12 February 1996 External T.I. 9335775 F - Revocable Living Trusts (Grantor 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.

PRINCIPAL ISSUES:

Is a transfer of property to a revocable living trust a transfer at fair market value of the remainder interest only? (Question 33 of the 1988 Revenue Canada Round Table)

POSITION:

Transfer of the property will be at its full fair market value at the time that legal title is transferred to the trust. Question 33 of the 1988 Round Table is withdrawn.

REASONS:

See summary to file 6M11900 ("Summary")

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

Re:  Revocable Trusts

This is in reply to your letter dated November 29, 1993, regarding revocable trusts.  We apologize for the delay in our response.

You have requested our opinion as to the income tax consequences of a transfer of property to a trust resident in Canada which will be used to reduce the impact of provincial probate fees as property held by the trust will not form part of the settlor's estate.

In your specific scenario, property is transferred to a trust ("revocable living trust") which has the following terms:

1.     the settlor is the sole income beneficiary of the trust during his lifetime;

2.     while the trust exists, the trustees must pay to, or for the benefit of, the settlor as much of the trust's annual income and any realized capital gains as the settlor may request.  For this purpose, the income of the trust is its net income calculated without reference to the provisions of the Income Tax Act.  Realized capital gains are capital gains as calculated in accordance with the provisions of the Income Tax Act;

3.     upon the settlor's death, the property will be distributed to the settlor's spouse if she is then alive; if the settlor's spouse is not alive at that time, the property will be distributed to the lineal descendants of the settlor who are then alive in equal shares per stirpes;

4.     the trust is a revocable trust in that the settlor may, at any time, call for the dissolution of the trust and cause all property then held by the trust to be returned to the settlor;

5.     the terms of the trust may be amended at any time by the settlor during his lifetime, although no such amendment will be permitted to affect the settlor's power to revoke the trust; and

6.     the trust will have one or more trustees who may or may not include the settlor; regardless of whether or not the settlor is a trustee, the trustees will be bound to act in accordance with the settlor's power referred to in 4 above, if said power is exercised.

Following a detailed study of the tax implications of revocable living trusts we announced at the November 1995 annual conference of the Canadian Tax Foundation that a revocable living trust will be recognized for income tax purposes at the time that legal title to property is transferred to it and that the transfer of the property is at its full fair market value (i.e., question 33 of the 1988 Revenue Canada Round Table is withdrawn).

In view of the foregoing, it is unnecessary to respond to the other technical interpretations requested.

We hope the foregoing is of assistance.

Yours truly

for DirectorManufacturing IndustriesPartnerships and Trusts DivisionIncome Tax Rulings and Interpretations DirectoratePolicy and Legislation Branch