Monday, April 22, 2013

B.C. Court of Appeal Dismisses Appeal in Easingwood v. Cockroft

In a decision released today, the British Columbia Court of Appeal  in Easingwood v Cockroft, 2013 BCCA 182, dismissed Kathleen Easingwood’s appeal of the Supreme Court of British Columbia’s decision that two of her husband’s children had the authority and acted properly in exercising a power of attorney on his behalf to create a trust into which they transferred a significant portion of his wealth.

Lauren Cockroft and Hank Easingwood were acting as their father, Reginald Easingwood’s attorney under an enduring power of attorney in managing his affairs after he was diagnosed with dementia. The power of attorney required that they both act together. After Hank Easingwood was diagnosed with cancer, they were concerned that he would not survive his father, and it would be necessary for Lauren Cockroft to apply to court to be appointed a committee to manage her father’s affairs. They set up a trust under which their father’s wealth was to be used for his benefit during his lifetime, and on his death would be distributed in a manner that mirrored his will. The trust would then allow for a successor trustee to be appointed on Hank Easingwood’s death.

After her husband’s death, Mrs. Easingwood challenged the trust. She argued at trial that his children did not have the authority under the enduring power of attorney to transfer his assets into a trust, that in doing so they breached their obligations of loyalty to him by acting in their own interest, and that the transfer of assets into a trust was a fraudulent conveyance.

The significance of the trust to Mrs. Easingwood is that she is making a Wills Variation Act claim to vary her late husband’s will, but the Wills Variation Act does not give the court authority to vary dispositions of property made during the deceased’s lifetime bypassing the estate.

I have written two posts about Madam Justice Dillon’s decision in the Supreme Court of British Columbia. The first post deals with the issue of whether Hank Easingwood and Lauren Cockroft had the authority and acted in accordance with their duties as attorneys under the enduring power of attorney in creating the trust, and the second deals with the argument that the transfer of assets was a fraudulent conveyance.

In the Court of Appeal, Kathleen Easingwood did not challenge Madam Justice Dillon’s decision that the transfer of assets was not a fraudulent conveyance. The Court of Appeal focused on the issues of whether the Hank Easingwood and Ms. Cockroft had authority under the enduring power of attorney to create a trust for their father, and whether they breached their duties to him in doing so.

The Court of Appeal held that there was no prohibition at the time the trust was created against an attorney acting under an enduring power of attorney on behalf of a mentally incapacitated person from settling a trust. Although an attorney does not have the authority to make a will for an incapacitated person, this trust was not testamentary in nature. It took effect during Reginald Easingwood’s lifetime, rather than on his death.

Madam Justice Saunders, writing for the Court of Appeal, agreed with Madam Justice Dillon’s finding that the trust mirrored Reginald Easingwood’s will, and was consistent with the Easingwoods’ marriage agreement. The terms of the trust provided that if there were insufficient funds in his estate to fund the gifts to Kathleen Easingwood in his will, the trust assets would be used to top up what she would receive out of his estate. This was a key finding to the decision.

In the circumstances of the case, the Court of Appeal agreed that Hank Easingwood and Lauren Cockroft acted in the interest of their father, and were not in breach of their duty of loyalty to him. After quoting from the trial decision, Madam Justice Saunders wrote at paragraph 73:

[73]         In these passages, the judge found the trust did not diverge from Reg’s known intentions as reflected both in the will and the marriage agreement – in other words, Reg’s interests were not reduced or adversely affected and there was no conflict of interest between the attorneys and Reg. Further, the judge found the trust was created for two sound reasons: because the power of attorney could lapse if Hank predeceased Reg, thus triggering appointment of a committee, contrary to Reg’s wishes; and because it was prudent business as it accorded with estate management advice received by the attorneys. That is, the judge found that the creation of the trust was bona fide.

 In reading this decision, I think it is important to keep in mind several things:

First, the decision considered the use of an enduring power of attorney before amendments were made to the Power of Attorney Act that set out duties and restrictions on the use of enduring powers of attorney. The Court of Appeal noted that it was not considering the effect of these changes to the legislation. The transfer of assets into a trust is arguably a gift, in which case it would only be permitted now that the legislation has been changed if the enduring power of attorney expressly authorized the attorneys to make gifts of that magnitude.

Secondly, the facts of this case were unusual in that the children had a legitimate concern that Hank Easingwood would die before his father (which sadly did happen), and the terms of the enduring power of attorney were such that Lauren Cockroft would not be able to continue to act on her own as the sole surviving attorney. The Court considered this to be a good reason to settle the trust.

Thirdly, the Court found that the trust was consistent with Reginald Easingwood’s intended disposition of his assets on death as reflected in his will. If Hank Easingwood and Lauren Cockroft had created a trust that had the effect of altering their father’s estate plan to provide Kathleen Easingwood with less than what she would be entitled to under his will, it would be unlikely that the Supreme Court of British Columbia and the Court of Appeal would have found that they had acted properly. 

No comments: