Assume that the will of a deceased person creates a graduated rate estate, and several testamentary trusts for the testator‘s children or grandchildren. For various reasons, no property is transferred to these testamentary trusts, and all property remains in the graduated rate estate for a period of time. When did the testamentary trusts came into existence for purposes of the 21-year deemed disposition rule?
CRA indicated that trusts being created from the residue of an estate are generally viewed as arising on death, where the will requires or directs the executor or the trustee to hold the residue of the estate in the trust for the testator’s children during their lifetime. If, for example, where the will provided for the residue of the estate to go to the testator’s child and also provided that, on that child’s death, the property would remain in a trust for the testator’s grandchildren, CRA would consider there to be just one trust, so that the same initial date would apply in that situation as well.
Unusually, the creation date of the testamentary trust might not be concurrent with the testator’s date of death - for example, the will provides that, on the date of the death of the first-generation beneficiaries, such as the spouse, the trustee is to divide the remaining property into equal parts and hold that property in new trusts for each of the testator’s children. In that situation, the latter trust may be viewed as being created some time after the testator’s date of death. However, the deemed disposition date of those new trusts would still be based on the testator’s date of death because of the rule in s. 104(5.8).