The beneficiary of a testamentary spousal trust renounces all entitlements under the trust (other than income that has accrued to date) without consideration and without having indicated who was entitled to benefit from the renunciation. The residual beneficiaries of the trust, who are prohibited by the trust terms from receiving any distributions during the spouse’ lifetime, obtain a court order to permit distributions to them prior to the spouse’s death. In finding that such trust variation would not alter the application of the s. 70(6) rollover on the initial formation of the spousal trust, or in a current disposition, CRA stated:
[O]nce a trust qualifies as a spouse trust under the terms of subsection 70(6), it remains a spouse trust and is subject to the provisions affecting such trusts (for example, paragraph 104(4)(a)) even if its terms are varied by agreement, legal action or breach of trust. Thus, a renunciation by the spouse after the application of paragraph 70(6)(b) of would not normally call into question the application of that paragraph.
Furthermore, a renunciation, as such, does not result in a disposition of the trust property. The trust remains subject to the application of paragraph 104(4)(a) upon the death of the disclaiming spouse.