Sunday, April 21, 2019

Quinn Estate Appeal

In Quinn Estate v. Rydland, the British Columbia Court of Appeal had held that a pour-over clause in former NHL coach Pat Quinn’s will is invalid. As I wrote in my post about the British Columbia Supreme Court decision in this case,

Mr. Quinn and his wife Sandra Quinn settled a trust in the United States which dealt with assets in the United States. Mr. Quinn was an American citizen, and Mrs. Quinn had U.S. Green Card, but they lived in British Columbia. Their U.S. lawyer also draft a will for Mr. Quinn dealing with his assets in Canada. The will provided that the residue of his Canadian Estate would “pour over” into a U.S. trust, referred to as the Quinn Family Trust. 
The issue in this case was whether the distributive provision of the Canadian will is valid under British Columbia law. The will was signed by Mr. Quinn in the presence of two witness in accordance with the requirements of section 37 of the Wills, Estates and Succession Act. The will itself was formally valid. The difficulty was the “pour over” clause, which I understand is valid in at least some states. The terms of the Quinn Family Trust allowed Mr. and Mrs. Quinn to amend it. Because they could amend the trust, the beneficiaries could be changed without compliance with the requirements of section 37.

The Trust was amended, but the amendment was a relatively small administrative change that did not change the beneficiaries. But the fact that it could be amended was sufficient for Mr. Justice Funt in the Supreme Court to find that the clause is invalid.

On appeal, Chief Justice Bauman considered whether the clause could be saved on any of three grounds: the doctrine of incorporation by reference, the doctrine of facts of independent significance or section 58 of the Wills, Estates and Succession Act (the “WESA”).

In a will, the will-maker may incorporate another document. The Chief Justice set out the criteria as follows:

[19]         Incorporation by reference simply contemplates that the terms of the trust are deemed to be incorporated into the will. There are five prerequisites to applying the test, per Leal, A. “Testamentary Additions to Trusts” in Proceedings of the Forty-Ninth Annual Meeting of the Conference of Commissioners on Uniformity of Legislation in Canada (St. John’s: 1967) 207 at 208:

(1) that the reference in the will must show that the testator intended to incorporate the extrinsic document into the will; (2) the language of the will must be such that it refers to the extrinsic document as one already in existence at the time of the execution of the will; (3) the reference in the will must be sufficiently specific that it identifies the extrinsic document with reasonable certainty; (4) the document offered must be proven satisfactorily to be the one referred to in the will; and (5) there must be satisfactory proof that the document was actually in existence at the time of the execution of the will: see Allen v. Maddock (1858), 11 Moore P.C. 427.

The Chief Justice found that the will did not refer to a document, and Mr. Quinn did not intend to incorporate the trust by reference. Rather Mr. Quinn intended to make a gift “to the trust.” The trust c could not be incorporated by reference “because as of the date of that will, the trust, being amendable and revocable, was not a ‘presently existing document’ and the testator cannot, by his will, create for himself a power to dispose of his property by an instrument not duly executed as a will or codicil.”

The doctrine of facts of independent significance refers to facts that are independent of the will that may affect the disposition of the will-maker’s property. For example, if the will-maker leaves his property to those of his children who survive him, the birth of a child after the will affect how is property is divided upon death. 

Chief Justice Bauman described the doctrine as follows:

That doctrine purports to resolve the issue of potential uncertainty in a will. In the Anglo-Canadian cases it would typically respond to resolve the uncertainty inherent in a bequest: “my car to my partner at the time of my death”. Certainty is achieved by reference to a fact of independent significance (i.e., independent of simply testamentary significance), such as the fact of who the testator’s partner was at the time of his death. So too could the fact of the make and model of the testator’s car have independent significance.

In some jurisdictions in the United States, the doctrine of facts of independent significance has been applied to similar pour-over clauses, but the Court of Appeal rejected the application of the doctrine to pour-over clauses in British Columbia. Chief Justice Bauman wrote:

[31]         In my view, this doctrine should not be seen as a device to validate a pour-over clause like that at bar both as a matter of statutory interpretation and as a matter of principle. When WESA came into force in 2014, it heralded a significant overhaul of the wills, estates and trusts law of the province. Nothing in WESA addresses pour-over clauses. Were the doctrine of facts of independent significance applied to pour-over clauses, it would allow a will-maker to avoid the formalities and the necessity of testamentary intent embodied in WESA so long as the will-maker had sufficient assets in the trust at the time of amending the trust (at least on the American authorities). Had the Legislature intended to allow amendments to a will so long as the amendment presently affected significant assets, the legislature could have provided for it. Extending this doctrine to apply to an amendable, revocable trust would permit a testator to avoid the strictures of WESA and thus defeat the legislature’s intent.
[32]         Applying the doctrine to validate a pour-over clause would also differ in character to the existing applications recognized in the Anglo-Canadian jurisprudence. The traditional applications of the doctrine validate de facto amendments to the will only with regard to limited “facts”. The terms “partner” and “car” are inherently limited. A trust document recognizes no such limit. Extending the doctrine to pour-over clauses would grant testators unlimited power to amend the disposition of their estate without following the strictures of WESA. In my view, this is not an extension the common law should permit

Finally, the Court of Appeal considered whether the curative provision in section 58 of the WESA could save the pour-over clause. Section 58 allows the court to give effect to a document or record that does not comply with the formal signing and witnessing requirements for a valid will if the court finds the document or record reflects the deceased person’s testamentary intentions. (I have co- written a paper on section 58, which you can find here.)

The Court held that section 58 has no application. The will met all of the formal requirements, and Mr. Quinn did not intend for the trust to be a will. Chief Justice Bauman wrote at paragraph 37,

That s. 58 is inapplicable here is made stark when we ask what “record or document or writing or marking on a will…” is to be ordered “fully effective” under WESA per s. 58(3). Ms. Rydland does not seek probate of the QFT; rather, she seeks to validate the sixth clause. That clause is part of a will that complies with the formalities. It seeks to create a vehicle — the QFT — that would allow the will-maker to circumvent the formalities altogether. Section 58 simply has no application to that circumstance. The chambers judge did not err in declining to apply s. 58 here.

What is my own view? From a practical perspective, I think it unfortunate that a pour-over clause to an amendable trust is invalid. In some circumstances, it might be a useful tool. Family trusts appear to be quite popular in some U.S. states, such as California. I don’t see any harm from a policy perspective in, for example, allowing someone with a trust in California with California resident beneficiaries to create a will for his British Columbia assets that pours over to his California trust.

I also think this case illustrates an incoherence in our succession law. Supposing that Mr. Quinn’s will made no reference to the trust, but he simply named his wife as the beneficiary of his estate. Suppose he also told her that she was to distribute his estate in accordance with the trust, and she agreed. Supposing further that he decided to amend the trust after he made the will, and he communicated the changes to her and she agreed to deal with the estate in accordance with those changes. Provided that the will did not itself refer to the fact that she would receive his estate as a trustee, this arrangement would be a valid secret trust under British Columbia law, and he would be able to change the terms right up to his death, without complying with the formal requirements for a valid will. I am not advocating the use of secret trusts in this manner as a good estate-planning tool, but merely highlighting the inconsistency.

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