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.
Principal Issues: Whether property had vested indefeasibly in beneficiary despite the fact trustee had disposed of property before estate was fully administered.
Position: Question of fact whether ppty had vested indefeasibly or not.
Reasons: Depends on whether trustee was acting on behalf of beneficiary at the time of ppty disposal or whether ppty did not vest until administration of the estate was complete.
XXXXXXXXXX
2007-023517
Lena Holloway
January 15, 2008
Dear XXXXXXXXXX:
Re: Interpretation Request- Vested Indefeasibly
This is in reply to your letter of May 8, 2007 in which you question whether property has vested indefeasibly in the beneficiary following the death of an individual in a specific situation.
Unless otherwise stated in this letter, all references in this letter to a statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, as enacted to the date of this letter.
Your letter sets out a scenario whereby the Will of an individual directs that, following death, certain properties are to be distributed to the spouse, and others to the children. It takes the legal representative two years to settle the affairs of the Estate and, during that time, certain properties must be sold by the Estate. At the end of the two year period however, all of the property has been distributed by the Estate to the beneficiaries in a manner satisfactory to all of the beneficiaries. You had asked if the legal representative can file the final return of the deceased on the basis that the properties bequeathed to the spouse qualify for the spousal rollover (provided in subsection 70(6)) despite the fact that the Executor had to liquidate some of these properties prior to the distribution of the assets.
While the net proceeds from the sale are distributed from the Estate to the beneficiary you are concerned that the properties had not vested indefeasibly in the spouse as they were sold by the Estate and not by the beneficiary. Your concern arises from a previous technical interpretation we issued which concluded that, following the death of a shareholder, shares held at death would not be considered to have vested indefeasibly in the beneficiary where the Estate was required to sell the subject shares back to the issuing corporation pursuant to a shareholders agreement.
The determination of whether or not property has vested indefeasibly in a particular person is a question of fact which can only be made following a review of all the relevant information, including the will and any agreements which may have an impact on the manner in which a person deals with the property. A comprehensive discussion of the issues involved in deciding whether a property has vested indefeasibly in the beneficiary can be found in technical interpretation number 9526815. We enclose a severed copy of this document for your reference as much of the discussion on the vesting of specific bequests found in that document is equally applicable here. Bear in mind that depending on the facts of each case, one would conclude that vesting occurs at death (and therefore the rollover would be available) where the executor is acting on behalf of the heirs in disposing of the property; see for example, The Queen v. Boger Estate, 93 DTC 5276 (FCA) wherein the court concluded that under the relevant provincial law the property vested indefeasibly in the heirs on the death of the deceased; also see paragraph 2 of IT 449R (archived) wherein we stated that property vests indefeasibly in a person to whom it is bequeathed when that person has an enforceable right or claim to the ownership even though the formal legal conveyance and registration of ownership of the property has not been completed. Often however, the executor, in fulfilling his fiduciary duties must dispose of certain assets that were otherwise the subject of specific bequests. In such cases the executor is acting in accordance with the powers bestowed to him in the proper administration of the estate and thus the conclusion would be that the asset had not vested indefeasibly in the beneficiary prior to its disposal by the executor.
We trust our comments will be of assistance.
T. Murphy
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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