Principal Issues:
1. Whether property distributed from a trust to a parent or other guardian of a minor beneficiary of the trust will be considered to be held by the parent or guardian in a new trust?
2. If so, will 104(5.8) apply, such that the new trust will not be able to avoid the impending deemed disposition pursuant to subsection 104(4)?
Position:
1. Question of fact and law.
2. It is our view that a trust (other than an excluded trust as per ¶(f) or (g) of the definition of “trust”) in which there is only one beneficiary (e.g. the minor) and that beneficiary’s interest in the trust is vested indefeasibly, the conditions of paragraph (g) of the definition of “trust” in subsection 108(1) will be met, in which case 104(4) will not apply to the (new) trust even though 104(5.8) could otherwise apply.
Reasons:
1. A new trust could be created intentionally. Nevertheless, in other situations, whether or not the holding of property by a parent or guardian on behalf of a minor constitutes a trust is a legal question the answer to which may depend on provincial legislation as well as the facts of a particular case.
2. Background: In order to avoid the (in many cases) impending 21-year deemed disposition rule for trusts pursuant to 104(4), a trust may decide to distribute its assets to the beneficiaries. However, where the beneficiary is a minor, the distribution may be made to a parent or guardian of the minor due to the fact that minors do not have the capacity to enter into legally binding contracts.
If the parent or guardian is considered to hold the distributed trust property in (a new) trust for the minor, 104(5.8) would generally apply to the new trust, in which case the impending deemed disposition rule will not be avoided. However, 104(4) will not apply if the new trust is excluded from the definition of “trust” in 108(1); i.e., by virtue of paragraph (g), which excludes certain trusts where all interests in the trust have vested indefeasibly and no interest in which may become effective in the future. Where there is only one beneficiary (e.g. the minor) and that beneficiary’s interest in the trust is vested indefeasibly, there is no other interest in the trust which must be determined prior to the minor’s interest becoming effective, and thus the conditions of paragraph (g) will be met.