Here is an interesting case study I wanted to share regarding
potential tax issues during estate planning.
Mr. A owned all of the shares of ACO prior to his death. ACO
owned valuable real estate. Mr. A's will provided that his
shares of ACO were to be held in a testamentary spouse trust which
would benefit Mrs. A during her lifetime and their children after
her death. The children were the trustees of the testamentary
spouse trust.
The real estate appreciated in value before Mr. A's death.
It appreciated even more between Mr. A's death and Mrs.
A's death. On Mrs. A's death, the Income tax Act deems
the testamentary spouse trust to dispose of the shares of ACO for
proceeds of disposition equal to the fair market value of those
shares immediately prior to her death. As the appreciation in the
value of the real estate is reflected in the value of the ACO
shares, the testamentary spouse trust is effectively taxed on the
economic gain arising from the appreciation in
