Vested Indefeasibly and 21-year Planning

  • April 05, 2021
  • Anjali Navkar

Deemed Realizations

Deemed realizations under the Income Tax Act (Canada) (the “ITA”) can occur for a myriad of reasons.  Regarding trusts, the ITA may deem a realization to occur depending on the type of trust, and the happening of certain triggering events – most commonly death, emigration, or the expiration of a specified time period.  If nothing is done to plan for these rules, the deemed realization of the assets will result in the accrued gains on certain trust-held assets being subject to tax.   

Vested Indefeasibly and Twenty-one year planning

As is commonly known, a realization event may occur on the twenty-first anniversary of an inter vivos personal trust, and then every twenty-one years thereafter.[1]  Planning options are available to deal with this deemed disposition event.[2]  However, where such planning options are unavailable or undesirable, the exception from the twenty-one year rule by way of the ‘vested indefeasible’ option may be attractive.[3]  

In very general terms, the twenty-one year deemed disposition event will not occur in a trust under which all interests have vested indefeasibly unless one of the specific exceptions to this relieving rule applies.[4]