Principal Issues: taxpayer has asked whether the CRA would consider that a trust exisits...
Position: the determination is a legal matter
Reasons: taxpayer referred to CTF article indicating likely no trust however no comment given as quedtion did not involve a matter of tax law interpretation
XXXXXXXXXX 2007-025652 Lena Holloway Attention: XXXXXXXXXX
November 7, 2007
Dear Sir:
Re: Viability of a testamentary trust or a spousal testamentary trust
This is in reply to your letter of October 19, 2007, concerning the viability or existence of a valid trust where the situation is such that the beneficiary and the trustee is the same person.
You had asked for our position on the existence of a trust where a bequest is left in trust for an individual (or spouse) and that individual is also named as sole trustee of the trust. Your letter stated that it was the intent of the taxpayer that the bequest be left for an intended beneficiary through a testamentary trust in order to take advantage of the preferred graduated tax rates "without complicating it by introducing another individual to act as a trustee."
Our Comments
Your question is not a matter of income tax legislation interpretation but rather is a legal determination. The Canada Revenue Agency does not provide legal advice or opinions to third parties and does not issue rulings on the interpretation or application of common law or Provincial trust legislation. However we would like to draw your attention to statements which appeared in an article in the 2000 Ontario Tax Conference Report entitled "Using Alter Ego And Joint Partner Trusts As Will And Power Of Attorney Substitutes For The Elder Client" written by Margaret R. O'Sullivan. The relevant excerpt from this article follows: "It is trite law that given the creation of a trust involves the separation of legal and beneficial ownership of property, if one person has the entire legal and beneficial interest in property, there is no trust. ...It would seem that where a person acts as his or her sole trustee, and also has a life interest in the income, as well as a power to revoke, and to draw on the capital as he or she sees fit, and if further complicated by the retention of a power of appointment over the trust property, an argument can be made that a valid trust has not been established, and that there was no true intention to establish a trust, nor any real alienation of beneficial interest on others. The ambiguous state of the law in Canada on these issues leaves the matter unclear."
We trust our comments will be of assistance.
T. Murphy
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch