Sunday, June 19, 2016

New Requirement that Bare Trusts be Disclosed on Property Transfer Tax Returns

The Government of British Columbia has amended the Property Transfer Tax Return to require more information on the purchase of land, effective June 10, 2016. The requirement that a purchaser who is not a Canadian citizen or permanent resident identify his or her citizenship has received some press coverage. Although I don’t like it at all, I am writing about another change: the requirement that the person taking title disclose whether he or she, or it (if a corporation) holds the title in a bare trust.

The question on the Property Transfer Tax Return is “Is this a transfer of a bare trust?” I am not sure how one transfers a bare trust, but the question is intended to elicit whether the person acquiring title will hold title as a bare trustee. To hold land in a bare trust means that although you have title, you hold it for someone else, who is the true owner. Because the title holder has no management powers and is subject to the direction of the true owner, the title holder is an agent of the owner (rather than a trustee in the sense I often write about with significant powers and responsibilities).

If the answer to the question is “yes,” then the Return has a number of other questions. As set out in the Land Title & Survey Authority website here, if the transfer is to register a bare trust,
... an additional page will be created to enter information for the Settlors and Beneficiaries.
Select whether they are an Individual, Corporation or Other.
If Individual is selected, answer Yes or No to the question “On the date of registration, are you a Canadian citizen or a permanent resident as defined in the Immigration and Refugee Protection Act (Canada)?”
Select the country of citizenship. If there is more than one country of citizenship, select all that apply using the “ADD” button.
The address for each of the Settlors and Beneficiaries must be filled in.
If Company is selected, an additional page will be created. Fill in the “Total number of directors”
Fill in the names of all directors, their country of citizenship (all that applies) and address.
I am not clear on why the Government is collecting information on bare trusts. It may be intended to ensure that the Government is able to collect information on the whether the true owners are not Canadian citizens or permanent resident. Otherwise, someone who is neither a  permanent resident or Canadian could avoid disclosing his or her citizenship by using a permanent resident or Canadian citizen as a bare trustee.

Alternatively, the Government may also be considering whether bare trusts are being used to avoid paying property transfer tax. I came across a story on CTV with the headline “Real estate loophole lets wealthy buyers save millions in taxes.” The story was about how people can avoid paying property transfer tax by having a company hold bare title. Instead of transferring title to the land, the land stays in the company, but the control of the company is transferred to the purchaser.

The fact is, though, that anytime a company owns land (whether as the true owner or as a bare trustee), and someone buys the shares of the company rather than the land from the company, title to the land does not change hands, and there is no property transfer tax payable.

If the motive for adding information about bare trust to the Return is related to “loss” of revenue through the use of bare trusts, then I doubt it will be very helpful to the Government. As set out above, it is only when the title is transferred that purchaser is required to file the Return. If a bare trust is used to avoid the property transfer tax, the provincial Government will not know about the subsequent sale. Nor, is it necessary to file a Return, if after purchasing land, the owner later decides to declare that the owner holds title as a bare trustee. I don’t know what mechanism the Government could use to even gather information about changes in beneficial ownership without a change in title, let alone tax those changes. Such a mechanism would no doubt be intrusive and difficult to enforce.

I do use bare trusts to avoid property transfer tax, but in a different context. If I have a client who wishes to transfer real estate into a trust for estate planning, then we have to consider whether to register the trust with the Land Title Office. In some cases, there is an exemption available from property transfer tax. For example, if the property meets the requirements of the Property Transfer Tax Act for a principal residence (which are different from the Income Tax Act, Canada requirements), and if the trustee is a “related individual,” for example a spouse or child, then the land can be transferred to the trustee without paying property transfer tax. But there are plenty of traps for the unwary. For example, if my client wishes to be the trustee of her own trust, and we transfer title to her as trustee, property transfer tax is triggered even if it is her principal residence. Why? Under the legislation, she is not a “related individual” to herself.

When property transfer tax will be triggered by transferring title to the trustee, one option is for the owner, who is settling the trust, to sign a bare trust agreement declaring herself a bare trustee for the trustee of the trust. Some might see this as a loophole from tax. But consider the fact that in most of the trusts created for estate planning, for practical purposes little changes for the person settling the trust. Often she is the sole beneficiary during her lifetime, and it’s only upon her death that her beneficiaries, often children and grandchildren benefit. It is different from a sale of land to an unrelated purchaser, but in many cases, this type of estate planning is caught by the legislation.


Instead of making the Property Transfer Tax Return more intrusive, it would be preferable to scrap the property transfer tax, which is becoming more complex, likely increases the cost of real estate, and collect revenue from some other source. This will involve raising other taxes, but next to probate fees, the property transfer tax is probably the most flawed tax British Columbia has. 

