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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether the wording of typical last wills is sufficient to enable executors to extend the time of realization of estates to many years.
Position: No
Reasons: There is not a certainty of intention on the part of the deceased person to create a trust.
XXXXXXXXXX J.D. Brooks
2002-017247
May 30, 2003
Dear XXXXXXXXXX:
This is in reply to your letter of November 2, 2002, in which you requested our views regarding discretion provided to an executor in a testator's last will. We acknowledge our conversation (Brooks/XXXXXXXXXX) on May 26, 2003, in which you clarified your concern.
You noted that last wills typically provide discretion to executors of estates to use their discretion in the realization of estates and the timing of such realization. You query whether such wording is sufficient to enable executors to extend the time of realization of estates to many years.
Confirmation of the tax implications of transactions is given only in reply to an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. While we are unable to comment on the particular situation described in your letter, the following general comments may be of assistance to you.
On the death of an individual, the individual's property comes under the control of an executor and thus the property is held in an estate, which is a type of trust for purposes of the Income Tax 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 as soon as possible. Generally, the law provides the executor with a year (often referred to as the executor's year) to administer an estate, during which time the beneficiaries cannot demand the distribution of property held by the executor. After this time, it is a question of fact as to whether the executor is able to distribute property.
It is accepted at law that a trust cannot be established unless three certainties are present, namely the certainty of: (1) the intent to create a trust; (2) the property to be placed in trust; and (3) the identity of the beneficiaries of the trust. The attempt to establish a trust will fail unless it is certain that the testator intended to bring a trust relationship into existence.
The intent must be that of the testator rather than an executor or a beneficiary. We have previously considered the wording of typical wills that provides for the trustees exercising their discretion in the timing of the realization of the assets of an estate and concluded that such wording is not indicative of an intention to create a trust. By way of contrast, if a settlor wants property to be held in trust for, say, a minor or for the settlor's spouse during the spouse's lifetime, the will would specifically describe the intended arrangement. In our "T3 Trust Guide (2002)" [T4013], we comment on page 7 that "If the assets are not distributed to the beneficiaries according to the terms of the will, the testamentary trust may become an inter vivos trust."
Where the executor is also a beneficiary, it is important for the executor to fulfil the duties required of an executor and not be influenced by his or her position as beneficiary since the executor must take instruction from the terms of the will. The importance of the separation of roles was brought out in a tax case involving a trust for minor children in which the trustee was a parent of the minors (Degrace Family Trust v The Queen, (TCC) 97-370(IT)G). The judge commented that "the expenditure by the trustee must clearly be made by the trustee in his or her capacity as trustee...."
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of the Circular, the above comments do not constitute an income tax ruling.
Yours truly,
Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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