Background
An inter vivos Quebec trust (the “Old Trust”), which was settled some time ago by an individual unrelated to Mr. A, has as its (exclusively resident) beneficiaries, the two (now adult) children of Mr. A, a private family corporation and those among Mr. A’s grandchildren or nieces and nephews as are designated by the Initial Trustee (an individual, in turn, designated by Mr. A). Under the Deed of Trust, the Initial Trustee may determine by notarial deed and in advance the portion of the trust capital which will be distributed to each beneficiary and on what terms. No distributions are permitted to beneficiaries while they are designated persons. On the Winding-up Date (occurring one day before the 21st anniversary of the settlement date) the capital is to be distributed to the beneficiaries in such portions as determined in the Initial Trustee’s discretion. Although there apparently is no ability to amend the Trust Deed, the trustee may request a court to amend the terms of the Deed of Trust or, in his discretion, transfer the property of the trust to one or more other trusts if their beneficiaries are the same and the beneficiaries’ rights are not changed. Since its settlement, no beneficiary has received or otherwise utilized any income or capital of Old Trust, which has held only common shares (but not the dividend-bearing preferred shares) of holding companies and the gold coin with which the Old Trust was settled.
Proposed transactions
The Trust will receive a declaratory judgment of the Quebec Superior Court addressing various question of interpretation respecting the Deed of Trust including that, once an advance determination by the Initial Trustee has been made as to the beneficiaries’ shares as described above, the right of each such beneficiary to his or her share (including the share of a minor which is held in trust for him or her until the age of majority) will not be subject to any modification. The purpose of this declaration (TaxInterpretations translation):
to clarify the extent of the rights of the beneficiaries in order to determine if the transfer of the property of the [Old] Trust to the [New] Trust [described below] is feasible taking into account that the provision of the Deed of Trust of the [Old] Trust are imprecise and ambiguous, particularly as regards the determination as to whether the Initial Trustee can utilize his right of election to grant property or a portion of the [Old] Trust property irrevocably to his [grandchildren] and that the property or such portion of the property is turned over to them on their majority or, in the case of their deceasing, to their heirs of the age of majority.
The New Trust, which will be settled by an individual unrelated to Mr. A with a silver coin, will have “for all practical purposes” the same terms as the Old Trust but “adjusted to take into account the conclusions of the declaratory judgment rendered.”
The Old Trust will transfer all its property (being the Holdco common shares and the gold coin with which it was settled) to the New Trust, and the Old Trust will terminate.
The New Trust will not file an election under s. 248(1) – disposition – para. (f) – subpara. (v) for that para. not to apply.
Subsequent transactions
Prior to the Winding-up Date, the Initial Trustee will exercise his discretionary power pursuant to the Deed of Trust for the New Trust for making an advance determination of the portions of the trust capital and income which will be distributed among Mr. A’s children and grandchildren who are beneficiaries. Such determination will become an irrevocable determination on the first to occur of the day preceding the Winding-up Date and that before the Initial Trustee ceases to be a trustee.
On that date, such distribution will be made to them except for those who are designated persons, whose previously determined share will be held in trust for them until they cease to be designated persons.
Rulings
Include that to the extent that the beneficiaries of the New Trust and their respective rights under the Deed of Trust are the same as under the Deed of Trust for the Old Trust, as interpreted in light of the declaratory judgment, the property transfer to the New Trust will not entail a disposition by virtue of para. (f) (and s. 248(25.1) will deem the New Trust to be a continuation of the Old Trust, and there will thereby be no disposition of the beneficiaries’ interests.)