Trusts Checklist

Trusts Checklist

-What kind of a trust is it?

Express or by operation of law (resulting/constructive)
Creation - inter vivos or testamentary
Objects - persons or purposes
Purposes – charitable or non-charitable
Powers - fixed or discretionary

-What kinds of interests are created?

Legal/equitable
Contingent/vested
Contingent – are there perpetuity issues?
Vested – are they defeasible or determinable? Or indefeasible?
Are they vested in interest or possession?

-It is a valid trust?

Capacity
Settlor must have capacity
Age of majority, mental capacity, juridical person, not bankrupt
Trustee must be a juridical person (to hold property)
Beneficiary must be a juridical person (to hold legal or equitable title to property)
Three certainties
Certainty of intention
Settlor needs to intend to create a trust relationship
Can be inferred from words, orally, conduct
No formal requirements, no specific words required
Certainty of subject matter
Certainty of property to be held on trust
Specific piece of property, specific fund, formula
Certainty of amount, or share, of the trust property that the beneficiaries of the trust are to receive
Set amount for each beneficiary, formula for determining amount, giving trustee discretion
Certainty of objects
Trust for persons – certainty of beneficiaries
Must have some way of determining who the beneficiaries are
Fixed trust – class ascertainablity/complete list (Broadway Cottages)
Need to determine whether any given person is a member of that class, AND identify every member of the class
Discretionary trust – individual ascertainability (McPhail v. Doulton, Jones v. T. Eaton)
Whether it can be said with certainty that any individual is or is not a member of the class
Need conceptual, not evidential certainty – need to understand who could be in the class, not necessarily who is in the class (Re Connor)
Trusts for purposes – certainty of purposes
Must know or have some way of determining whether a particular act would be consistent with that purpose
Constitution
Ways of constituting a trust
Settlor can transfer the intended trust property to another person to hold as trustee
Settlor can declare themselves to be a trustee with respect to property they own
Need clear evidence of intention (Paul v. Constance, Watt Estate)
Third party can transfer property to the trustee that is intended to be the subject matter of the trust
How interests in property are transferred
Legal interests
Land – statutory instrument of transfer (Torrens), deed
Chattels – title usually indicated by possession
Choses in action – transfer by assignment
Legal assignment – in writing, signed by assignor, notice given to debtor
Equitable assignment – no particular form required
Negotiable interests – transferred by negotiation
Securities – usually statutory requirements
Equitable interests
Assignment of equitable interest to a trustee on trust for the proposed donee
Declaration by that person that he or she is a trustee of the equitable interest for the proposed donee
Instruction to existing trustee to hold the equitable interest in favour of the new intended beneficiary
Settlor must do everything he can to effect the transfer (Milroy, Re Rose)
Court won’t substitute one form of transfer for another (Milroy)
Gratuitous deed
Court won’t complete an incomplete gift
No specific performance (Re Pryce, Kay’s Settlement)
Possibly damages (Canon v. Hartley) – must be a party to the deed (beneficiary or trustee)
Possible to argue the promise itself was the subject matter of the trust, so trust constituted when deed signed, sealed and delivered (Fletcher)
Transfer for value – promise given in exchange for consideration (contract)
Only person who furnished value can sue, possible specific performance if damages are inadequate
Promise to convey in future (gratuitous promise)
Not enforceable w/o consideration (Re Ellenborough)
Formalities
Express trusts for persons or purposes
Statute of Fraud
Look at jurisdiction – applies in Ontario, NS, NB; doesn’t really apply in BC anymore
Ontario, NS, NB – applies to
Contracts with respect to land
Creation of trusts with respect to land
Assignment of equitable interests in trusts
But – look at doctrine of part performance, doctrine of fraud
BC – s. 59 of Law and Equity Act
Applies to contracts regarding land
Doesn’t apply to dispositions of land by way of trust or assignments of equitable interests
Wills
Requirement for a valid will are in the Wills Act–must be complied with in order to make a valid testamentary disposition
Secret trusts
Property is bequeathed to a person in a will with no indication in the will that the person is to hold the property in trust
Testator must communicate trust obligation to trustee before their death and trustee must accept (McCormick, Boyes)
Need clear evidence of intention, communication and acceptance (Ottaway)
Semi-secret trust
Indication that donee takes on trust but no indication of who the beneficiaries are in will
Testator must communicate trust obligation to trustee before or at the time the will is made and trustee must accept (Blackwell)
Public policy
Illegality
Settlor may not be able to get the property back – unclear (Symes v. Hughes, Great Berlin Steamboat, Tinsley, Scheuerman, Krys, Goodfriend)
Property in a trust may be confiscated if it is the proceeds of crime, or if the trust is being used for money laundering or terrorism
Effects of invalid conditions
SEE CHART
Contrary to public policy
Restraint of marriage (imposing lifetime celibacy) (Re Cutter)
Interference with marital relationships (Re Hurshman)
Interference with discharge of parental duties (Clarke v. Darraugh)
Discriminatory conditions (Leonard Foundation)
Restraints on alienation (may be invalid) or interference with enjoyment of property (are invalid)
Trusts that defraud creditors
Fraudulent conveyance legislation – can’t dispose of property in a way that is meant to defraud creditors
Fraudulent preference legislation – can’t prefer one creditor over another when you are on the eve of bankruptcy
Rule against perpetuities
**Only applies to contingent interests
Look at:
What jurisdiction is the property subject to the trust located in?
What interests are created?
Are the interests contingent?
What are the relevant lives in being referred to in the instrument?
Implicitly and explicitly
Implicit – e.g. to my grandkids – your kids are implicit lives in being
Is there any possibility that an interest will vest outside the perpetuity period?
How do the legislative modifications affect the application of the common law rule?
Is there an accumulation issue? (mostly Ontario)
Modern rule – remoteness of vesting
An interest is valid if it must vest, if it is going to vest at all, within a period calculated by taking the lives in being, at the date the instrument takes effect, plus 21 years
Lives in being – everyone affected who is alive when the instrument is created
Rule against perpetual duration
Modern rule with no lives in being
When there are no lives against which to measure the perpetuity period, the period is 21 years
Old rule – rule in Whitby v. Mitchell
Gift of life interest to an unborn person with remainder to the issue of the unborn person with the life interest is invalid
Legislative modifications
BC – wait and see abrogates Whitby v. Mitchell, retains modern rule with a series of saving provisions
Protective trusts
Settlors can impose restraints on mode, class, period of time – issue is the degree of the restraint
In Canada, it’s difficult to create an effective protective/spendthrift trust

