CRA finds that having a trust interest vest indefeasibly in a minor is consistent with the minor not receiving or having any use of the trust capital

A discretionary inter vivos family trust, which was approaching its 21^st anniversary, had provisions in its declaration of trust which contemplated that, prior to that anniversary, the trustee would make an irrevocable declaration establishing the respective shares to the trust fund of the family beneficiaries, so that the trust fund would be distributed to those beneficiaries except those who were “designated persons” (i.e., grandchildren who were minors), whose respective shares as so determined would be held for them until they attained the age of majority. Designated person status was relevant under s. 74.4 because of some previous estate freeze transactions.

However, there were “ambiguities” in the declaration of trust respecting this supposedly irrevocable designation. The solution was to get a declaration from the Quebec Superior Court declaring that the ambiguities were resolved as sought by the trustee, and to then transfer all the assets of the old trust to a new trust with the same trustee, and whose terms would “for all practical purposes” be the same as for the old trust but “adjusted to take into account the conclusions of the declaratory judgment rendered.”

CRA ruled that this transfer was deemed not to be a disposition under the exception in para. (f) of the disposition definition (and so that s. 248(25.1) deemed the new trust to be a continuation of the old). CRA also provided an opinion that the making by the trustee of the beneficiary-shares designation (which became irrevocable immediately before the 21^st anniversary of the old trust or when he ceased to be a trustee), thereby causing all the interests in the new trust to indefeasibly vest in the beneficiaries in accordance with their declared shares (but with the minor grandchildren’s shares being held in trust for them until 18) did not detract from the minor grandchildren continuing to comply with s. 74.4(4)(b), which requires that the child “may not receive or otherwise obtain the use of any of the income or capital of the trust while being a designated person.” CRA also opined that the 21 year rule did not apply to the new trust notwithstanding that it still held trust property for the minor grandchildren on the 21^st anniversary of the settling of the old trust (based on the indefeasible vesting exception to this rule in (g) of the s. 108(1) trust definition.)

Neal Armstrong. Summaries of 2016 Ruling 2014-0552321R3 F under s. 248(1) – disposition – (f), s. 74.4(4) and s. 108(1) - trust - (g).