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BC Wills Variation, Powers of Attorney, Trust and Fraudulent Conveyance and Breach of Fiduciary Duty
The BC Court of Appeal just decided a critical case regarding the use of a power of attorney to create an inter vivos trust that benefitted both the deceased and the persons he gave the power of attorney to. The trust mirrored the terms of the deceased’s Will.
In Easingwood v Cockcroft the trusts created had the effect of removing most of the value of the estate leaving very little for the wife, in this case, to make a Wills Variation Act claim against. The wife cried foul saying the attorneys improperly breached their fiduciary duty and used their powers to create the trust to largely benefit themselves by increasing their share in the assets of the deceased.
The wife also claimed the trust was a fraudulent conveyance that should be set aside which would have repatriated assets into the estate and provided more for her to claim against under the Wills Variation Act.
The Court of Appeal held there was no impropriety by the persons acting under the power of attorney in this case but did say that not all trusts created using powers of attorney will be immune from challenge and that the cases on this issue will depend on the facts, the actions of the attorney and whether the actions circumvent the true wishes of the deceased.
The key excerpts from the case can be found below:
[54] In reaching this conclusion, I do not put an inter vivos trust, fully created, as one beyond challenge by those who consider themselves aggrieved by its creation. Where, for example, a trust created by an attorney has the effect of adding beneficiaries not named in a will, or avoiding a gift established by a will, or disposing of assets where the principal has chosen not to make a will and the estate would be divided as provided in an intestacy, the trust may well be challenged, e.g., under the rubric of the attorney’s duty to conform to the intentions of the principal. That is, the issue of breach of fiduciary duty would loom large. All of these questions are live questions, requiring the determination of facts in a particular case.
II. Is the Trust Created Testamentary in Nature and Therefore Beyond the Capacity of the Attorneys?
[45] There is generally perceived to be a rule against an attorney making a testamentary disposition. Such was found to be the case in Lawson, although the judge, in that case, relied upon a section of the Ontario Substitute Decisions Act that prohibits the making of a will through a power of attorney. No such legislation governs this case, and we are reliant on the jurisprudence on this issue. The “rule” is famously expressed in Chichester Diocesan Fund v. Simpson, [1944] A.C. 341. In the context of powers of appointment, Lord McMillan said, in obiter dicta:
… the law, in according the right to dispose of property mortis causa by will, is exacting in its requirements that the testator must define with precision the persons or objects he intends to benefit. This is the condition on which he is entitled to exclude the order of succession which the law otherwise provides.
[46] And Lord Simonds said:
… It is a cardinal rule, common to English and to Scots law, that a man may not delegate his testamentary power. To him, the law gives the right to dispose of his estate in favour of ascertained or ascertainable persons. He does not exercise that right if in effect he empowers his executors to say what persons or objects are to be his beneficiaries.
[47] A useful compendium of earlier cases is found in D.M. Gordon’s article, “Delegation of Will-Making Power” (1953) 69 L.Q. Rev. 334, although his strict conclusions are not unanimously accepted: see, for example, I.J. Hardingham, “The Rule Against Delegation of Will-Making Power” (1974) 9 Melb. U.L. Rev. 650. A more complete list of articles on the topic may be found in Re Nicholls (1987), 57 O.R. (2d) 763, 34 D.L.R. (4th) 321 at 323-4 (Ont. C.A.).
[48] Mr. Justice Krever, in Nicholls, in the context of powers of appointment and after review of authorities and literature, acknowledged a general prohibition against delegation of testamentary power. An application of this understanding is found in Desharnais v. Toronto Dominion Bank, 2001 BCSC 1695, 42 E.T.R. (2d) 192 (appeal allowed on different grounds, 2002 BCCA 640). There, Mr. Justice Clancy found the change of a designated beneficiary of an RSP account was testamentary in nature and therefore invalid.
[49] It is clear, I consider, that an attorney may not make a testamentary disposition. As expressed in the authorities just cited, amongst other problems encountered, doing so runs afoul of the Wills Act, R.S.B.C. 1996, c. 489. Lawson fairly explains this rule as safeguarding the true wishes of the testator as to dispositions after death.
[50] The question, then, is whether the creation of the trust, in this case, is a testamentary disposition and therefore beyond the capacity of the attorneys. We have not been referred to any case similar to the present, accepting for the purpose of this discussion that the terms of the trust, as the judge found, echo the terms of the will. (I will deal with Kay’s criticism of the judge’s conclusion that the two documents are coincident, under the issue next addressed.)
