Principal Issues: (1) Can the CRA provide comments as to when it views a testamentary trust to be created? (2) Can the CRA ever envision circumstances where such a trust could be created at a time long after the time of the decedent's death while still retaining the status of a testamentary trust?
Position: (1) A testamentary trust is generally created on the day that a person dies. (2) The terms of the will may provide that on the death of the first generation beneficiary (e.g., the spouse or common law partner), the trustee is to divide the remaining property into equal parts for the children and then create a new trust for the interest of each child. The trusts for the interest of each child would be testamentary trusts as they may be said to arise on and as a consequence of death even though the official create date of the new trusts is at a later point in time.
Reasons: Wording in subsection 108(1) of the ITA.
2007 STEP Round Table
Q. 3 Commencement Date of a Testamentary Trust
The definition of "testamentary trust" in subsection 108(1) of the ITA and the clarifying provisions of subsections 248(8) and 248(9.1) are relevant in situations where a deceased taxpayer provides provisions in his /her will to create a trust. However, the provisions are not explicitly clear on the timing of when such a testamentary trust is created. Can the CRA provide comments as to when it views a testamentary trust to be created? Can the CRA ever envision circumstances where such a trust could be created at a time long after the time of the decedent's death while still retaining the status of a testamentary trust?
Response
A testamentary trust is defined in subsection 108(1) of the ITA as a trust or estate that arose on and as a consequence of the death of an individual, subject to certain conditions. Consequently as stated on page 7 of the 2006 T3 Trust Guide, a testamentary trust is generally created on the day that a person dies.
With regard to the last query, the terms of the will may provide that on the death of the first generation beneficiary (e.g., the spouse or common law partner), the trustee is to divide the remaining property into equal parts for the children and then create a new trust for the interest of each child. The trusts for the interest of each child would be testamentary trusts as they may be said to arise on and as a consequence of death even though the official create date of the new trusts is at a later point in time.
With respect to the application of the "21 year deemed disposition rule," it should be noted that the deemed disposition date of the new trusts will be determined in accordance with the rules set out in subsection 104(5.8) of the ITA.
For further commentary, see CRA documents 9226315 and 9801035.
June 8, 2007