Saturday, June 11, 2016

Wong v. Chong Estate

The law with respect to joint tenancy in British Columbia is nuanced. The basic idea is that if property is held in a joint tenancy between two people, on the death of one, the title passes to the survivor. But if one of the joint tenants gratuitously transferred the property into a joint tenancy or paid the purchase price to buy the property but puts title in a joint tenancy, then there is a presumption that the other joint tenant holds his or her interest in trust for the person who transferred the property or paid for it. This presumption, called a presumption or resulting trust, is a presumption only, which may be rebutted by evidence that the person who paid for the property intended a gift. When the parties are married spouses, there is a different presumption that the person who paid for the property intended a gift. But it really comes down to what the court finds what the intention was of the person who paid for the property at the time her or she purchased it, or in the case of a transfer, the time of the transfer.

But here’s where it gets more nuanced. Supposing one person buys property and puts title into a joint tenancy with another person, intending to retain control of the property during his or her lifetime, but that on death, the survivor will be entitled to the benefit of the property. In such a case, what if the joint tenancy is severed? This can be done in a number of ways, including either of the joint tenants transferring a half interest to himself or herself. In this case, is the person who did not pay for the party able to retain a half interest, and leave it to someone else in his or her will?

Rick Wong and Julia Chong were married on March 23, 2002. She had a daughter from a previous marriage, Janine Yuen, and he had no children.

Mr. Wong arranged to purchase a duplex in 2005. He contributed a little over $11,000 toward the purchase of the duplex, and borrowed a further $550,000. He mortgaged the new property, and Mr. Wong’s mother also assisted by providing security for the loan. When he signed the contract to purchase the duplex, he told 
Ms. Chong that he wanted to buy the property as a source of rental income for their retirement. He had some health problems and neither Mr. Wong nor Ms. Chong had any private pensions.

Mr. Wong and Ms. Chong took title to the duplex as joint tenants.

After they purchased the duplex, Mr. Wong used the rental income for mortgage payments. He also contributed additional funds to pay down the mortgage and pay other expenses for the duplex. He did work repairing the building, and hired contractors for other work. Ms Chong had little involvement. Most of the funds came from rental income, from Mr. Wong’s accounts or from joint accounts held by Mr. Wong and Ms. Chong during times when Mr. Wong was contributing all of the funds to the joint accounts. Some of the funds also came from joint accounts into which both Mr. Wong and Ms. Chong were contributing.
Ms. Wong died of cancer on May 26, 2013.

Shortly before she died, at a time when she knew she was terminally ill, she made her last will, dated March 21, 2013, in which she left her estate to her daughter. On April 5, she severed the joint tenancy on the duplex, without telling her husband.  Because she severed the joint tenancy, the title to the duplex did not pass to Mr. Wong by right of survivorship.

It should be noted that on the death of Ms. Chong, her daughter received other assets outside of the estate with a value of approximately $400,000 including life insurance and an investment account. Mr. Wong, on the other hand received about $32,000 outside of the estate on his wife’s death.
Ms. Chong’s daughter, Ms. Yuen, maintained that she was entitled to the half-interest in the duplex as the beneficiary of her mother’s will, the joint tenancy having been severed, and her mother having title to a half interest as a tenant in common.

Ms. Wong sued. He alleged among other things that there was a contract between his wife and him that the survivor would receive the duplex by right of survivorship. He also claimed that because he paid the purchase price, and as between his wife and him, he contributed most of the funds, that Ms. Chong’s estate held title to the half interest in trust for him.

In her decision in Wong v. Chong Estate, 2016 BCSC 953, Madam Justice Burke found that there was insufficient evidence that Mr. Wong and Ms. Chong had a contractually binding agreement that Ms. Chong could not sever the joint tenancy.  She held that the presumption of resulting trust did apply. She found that when Mr. Wong bought the duplex and put the title into a joint tenancy with his wife, he intended to confer the right of survivorship only. Unless he died first, and until his death, she had no other beneficial interest in the duplex.

