Trust Law, Foreign Trust and Trustee Cases - Hull on Estates #225
Listen to: Trust Law, Foreign Trust and Trustee Cases
Today on Hull on Estates, Kathryn Pilkington and Craig Vander Zee discuss recent cases dealing with trust law. They also discuss the Trust, Trustees and Trusteeships conference on October 1, 2010 put on by the Ontario Bar Association.
Specifically, they discuss the topics that were presented at the conference. These topics are:
- The Drafting of Trusts
Hilary E. Laidlaw, McCarthy Tétrault LLP (author of paper)
M. Elena Hoffstein, Fasken Martineau DuMoulin LLP (presented by) - Considerations When Drafting Restricted Charitable Purpose Trusts
Terrance S. Carter, Carters Professional Corporation - Orangeville - Remedies for Breach of Trust
Archie J. Rabinowitz, Fraser Milner Casgrain LLP - Drafting Trusts in Contemplation and Consideration of New Reproductive Technology
Clare E. Burns, WeirFoulds LLP - Trusts and Insolvency
Frank Bennett, LSM, Bennett & Company - Review and Analysis of Recent Trust Case Law
Craig R. Vander Zee, Hull & Hull LLP
If you have any comments, send us an email at hull.lawyers@gmail.com or leave a comment on our blog.
Craig R. Vander Zee – Click here for more information on Craig Vander Zee.
Kathryn Pilkington - Click here for more information on Kathryn Pilkington.
Trust Law, Foreign Trust and Trustee Cases - Hull on Estates- Episode #225
Posted on October 12, 2010 by Hull & Hull LLP
Kathryn Pilkington: Hello and welcome to Hull on Estates. You’re listening to episode #225 on Tuesday, October 12, 2010.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
Kathryn Pilkington: I’m Kathryn Pilkington.
Craig Vander Zee: And I’m Craig Vander Zee.
Kathryn Pilkington: And if you want to be heard on Hull on Estates, you can participate by leaving us a comment. Email us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.
Craig Vander Zee: Good morning again.
Kathryn Pilkington: Good morning.
Craig Vander Zee: How are…
Kathryn Pilkington: How was your Thanksgiving weekend?
Craig Vander Zee: My Thanksgiving was very good. And yours?
Kathryn Pilkington: Mine was fabulous, thank you. I was in Niagara.
Craig Vander Zee: And I was up at a friend’s cottage with the kids so that was…it was a really nice weekend actually.
Kathryn Pilkington: Oh that’s good, I’m glad.
Craig Vander Zee: Well now that we got the turkey and the Thanksgiving out of the way, we thought that we would talk about a couple of cases today dealing with recent cases in dealing with trust law. But also mention beforehand that there was an interesting conference that was put on through the Ontario Bar Association entitled “Trust, Trustees and Trusteeships” and it was held on October 1, 2010 at the OBA. And I was fortunate enough to be one of the speakers and so I had the opportunity to review the papers that were done and listen to the speakers. And I thought it was an extremely well presented conference. And so I thought it would be of benefit just to list the topics and the speakers so if anyone is interested, they can follow-up in respect of materials.
Kathryn Pilkington: Absolutely. That’s a great idea.
Craig Vander Zee: So one of the topics was Drafting of Trusts. And Hilary Laidlaw prepared the paper and Elena Hoffstein presented it. There was another one called Considerations When Drafting Restricted Charitable Purpose Trusts and Terrance Carter delivered that. Remedies for Breach of Trust was delivered on Archie Rabinowitz. Drafting Trusts in Contemplation and Consideration of New Reproductive Technology which is quite a mouthful, but Clare Burns did a wonderful job presenting that.
Kathryn Pilkington: And Paul Trudelle and I actually just podcasted on a topic related to Clare’s discussion at the Trusts, Trustees and Trusteeship seminar that you went to.
Craig Vander Zee: Well and its…she presents quite wonderfully and with a bit of wit there. And it’s really quite an interesting area where there are lots of issues that have been identified but lots of solutions have yet to be, I guess, pursued with respect to that area. So it was quite interesting. And Trusts and Insolvency was presented by Frank Bennett and then I dealt with Review and Analysis of Recent Trust Law.
