If a person does not make a will (i.e. the deceased dies intestate), then the B.C. Wills, Estates and Succession Act sets out who will receive their estate. But what if the deceased person instructs the person entitled to receive their estate that the assets are actually to go to someone else? If the person entitled to receive the estate assets accepts the instructions from the deceased person, then a secret trust may be created.

In the recent case of Bergler v. Odenthal 2020 BCCA 175, the B.C. Court of Appeal upheld a trial decision which held that a secret trust existed, with the result that the person who would have received all of the deceased’s assets on an intestacy actually held the assets in trust for another person. I discussed the trial decision in a previous post found here.

Full disclosure: I was counsel for the successful plaintiff/respondent in this case at trial and on appeal.

The deceased had told her spouse (who would receive her assets on an intestacy) that she wanted her assets to go to her niece, who did not have a career or a home and was hoping to go back to school. The deceased did not have a will, and instead relied upon her spouse to do what she instructed.

On appeal, one of the key issues was timing of distribution. The niece argued that the deceased instructed her spouse that he was to deliver her assets to the niece when the spouse started a new relationship (which had happened before trial). The spouse argued that the deceased had “clarified” that the niece was to receive the assets only upon his death and not before. The trial judge did not accept that the deceased made this clarification. It also wasn’t consistent with the deceased’s wish that her niece receive her assets to get on a better financial footing and continue her education. If that was the purpose of the trust, then it would not make sense to postpone the niece’s receipt of assets until the spouse’s death, which may not happen for many years.

The Court of Appeal held that the trial judge had not erred in finding that a secret trust had been created, and that the spouse had accepted the obligations of the trust in conversations with the deceased in the last days of her life.

The spouse also took the position that if he held the deceased’s estate in trust, then the deceased’s interest in a piece of property that was registered in joint tenancy with him did not form part of her estate. When a property in British Columbia is held in joint tenancy, then upon the death of one of the joint owners their registered interest is received by the surviving joint owners by right of survivorship. As a result, the interest in jointly held property often does not form part of the deceased’s estate (for example, for the purpose of calculating probate fees).

However, the Court of Appeal confirmed that as a matter of law, the creation of the secret trust severed the joint tenancy, and the deceased’s interest in the property, even though registered in joint ownership, formed part of the trust and the beneficiary (her niece) was entitled to that interest.

As noted in my previous post which discussed the trial decision, it is very risky for a testator to make the deliberate decision to forgo preparing a will, and instead provide verbal instructions to the person that would otherwise be entitled to receive the estate on an intestacy regarding what you want done with your estate. There is a very real risk that this person may deny receiving such instructions and may deny the existence of a trust.

If you are a beneficiary (by way of intestacy or under a will) and the testator provides you with instructions regarding the assets that you will receive upon their death, exercise caution. Even silence may constitute acceptance of the trust obligation. The courts take the view that if a testator makes a request of this nature, you should be bound to say something if you intend to reject the instructions and seek to claim the assets as your own after the deceased’s death.

When you are the sole shareholder of a company, for example a professional corporation or a holding company, you may fall into the habit of treating the assets held by the company as your own for all practical purposes. However, you should keep in mind that a corporation is a separate legal entity, which owns its own assets. You merely own the shares in the corporation which in turn owns those assets.

This may create confusion when it comes to your estate planning. When your corporation owns assets, can you make bequests of those assets in your will?

A 2019 decision of the Ontario Court of Appeal indicates that in some cases the answer is “yes”.

In Trezzi v. Trezzi 2019 ONCA 978, the deceased was the sole shareholder of a company. The company owned certain assets. The deceased made bequests of those assets in his will. The bequests were challenged on the basis that the deceased did not own the assets, as they were owned by the company, and he could not give what he did not own.

The Court of Appeal upheld the lower court’s decision that the deceased could bequeath the assets of his company in his will. In doing so, the court looked at the deceased’s intention, which was to distribute all of the assets of the company and wind it up. The court held that the trustees had two independent sources of authority to implement his intention to wind-up the company: general powers available under corporate law, and powers set out in the will which permitted them to convert estate assets into money.  The principle of the corporation as a separate entity did not complete the analysis of whether a testator who is the sole shareholder of a corporation can gift corporate assets.

It is still risky for will-makers in British Columbia to assume that you can deal with assets held by your corporation in your will. Trezzi was an Ontario case and so it is not binding in British Columbia. The case has not yet been considered in British Columbia, and it may not be followed. Instead, the courts in British Columbia may prefer to protect the sanctity of the corporation as a separate entity or may require very clear instructions that the executors are authorized to deal with the property held by the corporation.

Even in Trezzi, the court noted that it would have been preferable had the will been more explicit in referring to the trustees’ authority to deal with his corporation’s property.