A testamentary trust is a trust or a succession that arises on the death of an individual and as a consequence thereof. The terms of such a trust are created:
- by will
- by law
- by court order (for example, pursuant to the application of legislation providing for an obligation of support on behalf of dependants)
- The term “testamentary trust” means both a succession and a trust created by will.
- A trust created by a person other than the deceased is not a testamentary trust.
Under certain circumstances, a trust may lose its status as a testamentary trust and become an inter vivos trust.
As of 2016, a testamentary trust keeps its status when it receives a contribution from another trust, provided the following conditions are met:
- The testamentary trust is a graduated rate succession.
- The income of the other trust became payable to the individual upon the death of the beneficiary of the testamentary trust as a result of a joint election made by the other trust and the legal representative who is administering the succession.
- The amount is paid to cover the income tax payable upon the death of the beneficiary of the trust.
- The amount paid does not exceed the income tax payable upon the death of the beneficiary of the trust.
A testamentary trust keeps its status when it receives a contribution that is a qualifying expenditure for the federal home renovation tax credit from one of its beneficiaries. As of 2016, a testamentary trust also keeps its status when it receives a contribution that is a qualified expenditure for the federal home accessibility tax credit from one of its beneficiaries.
The taxation year of a testamentary trust that is a graduated rate succession must correspond to the period for which the trust's books are closed for the purpose of making an assessment under federal legislation.
As of 2016, a graduated rate succession can have a taxation year that does not correspond to the calendar year. However, the taxation year is deemed to end on the day the succession ceases to be a graduated rate succession. The end of any subsequent taxation year will correspond to the end of the calendar year.
When a graduated rate succession is wound-up, the last taxation year of the trust ends on the day all of the property of the trust is distributed (the date entered on line 5b of the return must be the wind-up date entered on line 11 of the return).
The taxation year of other types of testamentary trusts must correspond to the calendar year. When a testamentary trust that is not a graduated rate succession is wound-up during the year, its taxation year ends on December 31. The trust must file the final income tax return within 90 days after the end of the taxation year.
If you are a liquidator of a succession, see Obligation to File the Trust Income Tax Return to determine if you must file a return for the succession.
In addition, if you have to distribute the deceased person's property, you must first obtain a Certificate Authorizing the Distribution of Property.