CRA doubts that a lifetime benefit trust can qualify as such in Ontario

A will that is drafted in a province such as Ontario, which is subject to a 21-year accumulations limit, will establishes a lifetime benefit trust (LBT) for the benefit of the testator's dependent mentally infirm child, provides for the residue clause to pass to the child’s siblings, and is silent as to what happens after the end of the accumulations period.

Upon the passage of the accumulations period, the LBT income would fall into the residue and become payable to the siblings. Would the LBT qualify as such from the testator's death until year 22 (or thereafter)? CRA responded:

[W]e believe that the accumulations legislation still in force in some provinces conflicts with the LBT rules in the Act. We have serious reservations about whether the arrangement described above could qualify as an LBT, given the possibility that trust income could be diverted away from the mentally-infirm LBT beneficiary after the end of the accumulations period. This result would be inconsistent both with the text of subparagraph 60.011(1)(b)(i) and with the overall policy goals of the LBT regime.

… [H]owever, we are considering the question further and will provide a more detailed response in a forthcoming technical interpretation [see 14 October 2022 External T.I. 2021-0913801E5].

Neal Armstrong. Summary of 15 June 2021 STEP Roundtable Q. 14, 2021-0883211C6 - Revised - Lifetime benefits trust under s. 60.011(1)(b)(i).