Principal Issues:
1. Would the addition of a beneficiary to a discretionary trust, as permitted under the terms of the trust, result in a resettlement of the trust property?
2. Would the addition of a beneficiary to a discretionary trust result in a disposition of any part of the existing beneficiaries' interest in that trust?
3. If yes to 2., what is the FMV of that interest?
Position:
1. No.
2. Yes, it would result it a partial disposition of the interest of each of the existing beneficiaries.
3. While not free from doubt, the value of each beneficiary's interest at a particular point in time would approximate a proportionate share of the FMV of trust property at that time.
Reasons:
1. The terms of the trust have provided for the addition of beneficiaries from the beginning such that the trustees' exercise of their right to add such a beneficiary does not create a new trust.
2. The addition of another beneficiary varies the rights of the existing beneficiaries such that they are considered to have disposed of a portion of their interest in the trust.
3. CCRA response to this question at the 1992 BC Conference of the CTF was that it was admittedly difficult to quantify the value of an interest in a discretionary trust. It would be unreasonable to conclude that the FMV of an interest is a discretionary trust holding property with significant value has no value simply because it is difficult to measure. In absence of any term of the trust that would direct the trustees to favour one beneficiary over another, the even handed principle would suggest that value of each beneficiary's interest was approximately equal. Where the facts support a finding that one beneficiary has a lesser chance of receiving a distribution from the trust than another beneficiary, it may be appropriate to discount the value of one interest and increase the value of another.
