7 August 1998 Internal T.I. 9818696 - INTERVIVOS VS. 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 Department.

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

Principal Issues: intervivos vs. testamentary trust of particular trusts

Position: based on facts - trusts in this case are intervivos

Reasons: trust clearly established prior to taxpayer's death

August 7, 1998

	INCOME TAX APPEALS DIVISION	L. Holloway
	John Crowley - Manager	Trusts Section

Attention: Domenic Amendola
981869

XXXXXXXXXX Trusts

Inter Vivos vs. Testamentary Trusts

This is in response to your memorandum dated July 20, 1998, concerning the question of whether the above named trusts could be considered testamentary trusts as defined in subsection 108(1) of the Act.

XXXXXXXXXX

The taxpayer’s representative relies on an excerpt from a technical interpretation quoted in a 1993 edition of The Canadian Taxpayer which basically states that a trust funded from the proceeds of a life insurance policy available on the death of an individual will be considered to be a testamentary trust even where the terms of that trust have been established during the taxpayer’s lifetime. Based on their interpretations, they feel the same treatment should be afforded to the XXXXXXXXXX trusts.

Our Comments

The document quoted by the taxpayer in support of their claim that the trusts in question should be considered testamentary is not applicable to this particular situation. The facts surrounding the previous letter involved 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”. In other words, there was no property settled upon the trust until the death of the individual and payout of the policy proceeds. Until that payout, one of the three certainties which must be present in order to establish the trusts’ existence, the “certainty of subject matter”, cannot be met.

In the case of the XXXXXXXXXX Trusts, the trusts were settled, albeit with a nominal amount, prior to the death of the settlor, hence they are inter vivos as opposed to testamentary trusts. In document number 962567 dated October 7, 1996, (available to the taxpayer’s representative via the CCH Windows database) we again commented on the establishment of a testamentary trust with insurance proceeds. In that document we stated:

“We also agree with your comment that if the insured establishes a trust during his/her lifetime with a nominal settlement and leaves the trust dormant until the insurance proceeds become payable, this trust will come into existence at the time of the settlement.

The definition of testamentary trust in subsection 108(1) of the Income Tax Act (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. In the case where the settlor leaves the trust dormant, we are of the opinion that the trust will not qualify as a testamentary trust.”

We are of the opinion that the XXXXXXXXXX trusts are indeed inter vivos trusts and while the intention may have been to set up testamentary trusts, the settlor’s will recognizes the existence of these trusts and does not purport to establish the trusts upon the death of the settlor.

Should you have any questions concerning the comments above, please contact Lena Holloway at (613) 957-2104.

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

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