17 December 1996 External T.I. 9605575 - TESTAMENTARY TRUST - INSURANCE PROCEEDS

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 Department.

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

Principal Issues:

Whether a trust meets the definition of a testamentary trust where it is funded by insurance proceeds

Position:

Where a trust has been established in a testator's will, it is our opinion that the payment of an insurance policy available on the testator's death will not, in and by itself, jeopardize the status of a testamentary trust. Where a trust has been 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, we will consider such a trust as a testamentary trust within the meaning of subsection 108(1) of the Act as it has been created on or after the insured's death or as a consequence thereof.

Reasons:

ccm 962597

	                         					5-960557
XXXXXXXXXX                      				(613) 957-8953

Attention: XXXXXXXXXX

December 17, 1996

Dear Sirs:

Re: Testamentary Trust

We are replying to your letter of February 1, 1996, wherein you requested our opinion as to whether a separate insurance trust can qualify as a testamentary trust. We apologize for the delay in responding to your inquiry.

As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate tax services office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Income Tax Act (the "Act"). However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

The definition of testamentary trust in subsection 108(1) of the Act excludes trusts created after November 12, 1981 if property has been contributed to the trust otherwise than by an individual on or after his death and as a consequence thereof. Where a trust has been established in a testator's will, it is our opinion that the payment of an insurance policy available on the testator's death will not, in and by itself, jeopardize the status of a testamentary trust.

Also, where an individual designates a trust as a beneficiary of an insurance policy available on his death, it is our opinion that even though the terms of the trust have been established by an individual during his lifetime and separate from his will, such a trust will be considered as a testamentary trust within the meaning of subsection 108(1) of the Act as it has been created on or after the individual's death or as a consequence thereof. In other words, it is our opinion that the trust will come into existence when insurance proceeds are paid to the trust rather than when the insured designates the beneficiary in the insurance contract.

We trust that the above comments will be of assistance to you.

for Director
Resources, Partnerships and
Trust Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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