Terminating or Varying a Trust - Hull on Estates Episode #164
Listen to Terminating or Varying a Trust
This week on Hull on Estates, Jonathan Morse and Natalia Angelini discuss trusts; specifically they discuss terminating or varying a trust.
They look at an article by Debra Stevens and give their thoughts.
If you have any comments, send us an email at hull.lawyers@gmail.com or leave a comment on our blog.
Natalia Angelini: Hello and welcome to
Welcome to
Jonathan Morse: Hi and welcome to another episode on
Natalia Angelini: And I’m Natalia Angelini.
Jonathan Morse: If you want to be heard on
Natalia Angelini: So hi, Jonathan, it’s good to be podcasting with you today.
Jonathan Morse: It’s great to be podcasting with you.
Natalia Angelini: It’s our first time, so let’s hope it’s not going to be too painful.
Jonathan Morse: It will be fine, I’m sure.
Natalia Angelini: Okay, so today we’re going to talk about trusts and specifically terminating or varying a trust. And we’re really taking…we’re going to be looking at an article that Debra Stephens authored and it’s called “Trusts - When is a Termination a Variation?”. And she presented her paper at the most recent 09 Six Minute Estates Lawyer and it was really interesting for us. And so we thought we would touch upon it and give you some of our thoughts.
Jonathan Morse: To begin, I think it’s important to point to the central issue in the paper and really I’ll briefly point out that in Ontario, a trust can be terminated generally two ways: under the rule of Saunders and Voce; and under the statutory powers of the Court to vary or revoke trusts.
Natalia Angelini: Right Jonathan, and with respect to Saunders and Voce, that rule is in essence, as I understand it, when there’s a trust provision in a Will but there’s no gift over provision in place upon death of the beneficiary of that gift, then the trust could essentially be collapsed when they reach the age of 18 and that’s essentially the effect of that case. So for those people that are really supposed to have a trust held on their behalf until they’re 25 or 30, they can get their entitlement much sooner and so that’s one effective way of terminating a trust.
Jonathan Morse: That’s right. Thank you for pointing that out. Often in Wills and when a trust is set up under a Will or otherwise, the trustees are given certain powers, one of which is absolute discretion. And in that instance, the issue that Debra Stephens points to in her paper is to what extent can trustees exercise that absolute discretion, and particularly can they exercise it to the extent that they simply choose to collapse the trust.
Natalia Angelini: Right, because that’s where now we’re talking about potentially the third way to do it, and that is through exercising a trustee’s discretion. And I guess that sort of begs the question, is their discretion truly absolute?
Jonathan Morse: I think at this point, certainly the paper refers to a lot of cases and some of the principles that come out of the cases. And of course they are old cases because we’re talking trust law. In, for example, Tempest and Lord Camoys stems from an 1882 decision, or it is an 1882 decision. And it basically stands for the idea that trustees can exercise absolute discretion but they can’t do it improperly. Which leads us then to the question, of course, what is an improper exercise of discretion?
Natalia Angelini: Right and there are several circumstances that I suppose can be considered, or that may be considered when determining whether a trustee has acted reasonably. And some of these that are noted in Wittifield, so I can direct you there. But they’re also highlighted in Ms. Stephens’ paper. And some of them include the circumstances surrounding the exercise of power; the motive of the trustee in exercising the power or not exercising the power; if there’s any conflicting interest that the trustee has with that of the beneficiaries, and a couple more that I don’t think I’ll touch upon.
Jonathan Morse: So just to continue with the case law, another case Re Blow which is a little more contemporary, it’s a 1977 case in the Ontario High Court, really looked at examining further what is improper
Natalia Angelini: That’s right because a trustee has to exercise his or her discretion judiciously. And so to not do so at all…and I suppose that depends on the actual extent of discretion given to the trustee and how particularized that was in the trust document or Will.
Jonathan Morse: Just to continue, let’s look at one particular example. And it comes from a case Hedley Estate and Grant and that’s a 1998 case, Ontario General Division. And this is interesting because it gets down to whether discretion was being exercised properly. And in this case, the testator divided the residue into equal shares, 5 beneficiaries, with direction that if a beneficiary was not then living and left issue, it would be divided amongst his or her issue to be held in trust. So 2 of the 5 beneficiaries predeceased and children, grandchildren remained. And the trustee at that point wanted to basically place the shares that were due to the 11 grandchildren into the hands of the parents so that they could, in effect, manage the money for their own children.
