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A testamentary trust is a trust created on and because of a person's death, usually through a will. It pays graduated tax rates only if it is a graduated rate estate, which lasts up to 36 months after the death, or a qualified disability trust. Every other testamentary trust pays the top rate on all its income. The T3 return is due 90 days after the trust's year end.
What makes a trust testamentary?
The CRA's T3 Trust Guide describes it as a trust created on and as a result of a person's death. That covers a trust set up under a will and one set up by court order for the deceased's estate. A trust created while you are alive is an inter vivos trust and follows different rules. The guide also warns that if assets are not distributed according to the will, the trust may become an inter vivos trust.
So a will that says "my house goes into a trust for my daughter until she is 25" creates one. The estate itself, while the executor is still winding things up, counts too. The estate and the later trust can be taxed differently. An estate may start out with graduated rates, and once the executor hands property to a trust that does not qualify, the same kind of income is taxed at the top rate.
Which testamentary trusts still get graduated rates?
Before 2016, every testamentary trust could use the ordinary graduated rates, a bit like a second taxpayer. That ended for the 2016 tax year. Today only two kinds keep them:
| Type | Rates on its income | Time limit |
|---|---|---|
| Graduated rate estate (GRE) | Graduated | Up to 36 months after death |
| Qualified disability trust (QDT) | Graduated | Elected year by year |
| Other testamentary trust | Top rate, flat | Every year |
For a GRE, the CRA says the estate must be a testamentary trust, show the deceased person's SIN on its T3 returns, and designate itself as a GRE on its first T3 return for a tax year ending after 2015. No other estate can make that designation for the same person. The guide states that an estate can only be a GRE for up to 36 months following the death. After that the status ends, even if the estate is still open.
A qualified disability trust works differently. The trust and one or more beneficiaries jointly elect on Form T3QDT for the year. Each electing beneficiary must be named by the deceased in the governing document and be eligible for the disability tax credit that year, and the trust must be factually resident in Canada. Read the full list of conditions in the CRA T3 Trust Guide before you count on it.
What does the flat top rate cost in real dollars?
| Income in the trust | Federal tax at 14% (first bracket) | Federal tax at 33% (top rate) | Gap |
|---|---|---|---|
| $40,000 | $5,600 | $13,200 | $7,600 |
Under the 2026 federal brackets, the first $58,523 of taxable income is taxed at 14% and income above $258,482 at 33%. A flat top rate means a trust that is not a GRE or QDT pays 33% federal tax from the first dollar. Provincial tax comes on top. Credits change the picture, and which personal credits a trust can claim is a question for whoever prepares the T3, so read the figures as the rate gap and not as a bill. To see graduated rates for a person, use the income tax calculator (an individual's result, not a trust's) and the marginal tax rate calculator for the cost of the next dollar.
What does the 36 month window mean in practice?
Suppose Maria dies in March and her executor lists the house that fall. It sells 20 months after her death, and the proceeds earn $40,000 of interest and gains in the estate during the following year. If that income arises inside the 36 months, it gets graduated rates. If the sale drags on to month 40, income after month 36 faces the top rate, and on $40,000 that is the $7,600 federal gap from the table above. A calendar of the 36 months, kept by the executor from day one, is worth more than any clever trick later.
When do you file the T3 and pay?
The T3 return is due no later than 90 days after the trust's tax year end, and any balance owing is due by the same date. Year ends differ by trust type:
- A GRE can have a non-calendar year end. A deemed year end falls on the day it stops being a GRE, no later than the end of the 36 month period.
- Other testamentary trusts generally use December 31, which puts the return at the end of March, give or take a weekend.
- For a GRE's final return, the year ends on the date of the final distribution, and the return and balance are due 90 days after that.
The CRA says only a GRE is exempt from tax instalments for 2016 and later years. It also suggests a clearance certificate (Form TX19) before the executor distributes property, because it avoids personal liability for unpaid tax, interest and penalties. The CRA issues one only after all required returns are filed and assessed and the amounts owing are paid or secured. The CRA's trust reporting rules also have a beneficial ownership schedule, Schedule 15, and its guide explains which trusts are excused for recent year ends. Check the guide for your trust's year end.
