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: Whether the terms of a testator's will creates a trust.
Position: Determination of the intention of the testator. The absence of a transfer or conveyance of the property to a trustee precludes a conclusion that the testator did intend to create a trust.
Reasons: Examination of the Will and jurisprudence.
XXXXXXXXXX
2011-042247
Lucie Allaire, LLB, CGA, D. Fisc
March 26, 2012
Madam:
Re : Prolonged administration of assets of an estate
This is in reply to your fax of September 26, 2011, in which you requested our views as to whether, pursuant to the will of a testator (the "Will"), a trust was created with respect to a prolonged administration of assets by a liquidator. We acknowledge our conversation and exchange of e-mails (XXXXXXXXXX /Allaire), in which you provided additional information.
All statutory references in this letter, unless otherwise specified, are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1 (the "Act"), as amended.
Facts
The testator, a resident of the province of Québec, had his Will made by a notary of XXXXXXXXXX , in XXXXXXXXXX on XXXXXXXXXX . The testator died on XXXXXXXXXX , and named his XXXXXXXXXX as residuary legatees of the property of his estate.
More specifically, the XXXXXXXXXX article of the Will provides that the testator gives and bequeaths the residue of all his properties, moveable and immoveable, real and personal, to his XXXXXXXXXX (the "Heirs") into equal shares and as universal legatees, in full ownership. It provides that if one of the XXXXXXXXXX predeceases him, his share will belong to the surviving XXXXXXXXXX . The XXXXXXXXXX article also specifies that the liquidator must distribute each of the XXXXXXXXXX shares to the XXXXXXXXXX Heirs by paying an annual amount of $XXXXXXXXXX until such time as the assets are all liquidated or as the share is minimal.
The XXXXXXXXXX article of the Will appoints a trust company as liquidator of the estate, with respect to all moveable or immoveable assets of the estate, and specifies that the liquidator will have the seisin until the liquidation period of the estate is completed.
In addition, the XXXXXXXXXX article of the Will enables the liquidator to extend the time of execution or realization of the estate beyond a year from its creation date. Finally, it lists and specifies the powers of the testamentary liquidator to, among others things, sell, lease and alienate the moveable and immoveable assets, invest the funds, sell or modify any investment and make partition of the assets of the estate at its whole discretion. Articles XXXXXXXXXX of the Will provide discretion to the liquidator in the realization of the estate: it specifies among other things that the liquidator can distribute the assets of the estate in specie.
Your question
You ask whether we can conclude from the wording of the Will to a creation of a trust by the testator.
Our comments
On the death of an individual, the individual's property comes under the control of an executor, liquidator or other personal representative and thus the property is held in an estate, which is treated as a testamentary trust for purposes of the Act. It is the executor's role to administer the estate, which involves determining and paying creditors and distributing the remaining assets of the estate to the beneficiaries. The executor or liquidator receives the assets, has possession in fact of the assets and is responsible for administrating them until they are bequeathed to the beneficiaries of the estate.
We presume that the Will is governed by the Québec civil Code ("QCC") since the testator was resident of Québec at the opening of the succession and by reason of the XXXXXXXXXX article, which refers to section 1357 of the QCC, which indicates that the liquidator may resign by notary document.
The question of whether a trust comes into existence is a matter of fact and trust law. The attempt to establish a trust will fail unless it is certain that the testator of a will intended to bring a trust relationship into existence. Section 1260 of the QCC indicates that a trust results from an act whereby a person, the settler, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer. Under section 1278 of the QCC, trustees have control and exclusive management of the trust patrimony.
The determination of the testator's intention to create a trust is to be gathered not from one phrase or sentence of a will, but from the will as a whole.
In the present file, the Will did not use the word "trust" or "fiducie" and many of its articles refer to the administration of the estate by the liquidator. Moreover, because the testator used the term "full ownership" in the XXXXXXXXXX article of the Will in order to give all his property to his XXXXXXXXXX Heirs, we are of the opinion that the Will does not express the testator's clear intention to convey his property to the liquidator and consequently, to create a trust.
Even though the testator gives full powers to the liquidator to administer and control the property of the estate, the wording of the Will does not contemplate the creation of a trust, but reflects an intention from the testator to allot the estate property into equal shares to his XXXXXXXXXX Heirs.
Having regard, among other things, to comments made in judicial decisions, including Margaret Hall v. D/QC (1998) 2 CTC 133 from the Supreme Court of Canada in which similar considerations were discussed in the context of other wills governed by the Laws of Québec, the Will does not indicate the essential characteristic of a trust which is the transfer or conveyance of trust property from the testator to a trustee.
Although the Will does not seem to create a trust, pursuant to the definition of testamentary trust provided in subsection 108(1), a testamentary trust includes a trust or estate that arose on and as a consequence of the death of an individual, subject to certain conditions. A testamentary trust is generally created on the day that a person dies. In the present file, the estate is treated as a testamentary trust for purposes of the Act and it will cease to exist only when all the assets are distributed to the Heirs.
Finally, pursuant to paragraph 150(1)c), the estate should file a T3 Trust Information and Income Tax Return to report its income for each taxation year until it ceases to exist. You can access the T3 Trust Guide by visiting the Canada Revenue Agency's web site at http://www.cra-arc.gc.ca/E/pub/tg/t4013.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling.
Yours truly,
François Bordeleau, LL.B.
Business and Trusts Section
Income Tax Rulings Directorate
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