Canada: What Wording In A Will Is Required To Create A Testamentary Trust? What Discretion Does A Trustee Of A Testamentary Trust Have To Distribute Or Not A Property Of The Trust To A Beneficiary ?

INTRODUCTION

Wills are not always clear. What may appear to one person as an ordinary liquidation of an estate in favour of an heir may appear to someone else as the creation of a trust in favour of a beneficiary. Assuming a testamentary trust is created do the terms of the trust create a broad discretion for the trustee to delay transferring property to the beneficiary until certain conditions are met or must the trustee transfer the property of the trust to the beneficiary?

Such are the issues addressed in 2 related declaratory judgments involving the same person:

Corbin c. St-Pierre 2014 QCCS 2819, rectified on March 18 2015, rendered by Mme Justice Lalande of the Quebec Superior Court)("Case 1") and Corbin c. St-Pierre ( Succession de Lelièvre) 2021 QCCS 911, rendered on March 18, 2021 by Mme Justice Picard of the Quebec Superior Court ("Case 2")

CASE 1

Facts

Henri Lelièvre (Henri) was a French citizen having property in Quebec and France. He owned 4 multi-unit apartment complexes in Montreal/St Laurent on the following streets: Sainte Famille, Saint Timothée, Modugno and Saint Urbain. He also held a property in the Gaspésie.

He had a niece Marie-Hélène Corbin("Corbin") who moved to Montreal and a recently married spouse Chantal Aubry("Aubry"). He named his Quebec lawyer Me. St. Pierre as his liquidator(executor)and trustee under his Quebec will. There were other particular legatees named in the will for particular bequests but this article will confine itself to the main issue: Was a trust created under the will? In his Quebec will made in 2008 Henri stated in Article V111:

translation

Henri died in France in 2009.

Question in dispute

Corbin challenged the creation of a trust under Henri's will. In spite of the words used in the will referring to a trust Corbin felt that there was no intention by Henri to create a trust in his will but only an estate which had to be liquidated. In her view St. Pierre, as liquidator, only had the possession or "saisin" of the estate and his sole duty was to proceed to the liquidation of the estate by distributing the Sainte Famille and Saint Timothée properties to Corbin and the Modugno and Saint Urbain properties to Aubry. According to Aubry a trust was created under Henri's will. According to St. Pierre the words of the will were clear: a trust was created by Henri. The words used in the will show the clear intent of Henri to create a trust under his will.

St. Pierre felt that if there was any ambiguity in the will the goal of the court was to determine the intention of Henri at the time he wrote his will.

The judge's analysis

the judge quoted from a Supreme Court of Canada decision Métivier c Parent 1933 Canlii 70:

translation:

The judge then quoted from the Civil Code of Quebec:- to distinguish between an estate and a trust

776. The liquidation of an intestate or testate succession consists in identifying and calling in the successors, determining the content of the succession, recovering the claims, paying the debts of the succession, whether these be debts of the deceased, charges on the succession or debts of support, paying the legacies by particular title, rendering an account and delivering the property.

1260. A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer.

1261. The trust patrimony, consisting of the property transferred in trust, constitutes a patrimony by appropriation, autonomous and distinct from that of the settlor, trustee or beneficiary and in which none of them has any real right

The judge admitted that there were several ambiguities in the wording of the will: did the words in Article V111 (above) suggest that only an estate was created so as to be liquidated by distributing the direct or indirect ownership of the properties to the designated beneficiaries or was a testamentary trust created for the designated beneficiaries, subject to the good faith discretion of the testamentary trustee? The judge then reviewed several dispositions in the will ( translation):

Art V: my liquidator - trustee will act, with respect to my Canadian property over which he will have control (saisine) until the end of the liquidation of my estate, as an administrator of the property of others, charged with full administration.

Article V1: my liquidator-trustee will have the exclusive control and administration of any trust patrimonies created under my will.

Article X1V: In order to permit my liquidator-trustee to better liquidate my estate and to better realize the appropriation of the trust patrimonies created in my will I grant my liquidator-trustee, besides the rights conferred by law, the broadest powers of administration and alienation of the property of my estate and/or the property held in trust including:

The judge then analyzed the testimonies of Corbin and St Pierre. Corbin said she had discussions with Henri before his death wherein he stated that that he wanted to bequeath to her in absolute ownership the properties on Sainte Famille and Saint Timothée .He obviously could not give evidence in court due to his passing to corroborate what Corbin has stated.

