Background
An inter vivo trust (“Trust1”) has the children and spouse of Mr. X and Aco (a corporation of which Trust 1 holds shares) as beneficiaries. The trustees are Mr. X and Mr. A, but with Mr. A as the “First Trustee” having special rights including the right to appoint replacement trustees, and the power to designate by will how the capital and income interest of a deceased beneficiaries will be allocated to the other beneficiaries.
Proposed transactions
Trust 2 will be created by the delivery by the settlor, a person who is neither a trustee nor a beneficiary, of a bar of silver. The trustees of Trust 2 will be Mr. X and Mr. A. The beneficiaries will be the same as the current beneficiaries of Trust 1. The terms of Trust Deed 2 will be for all intents and purposes the same as those of Trust 1, except that the Trust Deed 2 will grant the trustees the power to effect an irrevocable vesting of the interests in favour of the beneficiaries at their discretion.
The trustees of Trust 1 will transfer all of the property of Trust 1 to Trust 2, so that Trust 1 will terminate. Trust 2 will not elect to avoid the application of para. (f) of the definition "disposition" in s. 248(1).
Subsequent transactions
After the transfer to Trust 2 described above and before the 21st anniversary of the date of creation of Trust 1, the trustees will distribute property of Trust 2 to Ms. X in satisfaction of her entire capital interest.
After such distribution and before such 21st anniversary, the trustees of Trust 2 will exercise their discretion under Trust Deed 2 to effect, by deed or in writing before witnesses, the irrevocable vesting of the entire income and capital interests of Trust 2 in favour of each of the children who are then beneficiaries, in equal shares.
Rulings
The transfer of property from Trust 1 to Trust 2will not result in a disposition Trust 1 by virtue of para. (f) of the definition of "disposition."
Trust 2 will be deemed to be the same trust as and a continuation of Trust 1 pursuant to s. 248(25.1)(a) and the transfer of property from Trust 1 to Trust 2 will not result in a disposition of a beneficiary's interest in Trust 1 for the purposes of ss. 106 and 107.
S. 104(5.8) will apply, so that pursuant to s. 104(4), if applicable, Trust 2 will be deemed to have disposed of each of its assets referred to in that subsection on the day that is 21 years after the day Trust 1 was established.
Opinion
To the extent that the conditions in ss. (g)(iii), (iv) and (vi) of the definition of "trust" in s. 108(1) do not apply to Trust 2 and the trustees irrevocably vested all interests in the capital and income of Trust 2 so that the respective shares of each of the beneficiaries of Trust 2 would, at the end of the day that is 21 years after the day on which Trust 1 was established, be irrevocably vested, s. 104(4), as it currently reads, would not apply to Trust 2 because of the exclusion in para. (g) of the definition of "trust" in s. 108(1).