26 May 1997 External T.I. 9704805 - 21 year rule - two 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 Department.

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

Principal Issues:

1. Where the assets of a testamentary spousal trust & other testamentary trust are to be combined into one trust after the death of the surviving beneficiary- which date is applicable for purposes of the 21-year rule. re 104(5.8)

2. Where will provides for assets from spousal trust to be transferred to a new trust for the children upon the spouse's death & will also provides for children to have another testamentary trust upon surviving spouse's death will the dept apply 104(2) so to aggregate the two trusts. If so, what date will 104(4) apply?

Position:

1. earliest deemed disposition date applies to assets from both trusts.

2. depends on facts

Reasons:

1. as 104(5.8) does not contemplate 2 transferor trusts and one transferee trust, so use earliest of all possible dates; also deemed disposition applies to all applicable assets at the same time.
2. responsibility to apply 104(2) lies with Minister designated authority - Director of TSO; general guidelines given
	                           				970480
XXXXXXXXXX                         				 L. Holloway
(613) 957-2104
Attention:  XXXXXXXXXX

May 26, 1997

Dear Sirs:

Re: Twenty-One Year Deemed Disposition of Trust Property

This is in reply to your letter of February 17, 1997, wherein you requested that we provide an interpretation with respect to the applicability of subsection 104(5.8) to a particular fact situation.

The situation presented in your letter appears to represent an actual fact situation and as explained in Information Circular 70-6R3, your enquiry should be directed to your local Tax Services Office. While we cannot respond to your enquiry in absence of knowing all the relevant facts, including the exact terms of the testator's will, we can however provide you with the following general comments which may be of assistance to you.

Your letter described a will which created two testamentary trusts, a spousal trust described in paragraph 104(4)(a) and a family trust of which the spouse and children are beneficiaries. The will also provides for the transfer to a third trust of the assets in the spousal and family trusts upon the death of the spouse. We agree with your observation that the twenty-one year deemed disposition legislation does not contemplate the situation whereby two transferor trusts are combined to create one transferee trust. Note that if all interests in the third trust have vested indefeasibly and no interest may become effective in the future, by virtue of the definition of "trust" in subsection 108(1), subsection 104(4) (among other subsections) would not be applicable to this trust.

As subparagraph 104(5.8)(a)(i) outlines the "earliest of" several dates, in the situation described, where the spouse dies before the family trust would otherwise be subject to subsection 104(4), this date would be 21 years from the date of the original testator's death and not 21 years from the date of death of the spouse. The date of this deemed disposition would apply to each property of the transferee trust described in subsections 104(4) to (5.2).

Your second question concerns the applicability of subsection 104(2) where the will allows for the maintaining of two separate trusts upon the death of the beneficiary spouse. The authority of the Minister to make a designation under subsection 104(2) has been delegated to the Director of Tax Services of the relevant Tax Services Office and as such each designation made will be fact specific. While not exhaustive, a list of some of the factors which may be considered in such a determination include:

-whether or not there was a clear intent by the testator, as evidenced by the terms of the will, to create separate trusts,

-whether or not the trusts had common beneficiaries,

-whether or not the assets of each trust were segregated and accounted for separately (e.g. separate bank accounts, no undivided interests in property, separate accounting records), and

-the conduct and powers of the trustees.

If subsection 104(2) were applied to the situation whereby two separate trusts were maintained, then, as previously stated, subsection 104(5.8) would apply to deem the disposition of the (combined) trust's assets on the date that is 21 years after the date of the testator's death.

We trust our comments will be of assistance to you.

Yours truly,

T. Murphy
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

??