Category: Trusts

B.C. Case Comment: Alleged Promise to Give Property Doesn’t Create Express Trust

May 27, 2022

In my estate and trust litigation practice, I often see cases where one party seeks to enforce an alleged promise (for example, a promise to transfer or gift property) by a second party, which is now denied by that second party.  One potential remedy is a finding that the property is held in an express trust as a result of the conduct of the parties, in particular the conduct and the words of party who held the property and is alleged to have promised to gift it.

The B.C. Court of Appeal recently considered such a claim in Virk v. Singh 2022 BCCA 153.  In Virk, Mr. Singh was very close to Mr. and Ms. Virk, until Mr. Singh had a falling out with Mr. Virk.  Mr. and Ms. Virk separated.  Mr. Singh owned the property next door to the Virks’ matrimonial home.  Mr. Singh promised to give that property to Ms. Virk in exchange for money she would receive from her family law action against Mr. Virk (which Mr. Singh encouraged her to bring), and for her help with a lawsuit brought against him by Mr. Virk.  Ms. Singh fulfilled her end of the agreement.  She provided Mr. Singh with monies from the settlement of her family law claim, and she helped him defend against the claim brought by Mr. Virk.  She also lived at the property and paid expenses for the property for many years.  However, Mr. Singh failed to give her the property.

Ms. Virk claimed that the promise to provide the property to her created an express trust.

In order to establish an express trust, there must be three certainties:  certainty of intention, subject and object.

In Virk, the issue was whether there was certainty of intention.  Usually, when you are creating an express trust there is a formal (written) trust agreement.  Where there is no formal agreement, then a court can determine whether there is certainty of intention “by looking to the surrounding circumstances, the evidence of what was agreed upon, and how the parties conducted themselves.”  The critical element is the settlor’s intention (in this case, Mr. Singh).  That intention can be express or implied.  The court must undertake an objective inquiry, to determine whether there is an intention to form an express trust.  The court will look at what a reasonable person would conclude from the words and conduct of the parties, as well as the surrounding circumstances.  The court must look at intention at the time of the transaction.  The court will be very careful when looking at post-transaction conduct.

The trial judge held that Mr. Singh’s promise was a false one and that he never actually intended to give Ms. Virk the property, and therefore there was no certainty of intention.  Ms. Virk appealed.

The Court of Appeal held that the trial judge erred when concluding that Mr. Singh’s promise to give the property to Ms. Virk was a false one because he never subjectively intended to transfer her the beneficial interest in the property.  The Court of Appeal held that one cannot claim to lie to the other party about intention to give the property, carry out the actions necessary to do so, and then rely on the fact that the communication was a lie.  The trial judge erred by failing to assess the certainty of intention on the objective standard.  She also erred in not limiting her consideration to surrounding circumstances at the time of the promise.  The trial judge also relied on post-transaction conduct, which was a problem in Virk because the trial judge had found Mr. Singh to not be credible (and if a party is not credible, then evidence of their post transaction conduct should be given little weight).

However, despite the errors, the Court of Appeal upheld the result.  A reasonable person at the time the promise was made would likely conclude that Mr. Singh intended to benefit Ms. Virk if she fulfilled certain future conditions, but not necessarily that she would benefit on trust.  As a result, there was no express trust.

Fortunately, the trial judge held that Mr. Singh had been unjustly enriched by Ms. Virk’s payments to him (i.e. fulfilling her side of the “deal”) and her contributions to the maintenance of the property, and granted Ms. Virk a constructive trust in the amount of 70% of the increase in the value of the property from the time of the false promise.  This award was upheld by the Court of Appeal.

This decision shows that the court can attempt to make an award that is fair and equitable in the circumstances, but the court will not create an express trust where the requirements are not met.

B.C. Case Comment: Court Refuses to Remove Sister as Trustee of Brother’s Trust

November 12, 2021

What can you do when you want to provide for your children equally, but you are concerned that one or more of your children may not be able to handle their share of your estate? If a parent has these concerns, they may decide to put a share of their estate in trust (often in a trust set out in the will itself). However, the parent must decide who will act as trustee and manage that money on behalf of their child.

One option which may seem attractive initially is to make another child the trustee. However, the result is that one sibling is in control of the other sibling’s share of the estate.   This often leads to tension, disputes, and ultimately litigation.

This was the case in the recent B.C. Supreme Court decision of Parsons v. Zaranski 2021 BCSC 2092. In Parsons, the Deceased had three children. He left his estate to his three children in equal shares, but he left one son’s share in a trust. His daughter was named as trustee of this trust. The trust was discretionary, with so much of the income and capital to be paid as the trustee decides is advisable for the care, maintenance, and education and benefit of the beneficiary during his lifetime.