Madam Justice Burke wrote:
[85]         Considering all of the details as set out in the agreed statement of facts and the evidence before the Court, I am of the opinion that a resulting trust should be found in this case and that all the beneficial interest in the Ewart Property [the duplex] remains with Mr. Wong.
[86]         Mr. Wong testified that he purchased the property with the intention that it serve as a source of retirement income for both him and Ms. Chong. He said that if he pre-deceased Ms. Chong, she would receive the interest in the property, but not before then. This testimony was corroborated by the plaintiff’s two sisters, who discussed this plan with the plaintiff at the time of purchase, and by the plaintiff’s friend Len Collard. None of the testimony in this regard was challenged on cross-examination.
[87]         Importantly, Mr. Wong’s testimony is also corroborated in several ways:
(a)            Mr. Wong does not receive a pension through his employment; it therefore makes sense that he would make efforts to secure retirement income through other means, such as acquiring the Ewart Property;
(b)            Mr. Wong had serious health concerns and had reason to believe he would predecease Ms. Chong;
(c)            Mr. Wong paid the vast majority of money (and all of the effort) toward the Ewart Property, including several large lump-sum payments, despite the fact that Ms. Chong had an income;
(d)            Ms. Chong severed the joint tenancy secretly and continued to keep that information from Mr. Wong even when questioned about her retirement planning in the later stages of her life; and
(e)            As the defendants stated, Mr. Wong was a real estate agent who would likely have been familiar with the concepts of joint tenancy and beneficial interest.
[88]         All of the above, whether arising at the time of the transfer or years later, indicate or are consistent with the evidence that Mr. Wong had no intention at the time of the transfer of gifting Ms. Chong the beneficial interest in the property.
[89]         Clearly, it was Mr. Wong’s intention that, should he predecease Ms. Chong, she would take the benefit of the property. It is clear from the evidence, though, that Mr. Wong did not intend to make an inter vivos gift of the beneficial interest in the Ewart Property for Ms. Chong to make use of as she pleased. On a balance of probabilities, Mr. Wong has proved that there was no donative intent. Ms. Chong’s deliberate concealment of the severance, as noted, shows she was very much aware of that. She held the beneficial interest for Mr. Wong.
[90]         In my opinion, Mr. Wong has rebutted the presumptions of advancement and indefeasible title. His testimony, consistent with the available evidence, indicates an intention at the time of transfer that Ms. Chong would take a beneficial interest only on the death of Mr. Wong. Ms. Chong, and subsequently Ms. Yuen, held her interest subject to a resulting trust in favour of the plaintiff; the beneficial title to the Ewart Property remains with him.

In the result, Mr. Wong owns the full interest in the duplex. 

Monday, May 30, 2016

Sabey Rule LLP Announces Association with Ken M. Kramer Q.C. and KMK Law Corporation.


I am pleased to announce the association of Ken M.  Kramer Q.C.  and his firm KMK Law Corporation with our law firm, Sabey Rule LLP. 
Ken is a senior lawyer and founder and principal of KMK Law Corporation, a boutique law firm in downtown Vancouver providing Estates, Trusts, Elder Law, Litigation and Mediation services.  He has particular expertise in planning for persons with disabilities and is a frequent lecturer for the Continuing Legal Education Society of British Columbia, the Vancvouer Wills and Trusts section of the Canadian Bar Association, B.C. Branch and the People’s Law School among other organizations.  

Ken is also the current Chair of the Province of BC's Emergency Medical Assistants Licensing Board, which oversees licensing and regulates over 15,000 First Responders in British Columbia.  He has also sat on numerous boards and committees over the past 25 years with a specific focus on disability and seniors issues and is currently the Chair of the Board for the BC Centre for Elder Advocacy & Supports and the Elder Law section of the Canadian Bar Association.  Ken is also an elected member of the Canadian Bar Association, B.C. Branch Provincial Council for Vancouver and past Chair of Muscular Dystrophy Canada. 
In this regard, and in recognition of his excellence in the practice of law and his contributions to  the community, Ken was designated Queen’s Counsel in 2015

Ken will assist Sabey Rule LLP in serving our clients, particularly in the Greater Vancouver Area. We will be working together on significant estate disputes.  He will also be a valuable resource to our lawyers in Kelowna.

Ken’s office is located in downtown Vancouver at Park Place, Suite 500 – 666 Burrard Street, Vancouver, B.C., V6C 2X8.  His office phone number is 604-990-0995.  You may also get further information about Ken and his practice by visiting the KMK Law Corporation website. 

Saturday, May 21, 2016

What Happens to Funds Inherited by a Spouse on the Breakdown of the Marriage?

Some of my estate-planning clients have asked me what would happen to the money they intend to leave to their children if one of their children’s marriages breaks down.  In some cases, there may be concern that a marriage breakdown is imminent, while in others it’s a more general, “what if?” question.

When family law was reformed a few years ago in British Columbia, I thought that my answers would be a little more straightforward than they had been in the past. The Family Law Act, which came into effect in March 2013, overhauled the law governing divisions of property in a marriage breakdown. The basic rule is that family property and family debt is shared equally. The parties may agree on a different division, or if an equal division would be “significantly unfair” the court may order a different division, but the basic rule is a 50/50 split. One key aspect of the new property-division regime is that some property is excluded from the divisible family property. The “excluded property” includes inheritances or gifts received by one of the spouses.

At first glance, the answer to the question what happens to my child’s inheritance if her marriage breaks down appears simple:  “don’t worry; it is excluded from the property that she would have to divide equally with her former spouse.”

Alas, if the law were that simple, I might be out of a job.

Section 84 (2) of the Family Law Act includes among the divisible family property,
“(g) the amount by which the value of excluded property has increased since the later of the date
(i) the relationship between the spouses began, or
(ii) the excluded property was acquired.”

Still, this probably conforms to most people’s sense of what is fair. If I (the hypothetical  me) leave an inheritance to my daughter of say $400,000, she invests it and it grows to $500,000 during her marriage, then on the breakdown of the marriage, she keeps the full $400,000 on the breakdown of her marriage, and shares the $100,000 growth with her former spouse.

