VALUATION OF AN INTEREST IN A DISCRETIONARY TRUST – PART 2


Written on October 24, 2013 – 7:00 am | by Steven Frye

In my last blog I wrote that if a beneficiary of a discretionary trust (typically a family trust) passes away, his or her interest in the discretionary trust may have value for estate administration purposes. In technical interpretations, supported by court cases, the Canada Revenue Agency (“CRA”) looks to the administrators of the estate for the deceased to determine a value based on the facts and circumstances of the Trust and all the property it holds.

Some of the factors to consider for determining value are:

• The fiduciary powers of the trustees: Are they general, special, hybrid? Will the trustees favor certain beneficiaries over others? Will they be even-handed? Valuators will often consult with counsel to assess its significance to assessment of value.

• The settlor’s overall intentions for the Trust in the 1st instance: Was there a Letter of Wishes? What were the expectations when the Trust was settled, if documented?

• The number of beneficiaries, their rights, age and general health.

• The composition of the trust property: Assumptions to determine value will have to consider the factors noted here plus others such history of distributions, assumed rates of return and future prospects for the property. A provision will need to be made for contingent taxes on disposition.

• The current and future actions and obligations of the trustees and beneficiaries for the Trust including an assessment of control of any one beneficiary over another, relationship between trustees and beneficiaries etc.

Lots to consider and some of it a bit complicated. I would consult your professionals for assistance.

Thanks for reading

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