CRA treats a transfer from one testamentary trust to another pursuant to a will direction as a non-tainting contribution from the deceased

If a testator’s will directs that the residue of a spousal trust created under the will be transferred, on the death of the spouse, to a second trust for their child, also established under his will, would this transfer cause the child trust to cease to be a testamentary trust? The testamentary trust definition in s. 108(1) requires that this transfer to it be considered to be a contribution to it by the deceased as a consequence of his death, and s. 248(8)(a) provides that a transfer of property as a consequence of the terms of the will is deemed to be a transfer as a consequence of the deceased’s death (but doesn’t explicitly deem the transfer of the property from the spousal trust to be a transfer made instead by the deceased).

CRA likely will treat the transfer to the child trust as a transfer made to it by the deceased, notwithstanding that this transfer occurred subsequently to his death and in fact was made by the spousal trust – so that the child trust likely will continue to qualify as a testamentary trust.

Neal Armstrong. Summary of 16 December 2014 T.I. 2014-0539841E5 F under s. 108(1) – testamentary trust.