For asset protection purposes, Mr. X transferred his preferred shares of Opco to an asset protection trust of which he was the sole beneficiary. The indenture provides that immediately before death, the shares held by the trust will be distributed to Mr. X. Mr. X's will provides that the preferred shares thus distributed will be bequeathed to several testamentary trusts for the benefit of each of his children.
Would the distribution of preferred shares to Mr. X immediately before his death, followed by the bequest of such shares to testamentary trusts, be accepted by CRA? CRA (in its summary) stated:
No, the CRA does not recognize for taxation purposes that parties can contractually establish a presumption giving retroactive effect to a disposition of the property of a trust to a settlor-beneficiary.
… In fact, the transfer or distribution of property by the trustee of the trust to the settlor did not occur immediately prior to the death of the settlor-beneficiary. In addition, that contractual presumption would make it possible to escape the disposition of the property upon the death of the beneficiary. Furthermore … Nussey rejected the effect on the CRA of a contractual presumption that would recognize a redemption of shares by a corporation taking effect prior to their disposition on death of a shareholder … .