My fellow bloggers and I have written in the past about the ins and outs of legitimate probate fee avoidance arrangements available to a testator. These arrangements include an intervivos transfer of assets such as alter-ego trusts. Care and advice must be taken to ensure that the transfer of assets qualify for tax deferral under the Income Tax Act (“ITA”) to avoid the triggering of income taxes.
Recently the Canada Revenue Agency (“CRA”) was asked to confirm that if an Attorney under Power of Attorney creates an alter ego trust for the benefit of the testator, would the transfer of property be a qualifying transfer under the ITA?
In its response to the question, CRA reviewed some recent case law (British Columbia, Nova Scotia and Ontario) and noted that in reference to the BC case, it did not stand for the general proposition that an Attorney may create such trusts for the grantor of a Power of Attorney for Property. The CRA refers to the judges’ conclusion that the creation of an inter vivos trust under a valid power of attorney is possible, “provided the trust created does not otherwise step into territory prohibited by other general principles of law or statutory prohibitions”.
The CRA concludes that the issue of whether a proposed trust to be created by an Attorney would be a qualifying transfer under the ITA involves questions of law. The CRA would expect that, first and foremost, an Attorney that is contemplating the creation of an alter ego trust would seek the affirmation of the applicable court that the particular terms of the Power of Attorney for Property provide for such a power and that the terms of the proposed trust conform with the terms of the existing will and any other relevant agreements.
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