A discretionary inter vivos family trust (the “Old Trust”), which was approaching its 21st anniversary, had provisions in its declaration of trust which contemplated that, prior to that anniversary, the trustee would make an irrevocable declaration establishing the respective shares to the trust fund of the family beneficiaries, so that the trust fund would be distributed to those beneficiaries except those who were “designated persons” (i.e., grandchildren who were minors), whose respective shares as so determined would instead be held for them until they attained the age of majority. Designated person status was relevant under s. 74.4 given that the Old Trust had subscribed for common shares of a holding company (ACO 1), which had been formed to hold shares held by the family patriarch (Mr. A) of a Canadian public company (Pubco), in connection with an estate freeze transaction. After an amalgamation of ACO 1 to form ACO 2, the Old Trust transferred its common shares of ACO 2 to Holdco for Holdco common shares.
In order to address “ambiguities” in the declaration of trust for Old Trust, a judgment was obtained from the Quebec Superior Court declaring that the ambiguities were resolved as sought by the trustee. All the assets of the Old Trust (being mostly the common shares of Holdco) were transferred to a new trust (“New Trust”), whose trustee was the same “Initial Trustee,” and whose terms were “for all practical purposes” the same as for the Old Trust but “adjusted to take into account the conclusions of the declaratory judgment rendered.”
CRA ruled that this transfer was deemed not to be a disposition under the exception in para. (f) of the s. 248(1) disposition definition (and so that s. 248(25.1) deemed the new trust to be a continuation of the old), and also provided an opinion that the making by the trustee of the designation, which was deemed under the New Trust terms to become irrevocable immediately before the 21st anniversary of the Old Trust (or on him ceasing to be a trustee, if sooner), thereby causing all the interests in the new trust to indefeasibly vest in the beneficiaries in accordance with their declared shares, did not detract from the minor grandchildren continuing to comply with s. 74.4(4)(b). In particular, CRA opined that provided that the terms of the Deed of Trust for the new trust are such that a designated person beneficiary may not receive or otherwise obtain the use of the income or capital of the trust before the date of death of Mr. A, the irrevocable determination respecting all interests in the capital and income of the new trust will not, by itself, result in the requirements of s. 74.4(4)(b) not being satisfied respecting the transfer of the shares of Pubco to ACO 1 described above.