But it gets murkier (otherwise this would be a much shorter post). Supposing my daughter inherits $400,000 from me, but then uses the funds to purchase a house with her spouse, with the title registered in the spouse’s sole name. On a subsequent breakdown of the marriage, is the house (or at $400,000 of the value of it) remain excluded property that my daughter retains? Or is the full value of the house now equally divided between my daughter and her spouse?

The British Columbia Court of Appeal considered this issue in V.J.F v. S.K.W., 2016 BCCA 186. Mr. F. Inherited $2 million (it was not from parents or other family, but nothing turns on that). He used most of it to purchase land in Vancouver on which he and Ms. W planned to build a new family home. The title was registered in Ms. W’s sole name. The trial judge found that he did this for creditor protection. It should be noted that there was no finding that he acted fraudulently to defeat current creditors, but rather that he did this because of risks of claims associated with his business. At trial, the trail judge found that Mr. F conferred a gift on Ms. W when he used the funds to buy the property in her name, and held that when he did so, the funds were no longer excluded property. Accordingly, the funds land was equally divided between Mr. F. and Ms. W.

Madam Justice Newbury, writing for the Court of Appeal, in upholding the trial judge’s decision, held that the trial judge did not err in finding that Mr. F conferred a gift on Ms. W. He could not protect the property from potential future creditors without conferring an absolute interest in Ms. W. She also held that the presumption of advancement—that is the presumption that when a married spouse transfers property to the other spouse gratuitously, he or she intends to make a gift—continues to apply to transfers between married spouse in the province of British Columbia (in some provinces in has been abolished). In this case the onus was on Mr. F to rebut the presumption that he made a gift, and he did not meet the onus.

Madam Justice Newbury also rejected the view expressed in some of the Supreme Court of British Columbia cases that the Family Law Act regime is a complete code, which supersedes common law property rights. In this view, property that was excluded remains excluded despite the fact that title may be transferred between the spouses. She wrote at paragraphs 74 and 75,

[74]         With all due respect to the contrary view, I conclude that the new FLA scheme does not constitute a “complete code” that “descends as between the spouses” and eliminates common law and equitable principles relating to property. Rather, the scheme builds on those principles, preserving concepts such as gifts and trusts, and evidentiary presumptions such as the presumption of advancement between spouses. Thus I find that the gift of (slightly less than) $2 million made by Mr. F. to Ms. W. became her property and was “property owned by at least one spouse” under s. 84, as opposed to “property derived from the disposition of [excluded] property” within the meaning of s. 85. At the time the definitions are applied – the date of separation – the fact Mr. F. had originally received the $2 million as a gift was no longer relevant. He lost the exclusion when he voluntarily and unreservedly directed that the West 33rd property be transferred to Ms. W. and ‘derived’ no property from that disposition.
[75]         I do not interpret the FLA as reversing the gift or requiring that it be ignored because of the spouses’ separation. Nor do I agree that the FLA effectively ‘prohibits’ gifts between spouses, as Mr. F. suggested. (See para. 56.) Gifts between spouses can continue as they have through the ages. It would take much clearer wording to render them suddenly revocable or null or illegal. (See the comments of Chief Justice Farris in a slightly different context in Duncan v. Duncan (No. 2) [1950] B.C.J. No. 50 at para. 13 (S.C.),aff’d [1950] B.C.J. No. 41. (C.A.).)

This case raises a couple of questions.

First, does this mean that whenever a spouse transfers funds from an inheritance to the other spouse, those funds lose their status as “excluded property?” I suggest that the answer is “not necessarily.” In V.J.F. the trial judge found that Mr. F intended to make a gift, and that the presumption of advancement had not been rebutted. In other cases, the courts may find that a spouse did not intend to confer a gift, and there may be evidence rebutting the presumption of advancement. In such a case, the spouse to whom title is transferred may hold the property as a trustee for the spouse who inherited the funds. In that event, the funds should still be excluded.

Secondly, what about a case where the spouse who receives the inheritance buys a house and the title is held in both names as joint tenants. This is likely a more common event. The beneficiary of the inheritance may want her spouse on title as a joint tenant for estate planning so that if she dies first, her spouse will receive the house by right of survivorship. Although the concept of joint tenancy is nuanced, arguably in that case half of the beneficiary of the inheritance should be able to exclude one half of the funds, and the other half divided equally, on the basis that each spouse has a notional half-interest.

If this is correct, then in my example of my daughter receiving a $400,000 inheritance, if she uses the funds to buy a house to be held in a joint tenancy with her spouse, $200,000 would remain excluded, and $200,000 divided equally between her and her spouse on the breakdown of the marriage. She ends up with $300,000, and he with $100,000 from the inherited funds.

