Under the terms of a deceased person's will, all property is bequeathed in equal shares to the deceased’s children. The heirs, in order to financially protect their sister until her death given her precarious health, have signed an agreement whereby the net assets of the estate will be held in trust in a separate account and administered by three of the deceased's children, so that income and encroachments on capital can support her until her death, with the remaining net assets, upon her death, being distributed to the remaining children. CRA stated:
Without a review of the terms of the will and the agreement signed by the heirs, we cannot determine whether the net assets that are held "in trust in a separate account" constitute a trust that was established under the will of the deceased. In addition, we cannot establish that the provisions of subsection 248(8), including that a transfer, distribution or acquisition of property has occurred under or as a consequence of the terms of the will or other testamentary instrument and therefore may be considered to be a transfer, distribution or acquisition of the property as a consequence of the death of the deceased person. Therefore, it is unlikely that income derived from net assets held in trust in a separate account would be subject to progressive personal income tax rates. If the entity created by the heirs is a trust for civil law purposes but is not a testamentary trust for the purposes of the Act, the provisions of subsection 75(2) apply to the heirs resulting in an allocation of income on the property they have transferred to the trust (or property substituted for it) since it is expected that the property will revert to them at the time of their sister's death.