Unsurprisingly, disputes arose. The beneficiary sought to remove and replace his sister as trustee. His complaints fell within the following categories;

  1. Failure to report on the activities of the trust;
  2. Failure to provide adequate funds during the beneficiary’s times of need; and
  3. Making an improper investment with trust funds from which she may derive a personal gain

The overarching concern for the court on an application to remove a trustee is whether the trustee’s conduct is putting the assets of the trust or the purposes of the trust in jeopardy. Conflict or friction between the trustee and the beneficiaries, without more, is insufficient to justify removal. The decision to remove a trustee must not be undertaken lightly, and should only be done in the clearest of cases and when it is necessary to protect the beneficiaries or the purpose of the trust.

The Court dismissed the application to remove the sister as trustee.

First, the Court found that the sister provided regular and complete reporting to her brother.

Second, the Court held that the sister responded appropriately to her brother’s requests for assistance. The case is a reminder that the exercise of discretion by a trustee pursuant to the terms of a trust is entitled to deference. In Parsons, the Court put it this way (at para. 78): “I am satisfied that Tammy could, in exercising her discretion, have paid more to William through the years, but I am also satisfied that she could have paid less.”

Finally, while the Court had some concerns about an investment made by the trustee with trust funds (it was an “error in judgment”), it was made in good faith and the trust was never at risk because the trustee would have reimbursed the trust if the investment had failed.

This case is a cautionary tale of the animosity, resentment and tension which you may create by putting one child in charge of another child’s trust. However, it also serves as a reminder to beneficiaries that animosity, resentment and tension is usually not enough, on its own, to remove a sibling as your trustee.

Disputes Between Co-Trustees: Adding a Trustee to Break the Deadlock

May 21, 2021

I am often contacted by one co-executor or co-trustee, who is frustrated with the conduct of the other co-executor or co-trustee. The client feels strongly that they cannot continue to work with the other person. These concerns commonly arise when siblings are asked to work together to administer a trust or estate, most often when there are two co-trustees or co-executors. In those circumstances, if there is a disagreement then there is no majority, resulting in a deadlock.

The concerning conduct expressed by the client falls on a spectrum. There may be concerns about misappropriation of trust assets, which would fall at the more serious end of the spectrum. The co-trustees may simply not like each other and not enjoy working together, which would be at the less serious end of the spectrum.

Usually a client’s concerns fall somewhere in the middle. Often the co-trustees will be critical of one another. They may each have a laundry list of concerns and criticisms. When making recommendations to a client as to how to proceed, the same considerations usually arise.  Has the conduct in a given case reached the point that removal and/or replacement of a co-trustee or co-executor is necessary? Or are the disagreements so trivial that the parties are expected to resolve matters and work together without the assistance of the court? There is also the question of remedy.  Should a trustee be removed (and if so, which one), or should an additional trustee be added to break the deadlock?

The B.C. Supreme Court recently considered these issues in In The Matter of The Estate of Jean Maureen Dahle, Deceased 2021 BCSC 718. The Court considered a dispute regarding the administration of an estate and a trust. In her will, the deceased named two of her six children, Tim and Martin, as co-executors. They were also named as co-trustees of a trust established in the will for the benefit of their brother with developmental disabilities (Nickey).

Tim and Martin both brought applications to have the other removed as executor of the will and trustee of the Nickey trust.

Before judgment (but after submissions), the brothers reached an agreement that a trust company would be appointed as a third trustee of the Nickey Trust, and that a majority of the three trustees will have decision making power. This would break the deadlock between the two brothers.

However, they were unable to reach a similar agreement with respect to administration of the estate. Neither of the brothers had sole decision-making power. They were required to act unanimously.  There was a “significant sense of distrust” between the brothers, which had continued for five years (since the deceased’s death) and had delayed administration of the estate.

Each brother provided a long list of complaints about the other. The Court observed that neither brother had conducted themselves completely appropriately, and they both were critical of the other for behavior that they themselves engaged in.

Much of the animosity between the brothers came from differences of opinion regarding what was in Nickey’s best interests, including living and care arrangements.  Other complaints included dealing with real property without unanimous agreement – dealing with rental monies, handling repairs and maintenance, and entering into tenancy agreements and collecting damage deposits.   There was also a criticism of the “tone” of certain communications. The Court agreed that they were “confrontational”, but did not warrant removal. There were other examples of stubbornness and refusal to communicate property. However, the Court also observed that the brothers were capable of agreeing on matters when required to do so.