Sunday, May 15, 2016

British Columbia Court Services Branch Plans to Collect Hearing Fees Again

In a letter to the Trial Lawyers Association of British Columbia, the Assistant Deputy Minister, Court Services Branch, Ministry of Justice has advised that Court Services Branch intends to begin collecting hearing fees for civil matters set down for dates on or after August 1, 2016.  For the time being, the Court Services Branch will not collect fees for family matters.

As I wrote before, the majority of the Supreme Court of Canada held that the hearing fees in British Columbia were an unconstitutional impediment to access to the courts in Trial Lawyers Association of British Columbia v. British Columbia (Attorney General)2014 SCC 59. Although the Supreme Court of Canada said that a province could charge hearing fees, the majority found British Columbia's regime unconstitutional, by exempting only those who are impoverished. The exemptions did not exempt those for whom the fees created undue hardship, but were not impoverished.

I have some doubts as to whether the changes the Government has made to the exemptions will pass constitutional muster, but the only prediction I will make is that there will be further litigation on this issue.

Irrespective of whether the Government of British Columbia can legally collect hearing fees, there remains the public policy issue of whether this is the right thing to do. I wish those making this decision would read and take to heart Mr. Justice McEwan's eloquent discussion about access to the courts in the Supreme Court of British Columbia's decision in this case, Vilardell v. Dunham, 2012 BCSC 748.

In making this decision, the Government of British Columbia does not appear to be taking access to justice seriously.

Saturday, May 07, 2016

The Sidney and North Saanich Memorial Park Society v. British Columbia (Attorney General)

A good thing about charitable purpose trusts is that they can last forever. A bad thing about charitable purpose trusts is that they can last forever. When creating a charitable purpose trusts, or any long-term trust for that matter, it is difficult to predict what the future holds, and build sufficient flexibility into the trust documents to meet the needs of those who are intended to benefit as circumstances change. Fortunately, as illustrated by a recent decision of the Supreme Court of British Columbia in The Sidney and North Saanich Memorial Park Society v. British Columbia (Attorney General), 2016 BCSC 589, superior courts in common law provinces in Canada do have tools to amend charitable trusts.

The Sidney and North Saanich War Memorial Park Society settled a charitable trust (which I will refer to simply as the “Trust”) in 1965 to hold certain lands (the “Lands”) now in the Town of Sidney. In 1965 the Lands included a park, playing fields and tennis courts, a community hall, called Sanscha Hall, and a Cenotaph. The Sidney and North Saanich War Memorial Park Society transferred the Lands to the trustee of the Trust to hold for the residents of the Electoral District of Saanich (the “Residents”) for “community, cultural, athletic and recreational purposes.”

The Trust deed setting out the powers and duties of the trustee contained certain restrictions including:
  1. A portion of the Lands and Premises (the” Cenotaph Area”) had to be used solely for a memorial cairn;
  2. The trustee had the power to lease the remaining Lands and Premises,  or a part of them, for  a term of up to 5 years with an option to renew for 5 years, provided that the tenant permits and encourages the Lands and Premises to be used by the Residents for community, cultural, athletic and recreational purposes and maintains the Cenotaph Area in good repair;
  3. If any part of the Lands and Premises are expropriated  then the funds received for the expropriation would have to be used to purchase, maintain and improve other lands and premises;
  4. The Residents were given a number of powers including the power to require that the trustee terminate any lease on giving the tenant 30 days notice.

There were a number of changes that occurred over the years, including the following:

  1. In 1969, the Province of British Columbia expropriated part of the Lands on which the Cenotaph was located, and the Cenotaph was moved;
  2. In 1983, the Town of Sidney expropriated a portion of the lands and paid approximately $500,000 in compensation;
  3. In 1987, the trustee used some of the proceeds from the expropriation to purchase land and developed a community sports facility known as Blue Heron Park;
  4. The trustee developed a new multi-purpose arts facility, now known as the Mary Winspear Centre, which opened in 2001 and replaced Sanscha Hall.
Some of the provisions in the Trust deed create significant difficulties for the trustees in light of the changes that have occurred since 1965. For example, the current trustee, the Sidney and North Saanich Memorial Park Society, holds approximately $380,000 from the expropriation compensation, which under the terms of the Trust deed must be used to maintain and improve the Blue Heron Park, but the Blue Heron Park does not require the funds, which could be better used to maintain the Mary Winspear Centre. The restrictions on the length of leases and the provision allowing the Residents to require the trustee to terminate any lease to a Tenant on giving a Tenant 30 days notice, prevent the trustee from attracting tenants and entering into long-term profitable leases.

