20 March 1990 Internal T.I. 59587 F - Disclaimer of a Capital Interest in a Testamentary Trust

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.

March 20, 1990

Dear Sir:

Re: Disclaimer of a capital interest in a testamentary trust

This is in reply to your letter of February 5, 1990 concerning the above-mentioned subject.

You describe the following hypothetical situation:

     A beneficiary ("B") has a potential capital interest in a trust created by will.  His interest is equal to 20% of the capital of the estate, and is available to him outright once the executor has completed the administration of the estate and can transfer the capital to him.

     The only other beneficiary of the estate is the mother ("M") of B, and the spouse of the deceased.

     B is content to let all of the estate pass to his mother, and, shortly after the death of his father, executes a disclaimer wherein he advises the executor that he does not wish to accept the inheritance which the will proposes to provide him.  He has not received any amounts from the estate, and does not suggest to the executor in his disclaimer who should accept his share.

     The executor, who is an arm's length party, accepts the disclaimer and passes all of the estate to M, the spouse of the deceased, and the residual beneficiary of the will.  The executor does not have any choice over the distribution of the 20% now added to the estate.

Our Comments

In our opinion in order for a disclaimer to be effective for purposes of the Income Tax Act, it must be executed prior to the beneficiary receiving any income from the estate and at the time he becomes aware of it (or within a reasonable time thereafter). Furthermore, the disclaimer must not be made in favour of any person.

To the extent that the spouse M receives assets from the estate as a result of a disclaimer by the son B, which respects the conditions above-mentioned, and the beneficiary's capital interest vests indefeasibly in the spouse within 36 months after the date of death of the deceased, a rollover will be available to M pursuant to subsection 70(6) and paragraph 248(8)(b) of the Income Tax Act. Furthermore, the deceased will be deemed to have disposed of the property immediately before his death for proceeds of disposition equal to the adjusted cost base to him of the property before his death and M will be deemed to have acquired the property at the same amount.

Pursuant to paragraph 248(8)(c) of the Income Tax Act, the execution of the disclaimer shall be considered not to be a disposition by B of his capital interest in the estate.

The above comments reflect expressions of opinion only and as such are not binding upon the Department.  We trust however they will be of assistance to you.

Yours truly,

Wayne Douglas for DirectorFinancial Industries DivisionRulings Directorate