CRA indicates that a deemed disposition under s. 104(4) could be avoided through irrevocable vesting of interests in a transferee trust to the current trust

Mr. X did not wish his four children - who along with his wife and a family company were the beneficiaries of an inter vivos trust (“Trust 1”) holding shares of family companies – to be distributed the assets of Trust 1 (such shares) immediately before the 21^st anniversary of the settling of Trust 1. Accordingly, it was proposed that the assets of Trust 1 be transferred to a newly-settled second trust (“Trust 2”), which would have the same beneficiaries and essentially the same terms as Trust 1, except that it would contain a clause authorizing the trustees to effect the irrevocable vesting of shares of the Trust 2 assets in beneficiaries pursuant to a written instrument.

Before the 21^st anniversary of Trust 1, Trust 2 would distribute a portion of its assets to Mr. X’s spouse in satisfaction of her capital interest in that trust, and the trustees (again before that anniversary) would make the written designation causing the irrevocable vesting of equal shares of the trust assets in the children beneficiaries who were then alive.

CRA ruled that the trust-to-trust transfer would be deemed not to be a disposition pursuant to para. (f) of the definition of “disposition.” In this regard, it stated in its summary:

The new trust is identical to the original trust, except that the new trust permits indefeasible vesting. In this particular situation, the beneficiaries' respective rights are not affected by the trust-to-trust transfer and hence, the trust-to-trust transfer does not result in a change in beneficial ownership.

It further ruled that the trust-to-trust transfer would not entail a disposition of interests in the trust.

It also provided an opinion that the subsequent causing of irrevocable vesting to occur would avoid a deemed disposition under s. 104(4) (provided that the usual conditions in ss. (g)(iii), (iv) and (vi) of the definition of "trust" in s. 108(1) were satisfied).

Neal Armstrong. Summary of 2022 Ruling 2020-0858451R3 F under s. 108(1) – trust – (g).