A person acting under a power of attorney (the “attorney”) cannot make or change a will for the adult for whom the person is acting (the “donor”).  However, in certain circumstances, the attorney may settle a trust which mirrors the terms of the donor’s will, and then transfer the donor’s assets into the trust.  This may be done to avoid probate fees which would be payable if the assets formed part of the donor’s estate.  There may also be other advantages in administering and distributing the assets through a trust instead of an estate.

There is a further advantage, whether it is intended or unintended:  if the assets form part of the estate, then they are available for a wills variation claim.  If the assets are settled into a trust then they are not available for a wills variation claim.

A disappointed beneficiary attempted to set aside such an arrangement in the recent B.C. Supreme Court decision of Kramer v. Kramer 2023 BCSC 116.

In Kramer, Clara died leaving two children, Karen and Leanne.  Karen and Leanne were the executors of her estate, and the beneficiaries of the estate.  However, Karen was not happy with what she was to receive under the terms of Clara’s will and codicil.

Leanne held a power of attorney over Clara’s affairs.  Clara died in 2017.  In 2015, Leanne used the power of attorney to authorize the creation of an alter ego trust, transferring the majority of Clara’s assets into the trust, and appointing herself and two solicitors as trustees.  The distribution of the trust assets was to precisely mirror the terms of the will and codicil.  Karen learned of the trust after the Clara’s death.

Karen sought a variation of the deceased’s will.  However, most of the assets of the deceased were transferred during her lifetime into the Trust.  This meant that Karen must first succeed in obtaining a declaration that the trust was void, and an order transferring the assets back into the estate.  Karen brought an action to vary the will, and for an order that the disposition of property to the trust was a fraudulent conveyance, and an order that the property put into the trust is part of Clara’s estate.

The Fraudulent Conveyance Act provides that a disposition of property, if made to delay, hinder or defraud creditors and others of their just and lawful remedies, is void and of no effect against a person whose rights and obligations are or might be disturbed, hindered, delayed or defrauded.

The issue to be determined in Kramer was whether the disposition of property to the trust constituted a fraudulent conveyance.  The defendants argued that the Karen had no standing under the Fraudulent Conveyance Act, because she was not a creditor and had no rights or obligations that had been disturbed, hindered, delayed or defrauded.

A wills variation claim does not create standing as a creditor or other within the meaning of the Fraudulent Conveyance Act.  Karen accepted this, but argued that she was a creditor as a result of a loan that she made to the deceased.  Karen argued that the trust was created to avoid paying her money that was owed to her.

The Court held that Karen was a creditor of Clara in 1998 when Karen loaned money to Clara.  However, it appeared that this amount was repaid in 2012, before the trust was settled in 2015.  At the time the Trust was entered into, Karen had not provided any proof she was owed more than the monies she received in 2012, and after that she never demanded further payment for the loan or took any steps to collect any balance owing.    The Court held that Karen had been repaid, and so she was not a creditor of the deceased at the time of the transfer of assets into the trust.  Since she was not a creditor, she did not have standing under the Fraudulent Conveyance Act.

In the alternative, the Court also found there was no fraudulent intention in creating the trust.  The party claiming a fraudulent conveyance must establish that the person making the transfer of assets did so with the intent to put their assets out of the reach of creditors.  The Court in Kramer held that the trust was created for honest purposes.  It was recommended by the deceased’s tax lawyer and prepared with the assistance of counsel.  At no time during the planning and settlement of the trust did anyone discuss an outstanding debt owing to Karen.  The stated purpose of the trust (which was accepted by the Court) was to facilitate estate planning by avoiding substantial probate fees and to affect an efficient and non-confrontational administration of Clara’s estate.  Again, the distribution of the trust assets was to precisely mirror the terms of the Will and Codicil.

However, the Court declined to rule on the validity of the trust or any suggestion that Leanne acted outside her powers under the power of attorney, because that issue was not raised in the pleadings and before the Court.  Karen may seek to argue that Leanne settling the trust was outside her powers as attorney.  However, there is authority to support the position that an attorney can settle a trust on behalf of a donor when the terms of the trust mirror the terms of the donor’s will (see Easingwood v. Cockroft 2011 BCSC 1154, aff’d at 2013 BCCA 182).