold at fair market value, triggering capital gains tax. Long-lived trusts require careful planning around this rule.
• Loss of direct control. Once assets are in an irrevocable trust, you no longer own them personally. This can affect your own financial flexibility.
• Complexity for small estates. For most Albertans with straightforward family situations and modest estates, the cost and complexity of a trust outweighs the benefit. A well-drafted will with clear beneficiary designations achieves similar results at far lower cost.

When Does a Trust Actually Make Sense?

Situation	Trust Worth Considering?
Minor children who would inherit directly	✅ Yes — testamentary trust controls age and conditions
Beneficiary with a disability (AISH recipient)	✅ Yes — Henson trust preserves benefit eligibility
Blended family with competing interests	✅ Yes — spousal trust balances spouse and children
Large estate seeking probate avoidance	✅ Yes — alter ego trust worth the setup cost
Beneficiary with creditor or divorce risk	✅ Yes — protective trust limits exposure
Simple two-spouse estate, adult children	❌ Usually not — well-drafted will achieves the same result
Small estate under $500,000	❌ Usually not — administration costs erode the benefit

The Alberta Context

Alberta has relatively low probate fees compared to provinces like BC or Ontario — capped at $525 for estates over $250,000. This reduces (but does not eliminate) one of the key financial motivations for trust structures aimed purely at probate avoidance.

However, Alberta’s energy sector creates large estates with complex assets — corporate shares, royalty interests, investment properties — where trusts and estate freezes can play a meaningful role in tax-efficient wealth transfer. Business owners with significant corporate assets should specifically discuss estate planning trusts with both a lawyer and a tax advisor.