The Sidney and North Saanich Memorial Park Society asked the court to interpret certain provisions of the Trust deed (which I won’t deal with in this post), and to amend the Trust deed as follows:

a.               Removal of the restrictions on the lease term;
b.               Removal of the power granted to the Residents by which they can require the trustee to terminate a lease on 30 days’ notice without cause;
c.               The trustee be permitted to use any Expropriation Funds to maintain and improve all Trust Property, thereby removing the restriction that such funds only be used for the land purchased in substitution;
d.               Inclusion of a specific provision empowering the trustee to carry on business activities on the Trust Property and to permit uses of or activities on the Trust Property, including business use and the earning of rental income, subject to the terms and conditions of the Trust, and requiring that all such activities and use conform to the community, cultural, athletic and recreational purposes of the Trust; and
e.               Inclusion of a provision that the trustee preserve and maintain a memorial cenotaph, sculpture or other structure, on a place on the Trust Property that is prominent and accessible to the public.
In her reasons for judgement, Madam Justice Dardi considered the Court’s jurisdiction to amend a charitable trust. The first is the cy-pres jurisdiction (which I have written about before). The second is the courts inherent jurisdiction for administrative scheme-making. As I read this case, the circumstances in which the cy-pres jurisdiction may be invoked are relatively narrow, that the terms of the trust have are impossible or impracticable to carry out, but once invoked the Court has broad powers to amend the trust. In contrast, the threshold for invoking the administrative scheme-making power is lower, but the Courts powers are narrower.

Madam Justice Dardi neatly summarized the cy-pres jurisdiction as follows:
[47]         Cy-près is a significant doctrine in the law of charities. It determines what happens when property that has been dedicated to charitable purposes cannot be applied in the manner intended by the donor: Haley & McMurtry, Equity and Trusts, 3d ed (London: Sweet & Maxwell, 2011) at 261. Where the purposes or objects of a charitable trust have become impossible or impracticable to achieve, the court, relying on its inherent jurisdiction, may intervene and alter the purposes of the trust, and in doing so, depart from the stated intention of the settlor. The courts may implement modernized or modified objects that are “as near as possible” (cy-près) to the original purposes: Toronto Aged Men’s and Women’s Homes v. Loyal True Blue and Orange Home, [2003] O.J. No. 5381, 68 O.R. (3d) 777 at para. 50 (S.C.J.) [Stillman].
[48]         A cy-près order “must depart from the intentions of the [settlor] only to the extent required to remove the problem that has caused the future administration of the Trust to become impracticable.” It is also imperative that the relative efficiency of the proposed amendments be considered: Stillman at para. 28.
[49]         The threshold requirement for invoking the cy-près doctrine is a finding that carrying out the existing trust terms is either impossible or impracticable. In the absence of such a determination, the court must refuse to exercise its cy-près scheme-making jurisdiction. Despite the narrow ambit of the doctrine, courts have, at times, interpreted impossibility and impracticability broadly: Waters [Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012)] at 683. “Impracticability” is not to be construed as “absolutely impracticable”: In re Dominion Students’ Hall Trust, [1947] Ch. 183 at 186.
[50]         Earlier lines of authority endorsed the notion that cy-près orders should be restricted to cases where there has been a failure of the purposes or objects of a charitable trust as distinct from the malfunction of the directions from the settlor for implementing those objects.
[51]         However, the modern Canadian jurisprudence, as articulated by Mr. Justice Cullity in Stillman at paras. 31-33 and subsequently applied by the court in Fenton Estate, 2014 BCSC 39, establishes that the doctrine extends beyond remedying the failure of objects. It goes further and empowers the court, without amending the purposes, to introduce or adjust administrative trust machinery to accommodate contemporary conditions, so that the charitable purposes can be sustained. The rationale is found in the judicial recognition that the charitable objects should not be frustrated by the trust’s administrative provisions.
Madam Justice Dardi adopted the modern approach to cy-près as set out in Stillman.

She then summarized the administrative scheme-making jurisdiction,

[56]         The jurisprudence establishes that, even absent a finding of impracticability or impossibility, the court retains the inherent jurisdiction for administrative scheme-making with respect to charitable trusts. An administrative scheme addresses the inadequacy of the administrative terms of a trust to achieve its charitable objects: Waters at 807-08. Pursuant to this jurisdiction, the court has the power to supply administrative terms or to alter the administrative machinery of a charitable trust when necessary for the effective operation of the trust. The court directs a scheme in order to secure a more complete attainment of the charitable purposes. This is in keeping with a long-standing recognition by the courts that the dedication of property to charity through a trust involves special rules. The jurisdiction to regulate the administration of charitable trusts should be exercised sparingly.
[57]         Historically, the courts in England have relied on their inherent jurisdiction to  supply administrative terms when the trust instrument is silent, or to vary administrative terms including trustee powers, such as the investment power, when those terms have become obsolete: In re Royal Society’s Charitable Trusts, [1956] Ch. 87.
Madam Justice Dardi considered conflicting case authorities in other provinces, but found that although there are conflicting judicial opinions on the extent of the court’s powers, the jurisdiction is accepted in Canadian law. (Although I will not deal with the conflicting cases in this post, the discussion is quite interesting, and perhaps fodder for a future blog post.)

