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.
After indicating that CRA would not treat the trust indenture clause as in fact effecting a distribution of the preferred shares from the trust prior to Mr. X’s death, CRA the addressed whether the bequest of preferred shares under Mr. X's will would contaminate the testamentary trusts under the s. 108(1) definition, and stated:
To the extent that the legal effect of all of the terms and conditions of the asset protection trust is such that, as a consequence of the death of Mr. X, the property of that trust is distributed directly to a trust created under the will of Mr. X, the distribution of the preferred shares to that trust would preclude the trust from qualifying as a "testamentary trust" as defined in subsection 108(1) because of the exclusion in paragraph (b) of that definition.
However, it is possible that, as a result of the death of Mr. X, the property previously held by the asset protection trust is part of Mr. X's estate. In that case, the distribution of the preferred shares to a trust created in Mr. X's will does not preclude it from being a "testamentary trust" within the meaning of subsection 108(1).