As a result her testimony about what Henri allegedly told here was objected to by St Pierre based on article 2870 of the Civil code of Quebec which states:

The judge felt that Corbin's testimony was not reliable due to her not being a disinterested party; she was arguing for a complete transfer of the 2 properties out to her as a simple estate settlement without there being any testamentary trust to hold any of the properties.. She obviously would favour such an interpretation of what Henri allegedly told her.

St. Pierre for his part related his discussions with Henri in the context of his professionally drafting the Quebec will for Henri. St Pierre stated that Henri had 3 questions for him:

1. Could Corbin sell the properties for which she was named as a beneficiary according to the terms of the will?
2. At Henri's death would the respective properties become subject to the Family Patrimony provisions for each beneficiary?
3. Will St. Pierre accept to act a liquidator-trustee?

St Pierre indicated that he told Henri that Corbin could not sell the properties of which she was named a beneficiary, the properties would not fall into the Family Patrimony provisions of the Civil Code of Quebec and that he would accept the position as liquidator-trustee. of the will.

Unlike the situation of Corbin, who was not a disinterested party, the judge felt that she could rely more on the evidence of a liquidator-trustee who was the lawyer who drafted the will to corroborate the intention of the deceased testator. She cited the case of Laroche c Bergeron 1999 Canlii 10998 (QC CS). See also Geffen c Succ. Goodman 1991 Canlii 69( SCC).

However the reliability of such uncorroborated evidence could be in question if the person submitting it (St. Pierre) had an interest in interpreting the will in his favour. However, overall the judge favoured the credibility and reliability of St. Pierre over Corbin. The judge felt that the words of Henri, as expressed to St. Pierre, indicated his preoccupations with the ability of Corbin to administer on her own the properties of which she was a named beneficiary in the will According to the judge this explained why Henri wanted to establish a trust to hold the properties of which Corbin was a beneficiary.

Having established that Henri wanted to create a trust in his will did not necessarily mean that such a trust was legally created.

The judge cited the case of Bank of Nova Scotia v. Thibault, 2004 SCC 29 (CanLII), [2004] 1 SCR 758 wherein it was stated:

The judge felt that all three conditions were met. The will clearly provided for a transfer of the designated property on Henri's death from Henri's estate to St. Pierre as liquidator-trustee of a discretionary trust in favour of the designated beneficiaries. The properties in question were appropriated for the particular purpose of benefitting the designated beneficiaries. Finally St. Pierre accepted to act as trustee of the trusts created under the will of Henri.

Thus even in the absence of clear words creating a trust as a distinct and separate patrimony by appropriation the words in the will were sufficiently broad to encompass the creation of a trust under article 1260 of the Civil code of Quebec.

In conclusion the judge stated that a trust was created in the will of Henri in conformity with his wishes.

CASE 2

Facts

Corbin undertook new proceedings to require St.Pierre as liquidator-trustee of the trust created for the benefit of Corbin, to distribute to her the 2 properties on Sainte Famille and Saint Timothée.

She relied on the wording in the will which stated:

As the earlier Lalande decision was rendered in 2014 and was not appealed it was an accepted fact that a trust was created in Henri's will for the economic benefit of Corbin. with an eventual reversion of the two properties to Corbin.

In 2014 Corbin received from St. Pierre $15,000 per month from the trust tax-free. For 2015-2017 she received $20,000 per month tax-free and in 2018 $30,000 per month tax-free. Also in 2016 she received $1,300,000 from the trust to buy a home in Westmount.

Corbin felt by 2018 confident enough to be able to manage and administer the 2 multi-unit properties on her own (worth about $46,000,000) without the help of the trust. She was also concerned that her children could not be added as beneficiaries of the trust..

St .Pierre for his part recalled the concerns of Henri, just before his death in 2009, of the ability of Corbin to administer the 2 properties. St. Pierre felt that Corbin did not have the maturity, aptitude or qualities required to administer the properties. He said he would feel comfortable to transfer the properties to Corbin if she had or developed over time the capacity to administer the properties.

