March 21, 2022

I also cover this in a YouTube video. Click here to watch!


If you have children and your plan is to leave them the bulk of your estate, how do you make sure – in the case they get married and then divorced – that their ex-spouse doesn’t get 50% of the assets that you left for your child? Today I’m sharing with you a key strategy that will fix this problem. 

Here’s the thing, you can leave money “directly” to your child, but if they are married or get married in the future, they “commingle” this money – along with other assets they have to enjoy their lifestyle with their spouse – and end up getting divorced, their ex-spouse could end up with 50% of the remaining money that you left your child. 


So how do we correct this problem?

The solution is something called a Testamentary Trust. You can’t go out and set one up today, but it is created upon your passing and must be designed properly inside your Will.

Back when Jim Flaherty was the Federal Finance Minister, he took away a key feature of Testamentary Trusts, and so, some lawyers – who are not familiar with the Financial Planning Benefits of a Testamentary Trust – sometimes give the wrong advice about not using this strategy in your Wills.


Here are some key Financial Planning Benefits of a Testamentary Trust:

  1. It is set up upon the death of an individual.

  2. The Trust is considered an “Individual” for Tax Purposes – which just means it has a separate tax return.

  3. For the first three years of the Trust’s existence, it has graduated tax rates the same as an individual.

  4. Provides for Income Splitting with the Beneficiaries.

  5. Creditor Protection.

  6. Family Law Act – Divorce.

In this blog, I’ll be drilling down into those last three Benefits.


Income Splitting 

Let’s use me as an example. I have 3 children, and let’s assume my estate is worth $3M upon my passing. I have set up Testamentary Trusts in my Will for each of my children and my future grandchildren. That means each of my children would get $1M in their Testamentary Trust. 

Now, as I write this, none of my children have children… at least, that I know of! However, down the road when they do have children, they could take money out of the Testamentary Trust in the name of the grandchild. Now you’re taking the money out on your grandchild’s tax return, who should be in a lower tax bracket, thereby reducing your overall tax bill. So when it comes to income splitting or what some accountants like to call “income sprinkling,” this strategy is very strategic. 


Creditor Protection

If you leave money in your Will directly to your son, and he ends up getting sued, then the lawsuit can go after the money that you left your son. However, if you leave the money to your son in a Testamentary Trust, and your son then gets sued, the lawsuit can’t go after the money in the Testamentary Trust. This is huge. 


Family Law Act – Divorce

As I mentioned earlier, if you leave the money directly to your daughter, and she ends up getting married and then divorced, then the ex-spouse could end up with 50% of the money you left to your daughter. However, if you left the money to your daughter in a Testamentary Trust and she gets married and divorced, then the ex-spouse will end up with nothing from the Testamentary Trust. Now, the spouse might be able to go after the cash if your daughter commingles the money from the Testamentary Trust, so it comes down to making sure she is educated properly.

If you’d like to learn more about how to set up a Testamentary Trust in your Will, contact me at the coordinates below to apply to become my client. Thanks for reading and always remember: when we design financial plans for our clients, we make sure that your money outlives you in retirement.


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By John Moakler, BMath, CFP, CLU

President and Senior Executive Financial Planner

Moakler Wealth Management

1 416 840 8544