Trust Residency – The Test Modified

May 5, 2011 Hull & Hull LLP Estate & Trust Tags: , , , 0 Comments

Sheila Crummey of McMillan LLP spoke on this topic at the 2011 Six-Minute Estates Lawyer. She noted that until the Garron decision, practitioners relied upon the Thibodeau decision for the proposition that the residence of a trust was determined by the residence of its trustees.

The Garron case has established that the "central management and control test" that applies to a corporation is the appropriate test for the residence of a trust “with such modifications as are appropriate”. 

As for the meaning of “central management and control”, I highlight the following from Ms. Crummey’s paper (although I recommend you read it for a more thorough review):

·                    There are not many decided cases on the issue; it is difficult to make a definitive statement of principle based on judicial decisions, which are fact dependent;

·                    If the appointed trustee fulfills its fiduciary obligations and exercises all of the powers and discretions given under the trust document, the place where the trustee resides will determine the residence of the trust;

·                    The onus is on the trustee to demonstrate it exercised control and management of trust property where residence is at issue; and

·                    If the residence of a trust is critical to the tax plan, the trustee must be prepared to prove that the key trust decisions were made by the trustee (including investment of property, weighing sale options, and decisions with respect to distributions).

While the Garron decision has clarified the test, it is a fact-driven test that will likely need time before the courts so that greater clarity can develop on how it applies in the trust context. 

Ms. Crummey also provides a very helpful list of “best practices” for trust practitioners.

Thanks for reading,

Natalia R. Angelini – Click here for more information on Natalia Angelini.

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