2021 Ruling 2020-0862431R3 F - Variation of a trust deed and addition of new beneficiaries -- summary under Disposition

Background

Ms. X was the “first trustee” (with special rights regarding the appointment or replacement, but not removal, of trustees) of a discretionary trust of which her spouse (Ms. Y), two brothers (Brother C and Brother D) and children of the brothers were beneficiaries. The trustees (Ms. X and Mr. A, who had to act unanimously re beneficiary designations) had the power to add additional beneficiaries, including corporations whose only shareholders, or trusts whose only beneficiaries, were certain of the persons referred to in the trust deed. The trust deed could be amended pursuant to a court order.

Proposed transactions

1. Pursuant to a court order, the list of beneficiaries which can be designated will be expanded to include inter alia corporations whose shareholders also include corporations or trusts which had previously been added as beneficiaries.
2. Following this amendment, Brother C and his two children will incorporate Cco and subscribe for shares of Cco, Brother D and his two children will incorporate Dco and subscribe for shares of Dco, Cco and Dco will subscribe for shares of newly incorporated Eco, and Ms. Y will subscribe for shares of newly incorporated Fco.
3. Cco, Dco, Eco and Fco will be added by written designation of the trustees as beneficiaries.

Rulings

The obtaining of the Court judgment amending the Trust Deed and the addition of Cco, Dco, Eco and Fco as beneficiaries will not, in and of itself, result in a disposition of all the property of the Trust.

Such obtaining of the Court judgment will not, in and of itself, result in a disposition by the existing beneficiaries, of any part of their respective interests in Trust (including for the purposes of ss. 106(2) and 107(1)) nor will they be considered to have received proceeds of disposition as a result of the addition of the beneficiaries and, for greater certainty, s. 69(1)(b) will not apply as a result of this addition..

The CRA summary states:

The addition of a new beneficiary to a discretionary trust by the exercise of a power to add such beneficiary in the trust deed results in a disposition, by the existing beneficiaries, of a portion of their interest in the trust. However, provided the existing beneficiaries do not direct to whom the interest is transferred, they would not be deemed to have received proceeds of disposition under paragraph 69(1)(b). This is also true for the trustee/beneficiary who, in this particular situation, is not considered to have control over the decision to add a new beneficiary.