The issue in dispute

Did St Pierre, by his refusal to remit the 2 properties in the trust to Corbin (and by so doing effectively ending the trust) exercise his discretion in an arbitrary, unreasonable or malicious manner?

The judge's analysis

The judge was concerned about the end of the trust. The judge felt, in the absence of any specific wording, that the trust terminated upon the death of the designated beneficiaries. Unlike most trusts there were no successive nor future income/ capital beneficiaries specified in the trust upon the death of the initial beneficiary- Corbin. She quoted from articles 1294, 1296 and 1297of the Civil code of Quebec:

1294: Where a trust has ceased to meet the original intent of the settlor, particularly as a result of circumstances unknown to him or unforeseeable and which make the pursuit of the purpose of the trust impossible or too onerous, the court may, on the application of an interested person, terminate the trust; ... Where the trust continues to meet the intent of the settlor but new measures would allow a more faithful compliance with his intent or facilitate the fulfilment of the trust, the court may amend the provisions of the constituting act.

1296: A trust is terminated by the renunciation or lapse of the right of all the beneficiaries, both of the capital and of the fruits and revenues. A trust is also terminated by the expiry of the term or the fulfilment of the condition, by the attainment of the purpose of the trust or by the impossibility, confirmed by the court, of attaining it.

1297: At the termination of a trust, the trustee shall hand over the property to those who are entitled to it. Where there is no beneficiary, any property remaining when the trust is terminated devolves to the settlor or his heirs.

The judge felt that part of article 1294 did not directly apply as the trust did permit Corbin to receive significant monthly payments from the trust in conformity with the wishes of Henri .However the judge felt that the discretionary powers conferred on St Pierre under article X1V (supra) ( to transfer out to Corbin the 2 buildings in the trust, thus effectively ending the trust,) required court approval per article 1294.

The judge felt that St. Pierre acted properly in not transferring out the 2 properties to Corbin, even after 11 years since the death of Henri. The judge stated that Henri never provided in the trust a specific time to transfer the 2 properties to Corbin. nor did the trust specify any conditions that had to be met prior to transferring the 2 properties out of the trust to Corbin. She emphasized the broad discretionary powers that St. Pierre had under the trust. Even though the exercise of a discretionary power is not absolute and its exercise must be reasonable, not arbitrary nor malicious, and it must be carried out with prudence, diligence and loyalty, a beneficiary cannot complain if the aforesaid exercise does not completely satisfy the beneficiary.

The judge felt that St. Pierre always acted reasonably and conscientiously towards Corbin by paying her via the trust since 2018 $360,000 after-tax annually as well as $1,300,000 to buy a home.

On the other hand the judge felt that Corbin had matured over the past 10 years since her uncle Henri had died. She was a business person who had developed an expertise in Gemology but not in real estate administration. She felt that with another 10 years business experience by 2026 Corbin could have the necessary experience to take full ownership of the properties, especially if she was surrounded by competent and knowledgeable people who had experience in real estate administration. The judge came up with a compromise solution described in the conclusion below.

CONCLUSION

The judge ordered ( translation) : "St. Pierre (or his successor) , as trustee of the trust for the benefit of Corbin to transfer to Corbin, directly or indirectly, by December 31, 2026 at the latest, after Corbin had acquired 10 years of business experience, at least one of the 2 properties in the trust, (unless there were clear reasons for the trustee to not permit the transfer,) so as to effect a prudent and reasonable transition of all of the properties in the trust to Corbin."

MORAL OF THESE 2 CASES

More precise and clear wording was missing in the will and trust created there under. The testator could have stated clearly that a Patrimony by appropriation was created under section 1260 and ff of the Civil code of Quebec and that a private trust was created there under by the testator transferring property from his patrimony to another patrimony constituted by him which he appropriated for a particular purpose- ie to benefit a particular beneficiary for a defined time period including the life of the beneficiary with the possible replacement of new or subsequent beneficiaries for another specified time period., until the trust was terminated as specified in the trust document.

If the trust gives a general discretion to a trustee to distribute or not property to a beneficiary the conditions and terms of the trust should make it very clear to both the trustee and the beneficiary as to what is required to effect a distribution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.