Trusts are generally divided into two categories; “inter vivos” or “testamentary” trusts. Inter vivos trusts are broadly defined as trusts that are established by a settlor while they are still alive, typically pursuant to a deed of trust, while testamentary trusts are established in the terms of a Will or Codicil. Generally speaking there is no overlap between an individual’s Will and any inter vivos trust, with any inter vivos trust existing separate and apart from the settlor’s “estate”. But does this have to be the case? Could you theoretically, for example, leave a bequest in a Will to an inter vivos trust that you previously established, thereby potentially increasing the assets governed by the trust upon your death, or must a trust which governs estate assets be a “testamentary trust” established by the Will? The short answer is “it depends”, although any individual considering such a bequest should proceed with extreme caution.
A clause in a Will that provides for the potential distribution of estate assets to a separate inter vivos trust is often referred to as a “pour over” clause, insofar as the assets of the estate are said to “pour over” into the separate trust. The availability and use of “pour over” clauses in Ontario is somewhat problematic.
The fundamental issue with the use of “pour over” clauses that allow a bequest to be made to a trust is that the formalities that are required to make or amend a trust are much lower than the formalities that are required to establish a Will, with trusts often containing provisions that will allow for their unilateral amendment or revocation after their establishments. The statutes which establish the parameters that are required for a Will to be valid are very strict, with a Will only being able to be later amended or altered if it too meets very strict criteria. The potential concern in allowing a distribution from a Will to a separate trust that can easily be amended after the execution of the Will is that it could create the scenario in which an estate plan could be altered after the Will was signed in a way that would not meet the strict formal requirements that would otherwise be required for a Will to be altered or amended.
In Ontario the formalities required for a Will to be valid is established by section 4(1) of the Succession Law Reform Act. A Will that has been signed in accordance with the formal requirements of section 4(1) can only be altered or amended by a Codicil that itself has been signed in accordance with the formal requirements of section 4(1), or if the alterations to the Will meet the requirements of section 18 of the Succession Law Reform Act. Unlike alterations and/or amendments to a Will, an alteration or amendment to a trust does not need to meet any formal statutory requirements for it to be valid, with the only requirements being those stipulated in the trust document itself and/or under the rules in Saunders v. Vautier. As a result, an inter vivos trust to which a bequest was directed using a “pour over” clause could theoretically be changed numerous times after the signing of the Will either with or without the involvement of the testator, thereby bringing into question whether the bequest actually represents the deceased’s testamentary intentions at the time the Will was signed.
In Quinn Estate v. Rydland, 2019 BCCA 91, the British Columbia Court of Appeal upheld the lower British Columbia Supreme Court decision, 2018 BCSC 365, which found that a “pour over” clause which purported to distribute certain estate assets to a trust that was settled by the Deceased during his lifetime was inoperable, with the funds that were to be distributed to the trust instead being distributed on an intestacy. In coming to such a decision the court appears to place great emphasis on the fact the trust in question could be amended unilaterally after the fact and in fact was amended in such a fashion after the execution of the Will.
The court in Quinn Estate provides an excellent summary of the considerations to make when determining whether a “pour over” clause can be upheld, including the concepts of “facts of independent significance” and “incorporation by reference”. I will discuss the concepts of “facts of independent significance” and “incorporation by reference” as they relate to pour over clauses in my remaining blogs this week.
Thank you for reading.
Several years ago, my neighbour asked me to witness the execution of his will. I was glad to help, but at the same time, a little disappointed.
This is because of s. 12(1) of the Succession Law Reform Act. This section provides that, in effect, a bequest to a witness, the witness’s spouse, or a person claiming under either of them is void. The witness, however, remains a competent witness.
Similarly, s. 12(2) provides that a bequest to a person who signs a will on behalf of the testator is also void, as is any bequest to the person’s spouse or a person claiming under either of them.
However, the provisions are not absolute, and s. 12(3) allows the court to find that the bequest is not void. To trigger this saving provision, the court must be satisfied that neither the witness nor the witness’s spouse exercised any “improper or undue influence” on the testator.
In addition, if the witnessing was not necessary, as in the case where the will was a holographic will, or where there were two other proper witnesses, then the bequest will not be void.
(Things can get complicated where there is a codicil. A gift voided due to an attesting beneficiary can be validated if there is a proper codicil that is properly witnessed. On the other hand, a valid gift in a will is not voided where the beneficiary witnesses a later codicil: see Hull and Hull, Probate Practice, 4th ed., p. 118.)
Solicitors take note: in Whittingham v. Crease, 1979 CanLII 286 (BC SC), the drafting solicitor was successfully sued where a bequest to the plaintiff failed because his wife witnessed the signing of the will.
Alas, in the case of my neighbour, and due to the nature of the bequests (which did not include me), s. 12 did not apply.
Have a great weekend.