[51] A testamentary disposition is one that is dependent on death for its vigour and effect. So, for example, in Wonnacott v. Loewen (1990), 44 B.C.L.R. (2d) 23, 37 E.T.R. 244 (C.A.), this court affirmed that where a document creates a trust that takes immediate effect, even though not performed until the death of the settlor, it is not dependent on death for its vigour and effect and is not testamentary. See also Anderson (Administration of Costello Estate) v. Patton, [1948] 2 D.L.R. 202 (Alta. S.C. (A.D.)). In Waters’ Law of Trusts in Canada, 3d ed (Toronto: Thomson Canada Ltd., 2005) at 208, the learned author summarizes the law in Canada:
The well-known words which set out the test to be applied determining whether a trust is testamentary are those of Sir John Wilde in Cock v. Cooke: “It is undoubted law that whatever may be the form of a duly executed instrument, if the person executing it intends that it shall not take effect until after his death and it is dependent upon his death for its vigour and effect, it is testamentary.” This was interpreted by Frank Ford J.A. in Corlet v. Isle of Man Bank Ltd. to mean that if the document creates a trust which takes immediate effect, though to be performed after the death of the donor, it is not dependent upon his death for its vigour and effect. This has been followed on later occasions in Canada, …
[52] The trust, in this case, was fully established by the trust documents and was not dependent upon Reg’s death for its efficacy. The three certainties were met, and the trust, by its terms, was irrevocable. In my view, this brings the inter vivos trustfully within the description of “immediately effective”, and therefore it is not testamentary.
[53] I recognize that this conclusion is at odds with the result of the trial decision in Lawson, but Lawson, as I have said, turned on the application of the Ontario statute.
[54] In reaching this conclusion, I do not put an inter vivos trust, fully created, as one beyond challenge by those who consider themselves aggrieved by its creation. Where, for example, a trust created by an attorney has the effect of adding beneficiaries not named in a will, or avoiding a gift established by a will, or disposing of assets where the principal has chosen not to make a will and the estate would be divided as provided in an intestacy, the trust may well be challenged, e.g., under the rubric of the attorney’s duty to conform to the intentions of the principal. That is, the issue of breach of fiduciary duty would loom large. All of these questions are live questions, requiring the determination of facts in a particular case.
[55] My conclusion on the issue of the validity of an inter vivos trust such as this, created by an attorney, putting the principal’s assets into the trust, is simply that there is no rule in law prohibiting that creation. Further, as commented in cases such as Mawdsley, and O’Hagan v. O’Hagan, 2000 BCCA 79, 183 D.L.R. (4th) 30, tax planning including “estate freezes” may be prudent and, in the large sense, in the best interests of the principal.
[56] I turn, then, to the submissions concerning the details of this trust and the judge’s handling of the evidence.
[77] The key question is in which direction the best interests of the principal lie. Here, the principal was a man of business who had executed a will that complied fully with the terms of a marriage agreement. The trust, in turn, is entirely consistent with the marriage agreement, the will, and business prudence, and the trust secured the principal’s assets for his use during his lifetime. It would be a fiction to say the attorneys were acting in breach of their duty to their principal in the creation of the trust, when it conforms to all the arrangements the principal had made.
[78] Kay raises the spectre of the advantage gained by the attorneys through a share of assets which are enhanced in value by the tax savings. There is, as contended, a requirement that the power of attorney must be used for the donor’s benefit and not the attorneys’ benefit. That does not mean, however, that where there is a benefit to attorneys, such as in preserving the value of assets, while fully meeting the obligation to secure the best interests of the donor, the attorneys may not take a prudent step. Here, the ‘benefit’ arose by operation of the Income Tax Act, and was, in reality, a benefit to all possible beneficiaries – not only the attorneys. Further, the judge was satisfied, on the evidence, that the attorneys complied with their duty to Reg. This was a fact-sensitive enquiry and one with which we should not interfere, in my view.
[79] On my review of the record and the findings of fact by the judge, there is no basis, in my view, to interfere with the conclusion that no breach of fiduciary duty was demonstrated.
OTHER
[80] Kay also contends the judge was wrong to say she was not precluded, in the event she succeeds in her Wills Variation Act claim, from enforcing her rights against the trust. That claim is still outstanding.
[81] This submission is directed at the reasons of the judge and not to the order upholding the trust. There being, on Mawdsley v. Meshen, no basis to set aside any transfers to the trust as a fraudulent conveyance, and otherwise no basis to declare the trust invalid, I do not consider we should address this proposition, for to do so invites interference with proceedings.