-Can the beneficiary override or terminate the trust?

EXPRESS FOR PERSONS - Settlor could expressly reserve a power of revocation in the trust instrument
EXPRESS FOR PERSONS - Trust can be terminated before its full implementation under the rule in Saunders v. Vautier
One or more beneficiaries, all of full legal capacity, and who is, or are, collectively entitled to all the beneficial interest in the trust may apply to have the trust terminated and the assets transferred even though the trust instrument calls for final payment to be delayed
3 key elements:
Beneficiaries must have full legal capacity
Beneficiaries must, collectively, have all the equitable interest in the trust property
Beneficiaries must unanimously agree to terminate the trust
Avoiding application
Contingent interest in a person who will refuse to consent
Interest or contingent interest in a minor or unborn person (person who can’t consent)
Discretion to distribute among a class with some members of the class being difficult to ascertain
EXPRESS FOR PERSONS - Trust can be varied by an application to a court for the variation of the trust pursuant to a statutory power given to the court
Trust and Settlement Variation Act
Court can consent on behalf of certain people to vary the trust
Test is whether a rational person would consent to the variation (Smith)
Benefit required by s. 2 of the Act can be financial or non-financial (Re Kovish, Smith)
In Ontario – 3-part test from Finnell v. Schumacher
CHARITABLE TRUST – the terms of, or intent of the settlor, in a charitable trust can be varied by the operation of the doctrine of cy pres or by an administrative scheme

-When is a non-charitable purpose trust valid?

There needs to be someone who can be given standing to enforce the trust (Re Denley, Keewatin, Peace Hills)
If there are perpetuity problems, use BC Perpetuity Act s. 24 – can treat a non-charitable purpose trust as a power and limit the power to a period of 21 years
A little unclear when this applies (Re Russell)
What if there is a gift to an unincorporated association?
Different ways to save it, depending on the association’s constitution and the nature of the gift

-When is a charitable purpose trust valid?

Exclusive dedication of property
Trust must only be for charitable purposes – can’t be partly for a person or a non-charitable purpose
BC Law and Equity Act s. 47 – can sever non-charitable purpose
To a charitable purpose
What is considered a charitable purpose comes from the Statute of Charitable Uses (1601), grouped into 4 modern categories in Pemsel
The relief of poverty
Relative concept, varies over time
Public benefit requirement not as stringent – poor relations, poor employees cases
The advancement of education
Valid if: geared at the training of the mind, provided in a structured manner, for a genuinely educational purpose, not just for the promotion of a particular point of view or political orientation (Vancouver Society)
The advancement of religion
Tolerant of a wide range of religions (Versani)
Historically required a belief in God, but may include belief in a supernatural being, thing or principle (Church of the New Faith – AUS case)
Likely needs to be public in some way (Gilmour v. Coats)
Other purposes beneficial to the community (from preamble)
Social welfare purposes
Community purposes
Not trusts for sports (Re Nottage, Amateur Youth Soccer Assn)
Needs to not only be beneficial to the community, but also consistent with existing case law on what is considered charitable under the fourth head (Vancouver Society)
In a way that provides a public benefit
Benefit – something of practical utility (Re Pinion) or a material and tangible benefit (Gilmour and Coates)
Public
Number of potential beneficiaries must not be numerically negligible (Oppenheim)
Must not depend on beneficiaries’ relationship to a particular person (Oppenheim)
Presumption of public benefit for relief of poverty, education, religion; no presumption for purposes beneficial to community
(and not for a political purpose)
General rule: trusts for political purposes are invalid even where they are for otherwise valid charitable purposes (McGovern, Bowman, Human Life International)
Charitable purpose can’t be discriminatory (Re Leonard)

-When can the court vary a charitable purpose trust?

Administrative scheme-making power
Used when there is uncertainty about how charitable intent is to be achieved – certainty of purposes requirement
Court can make an order where it is clear that the settlor has a charitable intent but they haven’t made it sufficiently clear how to achieve this intent
Cy-pres
Used by the court when a charitable purpose is, or has become, impossible or impracticable to carry out
Court can apply the funds to another purpose similar to the original one
Initial vs subsequent failure
Initial failure – arose before the trust was constituted
Court looks to whether there was a general charitable intent
Question: if the specific use the settlor has in mind couldn’t be carried out, would the settlor have directed the property to some other charitable purpose?
Prob won’t apply where there is a gift over to some person in the event the intended gift or trust fails – shows no general charitable intent
Subsequent failure – arose after trust was constituted
Cy-pres operates automatically
Court won’t use cy-pres or an admin scheme just because there is a better use for the money (Rector, Wardens and Vestry of the Parish of Christ Church)