She wrote,

[76]         I conclude that I have inherent jurisdiction for administrative scheme-making for charitable trusts. In cases where it cannot be said that the requirements to achieve the purposes of a charitable trust have become sufficiently impracticable or impossible so as to engage the cy-press doctrine, the courts may nonetheless, pursuant to this administrative scheme-making jurisdiction, vary the administrative terms of a trust for the furtherance of charitable purposes. 
She found that she had jurisdiction to grant the amendments requested by the Sidney and North Saanich Memorial Park Society under both the cy-près jurisdiction and the administrative scheme-making jurisdiction, and that it was appropriate to grant the orders amending the Trust deed.

With respect to the cy-près jurisdiction she wrote,

[108]     Counsel for the Trustee submits that without these administrative amendments, the Trust will in all likelihood fail because there are insufficient funds held in trust and/or generated by the Trust Property, and available to the Trustee to adequately maintain and preserve the Trust Property in perpetuity. I agree.
[109]     I am satisfied that, in all the circumstances, the purposes of the Trust have become impracticable as a result of the restrictions upon the Trustee to enter into short-term leases, the Resident Oversight Clause, and the restriction placed on the use of the Expropriation Funds. I am satisfied that the Trustee has established economic impracticability of the continuation of strict adherence to these administrative terms. While these administrative terms may have been practical when the Trust was settled, subsequent events have rendered adherence to the strict terms impracticable, such that the court’s cy-près jurisdiction is engaged
[110]     Accordingly, I approve the amendments to the Trust Deed as sought by the Trustee. The Trustee has proposed removing the provisions limiting leases to five- year terms. As an added protection, the Trustee has proposed the inclusion of a clause which requires the Trustee to take steps at least once every five years to satisfy itself that the tenant is not in breach of the terms and conditions of the Trust, including its objects and purposes. I endorse the inclusion of that safeguard.
Madam Justice Dardi wrote in respect of the administrative scheme-making jurisdiction,

[115]     For completeness and if the cy-près doctrine is not engaged, I approve the proposed amendments pursuant to the court’s jurisdiction to regulate the administration of the Trust.
....
[117]     The amendments that I have approved in this case relate to the Trustee’s power to lease. The directions in the Trust Deed regarding the term of the lease and the Resident Oversight Clause are incidental to the power to lease. These directions are not essential to carry out the paramount intention of the settlor, namely that the Trustee be granted the power to lease. I am satisfied that these particular provisions have become inadequate for contemporary needs and that the proposed amendments will effectively modernize the Trust’s administrative machinery.
[118]     Similarly, the settlor conferred upon the Trustee the power to use the compensation payments it has received for the maintenance and improvements of certain prescribed lands. I conclude that the proposed amendment – to expand the parameters of the use of the Expropriation Funds – updates and enhances the efficacy of that administrative term of the Trust.
[119]     In light of the foregoing, the amendments to the administrative directions of the Trust that I have approved do not subvert the donor’s intentions. Rather, the proposed amendments would allow the settlor’s intentions to be more effectively fulfilled.
[120]     In summary on this issue, I am satisfied that the amendments sought fall within the court’s jurisdiction to regulate the administration of the Trust. I conclude that the amendments to the administrative machinery of the Trust will enhance and facilitate, in light of the altered circumstances, the economic feasibility of carrying out of the settlor’s paramount objective, namely that the Trust Property continue to be used by the Residents for community, cultural, athletic and recreational purposes. The amendments secure the more complete attainment of the charitable objects and ensure that the settlor’s intentions and the charitable purposes of the Trust can be carried out more effectively.

Wednesday, May 04, 2016

Becker v. Becker Case Comment -- by Kimberly Wallis

[The following guest post was written by Kimberly Wallis also of Sabey Rule LLP.]

In the recent British Columbia Supreme Court case of Becker v Becker, 2016 BCSC 487, the executor of the will of Ann Andrews sought to prove her will in solemn form after its validity was formally challenged by those who would benefit under a previous will. 

There were a number of red flags raised surrounding the circumstances of the execution of Ms. Andrews last will and testament.  These were:

·         She made not one but two new wills in the last six weeks of her life;
·         She had been diagnosed with an inoperable brain tumor at the time;
·         Her long time companion gave instructions directly to her lawyer, indicating that the first new will had errors in it that had to be corrected;
·         The ultimate residuary beneficiaries departed from an estate plan that Ms. Andrews had in place for at least a decade.

Despite these red flags, Mr. Justice Smith found that the last will executed by Ms. Andrews (“the Final Will”)  was valid and the will would thus govern the ultimate distribution of her estate.

Ms. Andrews emigrated from the UK to Canada in 1974, with her husband Mr. Andrews, who died a few years later.  Ms. Andrews met and lived with Hendrik Becker for 27 years prior to her death, but neither relationship led to children and she died without issue.  Mr. Becker, however, had three sons from a previous relationship.

Accordingly, Ms. Andrews was survived by her common-law husband, his children and Mr. Becker’s four grandchildren who were Ms. Andrews step-grandchildren (‘the grandchildren”) in Canada.
Ms. Andrews was also survived by an assortment of six nieces and godchildren in England (“the godchildren”).

