29 January 2003 External T.I. 2002-0143685 - RRSP/RRIF and testamentary trusts

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether a trust funded from the proceeds of an RRSP or RRIF available on the death of an individual would qualify as a "testamentary trust" within the meaning of subsection 108(1) of the Act.

Position: General comments

Reasons: Wording of the Act and previous positions.

XXXXXXXXXX 2002-014368
Éric Allard-Pouliot
January 29, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request : RRSP/RRIF and Testamentary Trusts

This is in reply to your letter of June 22, 2001, which was forwarded to us on May 31, 2002, regarding the above-noted subject. More particularly, you request our opinion as to whether a trust, funded from the proceeds of a registered retirement income fund ("RRIF") or registered retirement savings plan ("RRSP") available on the death of an individual and the terms of which have been established by the deceased individual during his lifetime, separate from his will, would qualify as a "testamentary trust" within the meaning of subsection 108(1) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments which may be of assistance.

Comments

In your request you refer to document # 9238555, issued by this Directorate, as supporting your submission that a trust funded from the proceeds of an RRIF or RRSP available on the death of an individual, and the terms of which have been established during the individual's lifetime separate from his will, should be viewed as a "testamentary trust" within the meaning of subsection 108(1) of the Act. In the said document, we stated that a trust funded from the proceeds of a life insurance policy available on the death of an individual and the terms of which have been established by the individual during his lifetime, separate from his will, will be viewed as a "testamentary trust" within the meaning of subsection 108(1) of the Act. This position was reiterated in documents # E 9605575 and E 9625975.

The position outlined in these documents was recently addressed by this Directorate in documents # E 2000-0059755 and E 2001-0075375, in which we made the following comments:

"That opinion was based on the understanding that no amount would be settled on the insurance trust prior to the receipt of funds from the insurance policy as a result of the individual's death, that the individual who died was the owner of the policy and had designated the trust as the beneficiary of the insurance policy and that the insurance designation was a testamentary instrument. Although the terms of such a trust may be set out before the individual's death, separate from the individual's will, our comments were based on the understanding that the trust would not be created until such time as the insurance proceeds were settled upon the trust. It remains our view that a trust which is settled prior to the individual's death remains an inter vivos trust following the death of that individual, even though it may receive the bulk of its capital as a beneficiary under an insurance policy."

In our view, these comments also apply with respect to an RRSP or RRIF funded trust as described in your request.

It follows therefore that in order for a trust, funded from the proceeds of an RRIF or RRSP available on the death of an individual and the terms of which have been established during the individual's lifetime separate from his will, to be viewed as a "testamentary trust" within the meaning of subsection 108(1) of the Act, the following conditions must be met:

(a) The trust was created by the deceased individual or his legal representative;

(b) The deceased individual had designated the trust as the beneficiary of the RRSP or RRIF;

(c) The designation of the trust as beneficiary of the RRSP or RRIF is considered under the applicable provincial legislation to be a testamentary instrument;

(d) No property was contributed to the trust prior to the receipt of the proceeds of the RRIF or RRSP on the death of the individual; and

(e) No property is contributed to the trust otherwise than by an individual on or after the individual's death and as a consequence thereof.

With respect to this latter requirement, it must be noted that it would not be met where the properties held in the RRSP or RRIF are not owned by the deceased individual. For example, this would be the case where the RRSP or RRIF is held in a trust. In such a case, the contribution would be considered as being made by the trust and not by the deceased individual. Since such a contribution would not be made by an individual on or after the individual's death and as a consequence thereof, it would prevent the trust funded with this contribution from qualifying as a "testamentary trust" within the meaning of subsection 108(1) of the Act (see documents # E 2000-0059755, E 2001-0075375 and E 2000-007985).

The above comments are an expression of opinion only and are not binding on the Canada Customs and Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R5. We trust that the foregoing will be of assistance to you.

Alain Godin
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch