What are the tax and estate administration implications of using a trust versus a will in Alberta?
Executive summary
Trusts in Alberta trigger formal T3 filing and expanded reporting obligations that differ from a simple will-based estate administration; bare trusts are exempt from T3 filing for 2023–2024 unless the CRA requests otherwise, but enhanced reporting rules apply and most trusts will face mandatory disclosure after 2024 [1] [2]. Inter vivos (living) trusts can offer tax-deferral or planning advantages and privacy, but are usually taxed at top marginal rates and require a capable trustee to file returns and keep records—whereas testamentary wills historically allowed graduated tax treatment but recent federal changes have removed many long‑term testamentary trust tax advantages [3] [4] [5].
1. Why the choice matters now: reporting and transparency are reshaping trust use
Federal enhanced reporting rules force trustees to disclose settlors, trustees, beneficiaries and people who exert control; Canada’s CRA says affected trusts must file a T3 return and Schedule 15 unless specific exemptions apply, and bare trusts were explicitly carved out of filing for 2023–2024 only—CRA guidance signals more detailed reporting for 2025 and beyond [1] [6] [2]. This is a structural change: what used to be a relatively private ownership vehicle now comes with formal tax-administration duties that can undo the privacy and simplicity often touted by promoters [7] [1].
2. Tax regimes: inter vivos trusts, testamentary trusts, and Alberta residency issues
Inter vivos (living) trusts are generally taxed at the highest marginal rates, and testamentary trusts historically enjoyed graduated rates; recent federal changes have removed many of those long‑term testamentary-trust tax benefits, narrowing the tax gap between trusts and individual estates [3] [4]. Residency matters: for income-tax purposes the residence of the trust is typically the trustee’s residence, so “Alberta trust” planning has relied on Alberta’s historically lower top brackets—though changes to provincial rates and budget measures affect the calculus [3] [8] [9].
3. Practical administration differences: trustee duties vs. executor duties
Trustees must manage, keep records, and file T3 tax returns and schedules for the trust; setting up a living trust requires naming a trustee who can meet ongoing tax-filing and reporting responsibilities and who may charge for that service [5] [6]. In contrast, an executor under a will administers the estate, obtains probate where needed, and handles deemed dispositions at death; probate and estate administration can be simpler for small estates but do not avoid the deemed disposition rules that trigger capital gains on death [5] [4].
4. Privacy and probate considerations: trade-offs and hidden costs
Bare trusts and some inter vivos trust structures have been promoted for privacy of ownership and streamlined transfers—bare trusts, for example, have been described as exempt from routine T3 reporting in 2023–2024—but the CRA’s enhanced reporting and potential future Schedule 15 requirements reduce that privacy advantage and introduce compliance costs [7] [1]. Wills that pass through probate create public records but avoid ongoing trust reporting; trustees must weigh trustee fees, record-keeping and tax filings against probate fees and public disclosure for wills [5] [1].
5. Tax-planning opportunities and limitations in Alberta
Alberta trusts were long used to exploit lower provincial top rates (the “Alberta trust” strategy), and special trust vehicles like alter ego or joint partner trusts have specific rules for older settlors, but inter vivos trusts are often still taxed at top rates which reduces income-splitting benefits; post‑budget changes to Alberta tax brackets and federal trust rules can materially change any expected savings [3] [9] [8]. Available sources do not mention specific numeric comparisons of after-tax outcomes for sample estates in Alberta versus other provinces; for that you need tailored professional modeling.
6. Compliance risk, timing and legislative uncertainty
The law is in flux: Alberta revised its Trustee Act in 2023 and federal reporting rules were updated for tax years after December 31, 2023, producing uncertainty about future filing thresholds and exemptions; the CRA has delayed or limited certain bare-trust filings for 2023–2024 but signals further rules for 2025 onward [2] [1]. Practitioners warn that changes in inclusion rates, AMT rules and provincial budgets can turn once‑attractive trust strategies into administrative burdens or tax traps [10] [6].
7. Bottom line for decision-makers: match form to goals, and get professional help
If your priority is ongoing control, staged distributions, incapacity planning or privacy, a living trust can be appropriate but brings trustee duties, T3 compliance and likely taxation at high marginal rates; if your priority is simplicity at death, a will with testamentary trusts may be simpler today but has lost many of its historical tax advantages under federal changes [5] [4]. Given the evolving reporting landscape and province-specific tax moves, every client considering a trust versus a will in Alberta should obtain coordinated legal and tax advice tailored to their residence, assets and the trustee’s location—available sources do not provide individualized tax planning outcomes or personalized modeling [1] [3].
Limitations: This analysis relies exclusively on the supplied sources and reflects rules and commentary current in those items; local facts, asset types and future legislative changes will materially affect outcomes [1] [2].