The judgment includes a helpful discussion of the law on removal and replacement of executors and trustees. A testator is entitled to choose their executors and trustees. The court should not interfere lightly with this decision. Categories for removal of an executor include (1) endangerment of trust property, (2) want of honesty, (3) want of proper capacity to execute duties, and (4) want of reasonable fidelity. The welfare of the beneficiaries is a key consideration. Unreasonable delay and failure to distribute an estate may be grounds for removal. Executors are not expected to be perfect, and not all acts of misconduct will lead to removal. Animosity among co-executors may be relevant, but will not be determinative. This may be relevant to an ability to carry out their duties effectively and efficiently.

In Dahle, the Court concluded that it was in the best interests of the beneficiaries to add a third party professional trust company as an additional executor of the estate. The Court observed that adding a third trustee, and not removing either of the other two trustees, would respect the deceased’s wish to have her two children involved in decisions relating to admisntration of her estate. This arrangement would also encourage the brothers to act reasonably, failing which the unreasonable brother will be overruled by majority.

Beneficiaries may Demand Early Distribution of Trust Property

January 7, 2021

The beneficiaries of a trust may be able to compel the trustees to wind up the trust and distribute the assets before the distribution date actually contemplated by the trust.

Many people want to maintain control over their assets and their legacy, even after death. They may have concerns about a child or other beneficiary receiving their bequest immediately or all at once. They may believe the beneficiary is too young to receive their inheritance immediately, or they may have concerns that the beneficiary will spend all of the money inappropriately if they receive it all at once.  There may be concerns about the beneficiary’s lifestyle or mental health.

This control can be maintained through the use of a trust provisions, either as part of a will or as a separate trust. For example, a will may provide that a child’s share of the estate is to be held in trust, with set amounts or percentages of the bequest to be paid out when the child reaches certain ages. A trust may provide that the child’s share cannot be paid out until a given date, but in the meantime the trustee may make distributions in their discretion, or for certain purposes such as education.

The beneficiary may find this frustrating. They may resent that they have to wait until they attain a certain age, or that they have to approach a trustee to request a discretionary distribution from their inheritance. A beneficiary in this position may have a remedy.

If all beneficiaries are of full capacity (i.e. they are independent adults), then they may call for the extinguishment of the trust, notwithstanding the settlor’s expressed wishes. This is referred to as the rule in Saunders v. Vautier.

For example, consider if a settlor established a trust for their child, which provided that the child would not receive the estate until they reached the age of 30. Once the child is an independent adult, they could, under the Rule, demand that the trust be wound up and the assets immediately distributed.

Another example: if a settlor established a trust for their three children, which provided that each child would not receive their share until they reached the age of 30, and if any child did not reach the age of 30 then that child’s share would be divided among the remaining children, then all three children (once they are independent adults), could demand that the trust be wound up and the assets distributed to them.

No court order or approval is technically required when the Rule applies. The beneficiaries may demand that the trustees deliver the trust property, and the trustees must comply. However, in practice most trustees want to ensure that they will not face any liability for winding up the trust early and acting contrary to the express language of the trust, and so they will often seek the direction and approval of the court confirming that they should proceed with the beneficiaries’ request.

The Rule only applies when all of the beneficiaries are adults with capacity. This is often not the case. For example, a trust may be intended to benefit all of the settlor’s grandchildren who have been born by a particular distribution date. If the trust is wound up early, there may be unborn grandchildren who would have benefitted had the trustees waited until the distribution date. Another typical example is a trust to be distributed to a child at some future date, but if the child is not alive on that date then to any children of that child who are alive at that date. There are contingent beneficiaries that may benefit if the trustees wait until the proper distribution date.

In B.C., the Trust and Settlement Variation Act [RSBC 1996] Chapter 463 addresses this situation.   If property is held in trust, the court may approve any arrangement or variation of the trust on behalf of any person having an interest in the trust, whether vested or contingent, who by reason of infancy or other incapacity is incapable of providing consent under the Rule in Saunders v. Vautier. The Act also allows the court to approve an arrangement on behalf of unborn beneficiaries or other persons who may become beneficiaries in the future.

However, the court must not approve an arrangement or variation of the trust on behalf of these classes unless the carrying out of it appears to be for the benefit of that person.

Revisiting one of the examples above: a settlor establishes a trust for their children, which provides that each child will not receive their share until they reached the age of 30, and if any child does not reach the age of 30 then that deceased child’s share would goes to their children (i.e. the settlor’s grandchildren) in equal shares. If the three children want to wind-up the trust before the distribution date (assuming they are all capable adults), they would need the court to approve the wind-up on behalf of their children (born and unborn). The beneficiaries would have to show some reason why the proposed wind-up and distribution would also benefit their children.   This may require creative arguments.

In summary, beneficiaries may not be bound by the timelines for distribution established by the terms of the trust.  They may have remedies to obtain an early distribution.