Saturday, February 06, 2016

Leniuk Estate: Can a Trustee for a Minor's Property be Appointed Under the Family Law Act if there is a Trustee Appointed by Will?

I have written before about Part 8 of British Columbia’s Family Law Act which allows someone who holds money or other property for a minor to deliver the property to the child’s guardian if it’s value is under a prescribed amount (currently $10,000), or if the value is greater allows an application to court for an order appointing someone as a trustee for the minor to receive and hold the property.

In a recent decision, Leniuk Estate, 2016 BCSC 159, the Supreme Court of British Columbia held that an executor of a will who is appointed a trustee in the will to hold the share of a minor beneficiary cannot apply under Part 8 to appoint the minor’s guardian as a trustee pursuant to section 179 of the Family Law Act.

In his will and codicils, Arthur Leniuk left 20% of his estate to be divided among his grandchildren, one of whom is 16 years of age. The value of her share is about $15,000. His will contained some fairly common clauses dealing with the interests of minor beneficiaries:

4.         IF ANY PERSON should become entitled to any share in my estate before attaining the age of nineteen (19) years, the share of such person shall be held and kept invested by my estate and the income and capital or so much thereof as my Trustee in her absolute discretion considers necessary or advisable shall be used for the benefit of such person until he or she attains the age of nineteen (19) years. 
5.         I AUTHORIZE my Trustee to make any payments for any person under the age of nineteen (19) years to a guardian of such person whose receipt shall be a sufficient discharge to my said Trustee.
Mr. Leniuk’s executors and trustees wished to appoint the minor grandchild’s guardian to hold the funds in order to allow them to wind up the estate without having the estate incur further administrative costs for them to wait until the minor attained the age of 19. Until then, neither the minor nor the minor’s guardian has the authority to give a release to the executors and trustees.

Mr. Justice Punnett held that section 179 does not apply when a will or trust document appoints a trustee. It is not intended to override wills or trusts. It would apply, for example, when someone dies without a will, and a beneficiary on an intestacy is a minor. In that case, the court could appoint someone to hold the funds for the minor in place of the Public Guardian and Trustee.

Mr. Justice Punnett wrote at paragraphs 13 through 15:

[13]         Section 176 provides that a guardian, simply because they are a guardian, is not a trustee of a child’s property. As a result someone else can be trustee of the child’s property. Hence, a trust instrument, such as a will, that states a guardian is to receive a child’s property and is empowered to grant a discharge is not contrary to the section. Indeed s. 176 by its very wording recognizes this as it provides “by reason only of being a guardian”. (Emphasis added)
[14]         In my opinion the FLA provisions were not intended to, nor do they, override trust instruments. For public policy reasons, the Legislature saw fit to provide that the FLA address the situation where there is property to which a child is entitled but the child only has a guardian and there is no existing trustee. In circumstances where the property exceeds the prescribed amount in the small property exception the child’s guardian is not deemed to be the child’s trustee simply because they are a guardian. An application to the Court is required in order to determine who the appropriate trustee should be. Section 179 provides the factors the Court should consider when appointing a child’s trustee. Similar to other provisions in the FLA, the best interests of the child are paramount. An example of a situation when this might occur would be if a child received property from a relative who died intestate.
[15]         Given the significant repercussions if the FLA provisions were intended to override existing trusts, in my opinion the legislature would have addressed that explicitly. Since the FLA provisions when dealing with “small property” were clearly addressing issues of proportionality I cannot accept that it was intended that existing trusts would have to apply to appoint a guardian a trustee in order to deliver property to a child. The potential number of applications would undoubtedly be significant and the cost substantial. In addition it would result in an inappropriate layering of trustee on top of trustee. Finally, it would be contrary to the express terms of the trust representing the wishes, in this case, of the testator.
He wrote further at paragraphs 21 through 24:

[21]         To assert that children’s property advanced to a guardian by anyone is caught by these sections extends the FLA provisions beyond their purpose and the problem they were intended to address. The purpose of these sections is to ensure that there is a trustee to protect the interests of the child, whether that is the guardian as trustee or another person does not matter. The point is to have someone responsible for the infant’s funds and to address the fact, that often for various practical reasons, it is desirable for the guardians to have the funds. Where there is no trustee and where the property exceeds a certain value, the guardian can be appointed as trustee.
[22]         This is not a situation where there is uncertainty over who is the infant’s trustee. It is the trust instrument (the Will) that establishes the trust and names the trustees. It is the terms of that instrument that govern the trust. As long as the trustees comply with the terms of the trust they are protected. In accepting a receipt from the guardian they would be acting in accordance with the terms of the will and the trust and as a result that would be a valid discharge.
[23]         The trustees are in this instance attempting to delegate their duties as trustees to a third party. In effect they are seeking an order that amounts to a variation of the Will.
[24]         As a result, where the trust instrument addresses the issue of advancing funds, whether income or capital, to a guardian and addresses the obtaining of a valid receipt there is no need for a court application.
Does paragraph 24 of the reasons for judgment mean that the executors and trustees may payout the funds to the guardian and a receipt is sufficient to discharge them from liability? Although that would be a good practical result if the amount is $15,000, I have some doubts as to whether the above-quoted clause in the will would protect the trustees if the amount were say $150,000. I understand this type of clause to be intended to allow trustees to make payments to a guardian for the minor’s benefit, such as a school band trip, or tuition, but in making the payments, the trustees are exercising a discretion of their own. Arguably, handing the whole of the funds (if a large amount) to a guardian is not an exercise of discretion, but rather would also be an unauthorized delegation of their duties.

One thing to consider in estate planning is to draft the provisions of a will allowing payments to guardians to include the whole of the funds payable to the minor beneficiary.

The other problem for the executors and trustees is that even if the payment to the guardian discharges their obligations to the minor in respect of the amount of the payment to the minor, the guardian cannot approve their accounts and waive the requirement of section 99 of the Trustee Act that they pass their accounts within two years of the date of probate. The minor may waive the requirement to pass accounts when she attains the age of 19, but if she does not, and the trustees have distributed the estate, they may be out of pocket in funding the expense of passing their accounts before the court.

What can executors and trustee do if he or she does not want to continue holding the funds for a minor beneficiary?  In Leniuk Estate, the amount is relatively small and the beneficiary is 16. But in other cases, executors and trustees may have the responsibility of holding substantially larger funds for a longer period.  The will may provide for successor trustees, in which case one or more could be appointed in accordance with the will. Alternatively, trustees may apply to court under section 31 of the Trustee Act to appoint successor trustees. In either case, a trustee may pass his or her accounts before the court, and in the case of an executor, may apply for a discharge pursuant to section 157 of the Wills, Estates and Succession Act. 

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