Kathryn Pilkington: And I know that your topic was very, very interesting.
Craig Vander Zee: Well you may be the only one who thought that. But in any event…
Kathryn Pilkington: And captivating, I’m sure.
Craig Vander Zee: So my paper covered 10 cases over the last 2 years. Many of them with the Ontario Court of Appeal dealing with trust law. And I thought today we might take a selection of those cases, again just to summarize because they may be of interest. And on that point then, my paper actually dealt with cases dealing with foreign trusts and trustees, removal of estate trustees, constructive trusts and costs. But for the purposes of today, I thought we would just touch upon the foreign trusts and trustee cases. And two of the more noteworthy cases in the last couple of years are actually Tax Court decisions. And I’m not gonna get into the tax aspect of them except the proposition that arises really from the residency of a trust issue. And those are the Garron Family Trust and Queen decision and the Antle and Queen decision that have both come out. Now for two really good articles regarding these two topics or these two cases rather, you should go to the Deadbeat 2009 edition wherein Ed Esposto does quite an entertaining article entitled “Pyramids, the Wizard of Oz, Garron and Antle” and he discusses both of those cases. And then Suzana Popovic-Montag and Megan Connelly co-authored an article for STEP entitled “Canadian Tax Payers Beware – Foreign Trusts may no longer be the same”.
So I would encourage those who are interested in these two cases to go take a look. Now I guess we should get into the two cases so people really know what they’re about. They were both cases, appeals to the Tax Court of Canada from assessments made under the Income Tax Act dealing with off-shore trusts. And both cases were again appealed and the appeals are expected to be heard in the fall. And I think the Antle case, that appeal may be even being heard this month. So we should be looking out for those.
In Garron a Canadian tax resident…sorry Canadian resident taxpayer…it was actually more than one taxpayer but for the purposes of our discussion here I think we can take it as one taxpayer, owned shares in a company and carried out a reorganization back in 1998. And it was similar in structure to an estate freeze. More particularly, two trusts with Canadian beneficiaries were settled by an individual who was a friend of the taxpayer. But the individual was a resident of the Caribbean island of St. Vincent. The sole trustee of each trust was a corporation resident in the Barbados. And so the clear residency according to the fact that the corporation was resident was in Barbados. And as part of the reorganization, these Barbados trusts subscribed to shares of a newly incorporated Canadian company which in turn subscribed for shares for the company. So essentially you have an organization that’s taking place, reorganization that’s taking place with the set up of two trusts. The company shares go into newly incorporated companies and those company shares go into the trust. And all of this was, of course, effected with nominal consideration. And then two years later the trust disposed of a majority of these shares that they had in the holding companies and the capital gains were apparently over $450,000,000. So this became on the radar of CRA. And because the trustees were resident or were thought to have been resident in the Barbados, there weren’t the same tax implications as if the residency of the trustees was in Canada. However, the Minister made an assessment and the taxes were deemed to be payable. And then that’s how the tax appeal began.
The key thing from this case, except for those that are truly interested in the tax consequences, is how the Court dealt with the issue of residency of the trustee. There is the well-known decision of Dill and Pearman, trustees of the Thibodeau Family Trust. That case has well been known to stand for the proposition that the residency of a trust is where the trustee is resident. And that is that a trust is resident in the jurisdiction where the trustee resides. However, the Court in Garron applied the test which is often used to determine the residence of a corporation. So the Court seemed to comment that Thibodeau didn’t stand as the precedent for determining the jurisdiction of a trust. And in doing so, and in applying the test for the residence of a corporation, the Court applied a central management and control test. And came up with the following considerations - that although there are significant differences between the legal nature of a trust and a corporation, the functions of each being at a basic level, the management of property, are quite similar from the point of view of determining tax residence. That’s not my words, that’s you know really what we take away from the case. And that adopting a similar test for each of those considerations, residence of a corporation, residence of a trust, would promote consistency, predictability and fairness. And so this particular case then, some might argue, changed the nature of the test for determining the residency of a trust. And so I think there are many practitioners waiting with baited breath to determine how the appeal of this decision turns out. So we also look forward to that.