Under earlier wills, the residue of Ms. Andrews estate, (after a life interest for Hendrick in her West Vancouver condominium) would have been divided among the godchildren, whereas under the final will, the residue would be divided ten ways among the grandchildren as well as the godchildren.

After being admitted to Lions Gate hospital on December 28th, 2011, Ms. Andrews was told of the inoperable brain tumor and she remained in the hospital in palliative care until her death some six weeks later.  On her behalf, Hendrick contacted the law firm that had drawn up her previous will, and shortly thereafter a solicitor from that firm attended upon Ms. Andrews.

Ms. Andrews gave instructions on January 10th and executed a new will on January 13th.  Like her old will, the first new will provided that the godchildren would be the residuary beneficiaries.

However, Mr. Becker contacted the solicitor, one Ms. Rockandel, on January 12th, indicating that he believed his own grandchildren were the residuary beneficiaries.  On the 16th of January, he told her that his grandchildren were to be included, along with the godchildren as residuary beneficiaries.  On the 17th Ms. Rockandel took instructions from Ms. Andrews to that effect, and on the 18th Ms. Andrews executed the Final Will, which did indeed provide for ten way distribution of the residue and included both the godchildren and the grandchildren.

In coming to the conclusion that Ms. Andrews had mental capacity to execute her will and further that Mr. Becker did not exert undue influence upon her, Mr. Justice Smith looked at the following factors:

WARMTH AND CLOSENESS OF RELATIONSHIP WITH BENEFICIARIES

·         Although close to her godchildren, the court also considered that Ms. Andrews had known the grandchildren their whole lives, and as such, that while not blood relatives they were natural objects of her bounty. 
·         Although the godchildren attempted to portray Ms. Andrew’s relationship with Mr. Becker as one of convenience, the fact remains that they spent three decades together and were together at her death.

SOLICITOR’S INSTRUCTIONS

·         The solicitor spent a significant amount of time taking instructions, although Mr. Hendrick was there for the first two thirds on January 10th.
·         Ms. Rockandel was quite properly “keenly aware” when Mr. Hendrick told her to include his grandchildren as residuary beneficiaries that she had to hear this from Ms. Andrews directly.
·         Ms. Rockandel was blunt and told Ms. Andrews flatly that she did not have to change her will; Ms. Andrews told her she had seen the grandchildren grow up and did not wish to leave them out. 

MEDICAL EVIDENCE
·         Ms. Andrew’s doctor testified she was “bright and alert” on the 13th, the day she executed the first new will.  While he testified she was emotional about her diagnosis, the judge emphasizes that one should not confuse the disturbed emotions that are to be expected of one who learns “that death is imminent, with the question of mental capacity” [66].

With respect to the involvement of Mr. Becker in the creation of Ms. Andrews estate plan, Mr. Justice Smith cited Madam Justice Dardi in Chang Estate vChang, 2013 BCSC 976, for the proposition that merely making one’s wishes known does not amount to undue influence:

…The undue influence must constitute coercion which could not be resisted by the will-maker and which destroyed his or her free agency.  It is well-established on the authorities that if the will-maker remains able to act freely, the exercise of significant advice or persuasion on the will-maker or an attempt to appeal to the will-maker to gratify the wishes of another, will not amount to undue influence….[35]
Historically, in British Columbia, it has fallen on a person alleging undue influence to prove it.  However, one of the changes brought in by the new Wills, Estates and Successions Act ("WESA") is a switch to this burden of proof – going forward, for those wills adjudicated under WESA, the burden of proof will fall upon the person who is in a position of trust and who benefits in the will to prove that they did NOT unduly influence the will-maker.

Interestingly, Mr. Justice Smith states that while in this case the will-maker died before that provision became law, even if the burden of proof had rested upon Mr. Becker to refute, the evidence would have fallen short of establishing a case of undue influence.

With regard to Ms. Rockandel’s actions, the judge stated that while it is of some concern that Hendrick was present for part of the January 10th meeting, he was not present on the 13th, 17th, or 18th of January.  Further, Ms. Rockandel took the time to talk with Ms. Andrews at length and comfort herself that Ms. Andrews was acting freely, albeit possibly with some coaxing from her husband of 30 years.  As Mr. Justice Smith states, “Nothing in the case law prevents suggestions or persuasion by a spouse, provided that there is no coercion and the testator remains free to make his or her own decision” [70].

Also important is the fact that the Becker grandchildren had been part of Ms. Andrew’s life for decades and she had watched them grow up.  Mr. Justice Smith contrasts this with those wills made at the end of a life to benefit someone “who had only recently come into the testator’s life” [60].  Presumably the courts may regard such a change with more suspicion.


This case, like many before, establishes that very solid evidence must be available in order to succeed in a claim of undue influence in the courts of British Columbia, and that this will possibly remain the case even with the new reversal of the burden of proof.