How does a testamentary trust fit into estate planning and trust tax?
A will can leave property outright or place it in a trust, and the choice decides which tax rules apply later. A gift to a beneficiary ends the estate’s job for that asset. A trust in the will keeps the property in an estate trust that files its own T3 return each year, so the tax on its income stays a recurring task.
The trust tax rule to remember is the one in the table above. Only a graduated rate estate and a qualified disability trust use graduated rates. Any other testamentary trust pays the top rate on all its income, so a trust that holds investments for years has an ongoing cost that a plain gift doesn’t have.
Before the will is signed, it helps to ask four questions. Will the trust hold property that earns income, such as interest or rent? Will the beneficiary qualify for the disability tax credit, which is a condition for a qualified disability trust? How long will the executor need to wind up the estate, given the 36 month limit? And who will file the T3 returns and meet the 90 day deadline each year?
These choices belong with a lawyer who does estates, and the tax side with the person who prepares the T3. This page explains the CRA’s rules, and it can’t say which structure suits a particular family.
What do the executor, trustee and beneficiary each do?
Three roles come up in every testamentary trust. The executor is the person named in the will to wind up the estate, which includes filing the final return and the estate’s own T3 returns. The trustee manages the property once it sits in a trust set up by the will, and often the same individual holds both jobs. The beneficiary is the person who receives the income or the property, and a trust can name more than one.
The roles matter for tax because the T3 return is filed for the trust, and whoever prepares it needs to know who the trustee is and who each beneficiary is. We don’t cover how a trust’s income reaches a beneficiary, because that depends on the will and on the beneficiary’s own tax position. Keep a written record of every payment the trustee makes.
What mistakes cost an estate money?
- Leaving the estate open too long without a plan. Graduated rates stop at 36 months, and a slow sale of a house can push you past it.
- Forgetting that capital gains on assets in the estate are taxed too. The capital gains tax calculator uses a 50% inclusion rate for 2026. The proposed rise to two thirds was cancelled in the federal announcement of March 21, 2025.
- Mixing up probate costs with income tax. Ontario charges an estate administration tax on the value of the estate, which the estate administration tax calculator works out. It has nothing to do with the trust's tax rates.
- Missing the GRE designation on the first T3 return.
For capital gains on estate assets, try the capital gains tax calculator. The executor's wider list of dates is on our executor tax checklist, and what is actually taxed at death covers the final return. Setting up a trust in a will takes a lawyer who does estates, and for a small estate a plain gift is often simpler and costs less to run each year.
Where we checked
The definition, the GRE and QDT conditions, the 36 month limit, the year end rules, the 90 day deadline and the clearance certificate come from the CRA T3 Trust Guide, read in November 2026. The 2016 rate change comes from the federal budget notes on the CRA site. The federal brackets come from the 2026 figures used across this site. No level of government runs or endorses this page.
Frequently asked questions
Do testamentary trusts get graduated tax rates?
Only a graduated rate estate (up to 36 months after death) or a qualified disability trust does. Any other testamentary trust pays the top federal rate on all its income, which is 33% in 2026.
How long can an estate be a graduated rate estate?
Up to 36 months after the person's death. The CRA says the status cannot last longer, so graduated rates end then even if the estate is still open and the property is not yet distributed.
When is the T3 return due?
No later than 90 days after the trust's tax year end, and any balance owing is due by the same date. For a graduated rate estate's final return, the 90 days run from the date of the final distribution.
What year end do testamentary trusts use?
Generally December 31. A graduated rate estate can use a non-calendar year end, and its tax year ends when it stops being a graduated rate estate, no later than 36 months after death.
Is a trust in a will the same as the estate?
No. The estate is created by the death and the executor runs it. A trust in the will starts when property moves into it. Both are testamentary, but they can be taxed differently.
Should an executor get a clearance certificate?
The CRA says a clearance certificate avoids personal liability for the trust's unpaid tax, interest and penalties. You request it on Form TX19, and the CRA issues it only after all returns are filed and assessed.
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