Natalia Angelini: Right, rather than the trustee holding the property in trust.
Jonathan Morse: That’s correct. So effectively in this case, the trustee was looking to effectively delegate her duties to the parents of those younger children. And Justice Hoylett held that the trustee was hoping to relieve herself of the obligation imposed by her under the Will. The Court went on to say the relief requested was not merely an incident of the exercise of powers, it was the very purpose of her intended exercise of the power.
Natalia Angelini: So I think these facts are, you know, this type of situation can happen more often than one would expect, and it probably leads to various questions that the Court would pose or have to think about in order to render its decision. And some of those could be, you know, what if the parents die or become incapable? Who would be the new trustee? You know, what if these children…I mean in this case the children were supposed to get the money at the age of 18 years of age. And I think one of the questions is, what if the issue don’t live that long?
Jonathan Morse: Absolutely. And so if the issue doesn’t live that long, to the age that they’re supposed to get the proceeds of the trust under the original trust when the monies then pass to the parents, do those same rules apply? The answer to that would be uncertain and the uncertainty to that answer would be what would cause a judge to, you know, put the brakes on this variation.
Natalia Angelini: Yeah, and another point is if the original trust had a discretionary power to encroach on capital rather, would that power pass to the parents?
Jonathan Morse: Right, yeah. Another issue, and again we’re sort of looking at what might be going through a judge’s mind…often trustees have to be bonded, and that is, they need to put up security to the Court to basically ensure that they’re going to abide by…
Natalia Angelini: Right, to show that they’re going to manage and administer the estate properly and if they don’t…
Jonathan Morse: Then the bond would be forfeited. And in this case, again the trustee delegated to the next level, to the parents and the grandchildren, would those parents themselves have to be bonded?
Natalia Angelini: Right and then I think another question, and just for our listener’s benefit, this case and several other cases can be found in Ms. Stephens’ paper. And we’re not going to go through all of them for the sake of time but I do recommend you read it if this topic interests you. But one last sort of question that this type of scenario raises is, how do you deal with an accounting? Do the parents account to the original trustee? You know, to the Children’s Lawyer? You know, how is that going to work? And I suppose if you’re bringing this type of matter before the Court, that it would be a good idea to think of all the various questions that they could raise and make sure your Affidavit addresses them.
So, you know, when reviewing all of these cases, the principal that really comes through is really, you know, something that is not too surprising, but it’s that each case is going to be determinative upon its own set of specific facts. Although certain factors that I think you can be sure will be relevant to a Court will definitely be as I’ve said earlier, you know, the value of the trust property, the number of the beneficiaries, the circumstances of the beneficiaries, of each individual one, and on the wording of the trust or Will document. I think those are surely going to be relevant in most cases.
Jonathan Morse: That’s right. And it seems that in
Natalia Angelini: It is interesting because it seems that the trustee, even if he or she has absolute discretion, that it’s going to be overseen by a Court at some point if this type of step is what a trustee intends on taking. So I guess in that sense, the discretion really may not be absolute.
Jonathan Morse: That’s right. Just to follow-up with Natalia’s last point. Because discretion of the trustee may not be absolute, it is certainly advisable that consents of all the beneficiaries be obtained and whenever there is any question, Court approval is likely the safer way to go for protection of the trustees and also protection of the beneficiaries.
Natalia Angelini: That’s right. It’s the best way to avoid exposure to future litigation. And it is noteworthy that when you’re dealing with minors, the Children’s Lawyer’s position is that they should be put on notice and Court approval should be obtained.
So I think that’s sort of our last little point on the topic. So before we wrap up, why don’t we give you our co-ordinates.
Jonathan Morse: We look forward to hearing from our listeners. You can certainly send us an e-mail at hull.lawyers@gmail.com. Be sure to visit our blog at estatelaw.hullandhull.com (and that’s hullandhull, not an “&”; it’s “and” - hullandhull.com) where you’ll find even more information and discussion on today’s practice of estate law.
We hope that you enjoyed the show. I’m Jonathan Morse.
Natalia Angelini: And I’m Natalia Angelini. Until next time, take care.
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