General Information – Trust

A trust is an entity that results from an act (an onerous or gratuitous contract, or testamentary contract), whereby a person transfers property from his or her patrimony to another patrimony that he or she constitutes; the property is appropriated for a particular purpose, and a trustee undertakes to hold and administer it. In certain cases, a trust may also mean an estate (succession). Testamentary trusts are distinct from inter vivos trusts.

Testamentary trust

A testamentary trust is either a trust created by will or an estate opened because of a person's death. The terms of such a trust are created:

• by will
• by law in the absence of a will
• by court order (for example, pursuant to the application of legislation providing for an obligation of support on behalf of dependants)

If the property or income is not distributed in accordance with the terms of the will, the trust may lose its status as a testamentary trust. In this case, the trust's taxation year must be modified, if applicable, to make it correspond to the calendar year. A note explaining the situation must be attached to the first return filed by the trust for a fiscal period ending on December 31.

Inter vivos trust

A trust other than a testamentary trust is an inter vivos trust. This can be:

• a trust created by a person other than the deceased individual
• a trust created after November 12, 1981, if, before the end of the taxation year, property was contributed to the trust otherwise than by an individual on or after the individual's death and as a consequence thereof, or
• a trust created before November 13, 1981:
  • if after June 28, 1982, property was contributed to the trust otherwise than by an individual on or after the individual's death and as consequence thereof, or
  • if, before the end of the taxation year, the fair market value (FMV) of all property that was contributed to the trust, otherwise than by an individual on or after the individual's death and as a consequence thereof, is higher than the FMV of all property that was contributed to the trust by an individual on or after the individual's death and as a consequence thereof. This rule also applies to property substituted for the property concerned. For the purposes of this calculation, the FMV of the property is the value of the property at the time it was acquired by the trust.
• a trust that, before the end of the taxation year, incurs a debt (or any other obligation to pay an amount) that is either:
  • owed to a beneficiary (or any person or partnership with which any beneficiary of the trust does not deal at arm's length), or
  • guaranteed by a beneficiary (or any person or partnership with which any beneficiary of the trust does not deal at arm's length)

This restriction does not apply to a debt (or any other obligation) owed to a beneficiary and incurred in satisfaction of the beneficiary's right:

• to enforce payment by the trust of an amount of the trust's income or capital gains that is payable before the debt is owed, or
• to otherwise receive part of the capital of the trust.

For further information, refer to the Guide to Filing the Trust Income Tax Return (TP-646.G-V).