And then in the Antle case was different in many regards, in many significant regards. It was a case that dealt with the legality of what was termed a capital property step-up strategy whereby capital with an accumulated gain which was in this case shares in a company, was shifted from a husband to our Barbados spousal trust. So we’ve got the Barbados involved once again. And the trusts…what happened here, the trust sold the property to the beneficiary wife. So the Barbados spousal trust sold the property to the beneficiary wife in exchange for a promissory note. The wife then sold the property to a third party purchaser and used the proceeds to pay off the note and then the trust distributed the funds to the wife. There were a bunch of issues, and for those who are very interested, I would invite you to read the case. But the things that I wanted to talk about in this summary were dealing with the actual findings. And we know that in order to find a valid trust there needs to be certainty of intention to create a trust, certainty of subject matter to create a trust and certainty in the objects of the trust. And this particular case looked at the first two. And with respect to the certainty of intention, the Court found that there was a lack of intention to create the trust in that the timing of the delivery of asset and the signing of the trust documents and a review of the evidence indicated that there wasn’t an intention to create the trust. And then with respect to the subject matter, the Court found that there wasn’t any certainty of the subject matter and that the husband didn’t intend to and did not transfer the full interest in the shares. And so this is the appeal that we understand will be heard shortly.
So those are two things and another case dealing with foreign trustees is the recent case of Justice Brown called Herring Estate. And in this case, Justice Brown provides clear and helpful guidance as to the circumstances under which a foreign trustee can act as an ancillary estate trustee. In short, the deceased in this case was a US resident who had created an inter vivos trust in North Carolina naming a licensing trust company as the sole trustee. The trust company was also the named executor of the deceased’s Will and the wife was the sole beneficiary of the trust. And the trust was the sole beneficiary of the residual estate. So probate was pursued and obtained in North Carolina with respect to the estate but there was one asset of the estate which was located in Ontario. And it was a new condo unit that had apparently been worth somewhere in the neighbourhood of $360,000 but which about $125,000 or so was owing on the occupancy date. And it hadn’t been occupied prior to the deceased passing away. So there was this much that was outstanding. And so the foreign trustee applied for an ancillary grant of estate trustee because it wanted to be able to deal with that asset. And I guess the probate application was handled over-the-counter and the local Estates Registrar denied it because of Section 175.2 of the Loan and Trust Corporations Act because the trust company was not an approved registered trust corporation under that section. And then it was before Justice Brown. And Justice Brown found that while Section 175 of that Act permitted it to grant probation to a trust corporation registered under that Act without having to post security for acting as an executor or estate trustee, it did not prohibit the appointment of an estate trustee under an ancillary application for a foreign trust company that was not registered under the Act. So that a foreign trust company, even though they’re not registered as a trust company in Ontario, could proceed to be appointed. But he said that the issue of security was still out there. If it had been a trust company registered under the Act in Ontario, of course we know that there wouldn’t have been the requirement for security. But because this wasn’t the case, he said well let’s take a look at that. The wife of the deceased consented to the appointment and as such, Justice Brown, it appears upon a review of the file, looked at the asset and found that there wasn’t significant or sufficient evidence with respect to the amount owing in Ontario and whether it would be paid or not by the trust company, to say that no bond or no security was required. So he in turn found that there needed to be security of $125,000. So he allowed the probate to go through but there was security of $125,000, approximate that much, which coincidentally was the amount of the occupancy cost that had to be paid, or the amount to be paid when it was occupied. And I think with that case, we’ll stop there for this week. There are, you know, certainly more cases we can talk about, interesting recent case law. But I think for our time this week, that’s all we have.
Kathryn Pilkington: Yes, and thank you very much. I know that the listeners will get something useful out of that. So it was a pleasure, Craig.
Craig Vander Zee: Always a pleasure for me too, Kathryn. And we look forward to hearing from our listeners. You can send us an email at hull.lawyers@gmail.com. Be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. We hope you’ve enjoyed the show. And again, I’m Craig Vander Zee.
Kathryn Pilkington: And I’m Kathryn Pilkington.
Craig Vander Zee: Have a nice day.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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