From time to time, changes to the terms of trusts are sought for a variety of reasons, including, but not limited to:
Economic or Non-Economic Benefits
In Finnell v. Schumacher Estate (1990) 74 O.R. (2d) 583, the Court agreed that a variation to save tax made good sense and should be encouraged by trustees acting as prudent stewards. However, the application was denied on other grounds.
In other cases, courts have found an indirect or social benefit to be sufficient to satisfy the legislative requirement.
Intention of the Testator or Settlor
In the case of Re Hessian (1996), 13 E.T.R. (2d) 188 (N.S.S.C.), a trust created for Mr. Hessian`s benefit subsequent to his injury in an accident was varied after his recovery to give the income to Mr. Hessian and the residue to the Nova Scotia Head Injury Association. Mr. Hessian applied to vary the trust to enable him to establish a home for people with head injuries. He was denied not only because the proposal would cause the residuary beneficiary to lose the benefit of the capital but also because it would go against the original intent of those who donated to the fund.
Equitable (or Fair) Results By Judicial Discretion
In Donald Estate v. Donald (Litigation Guardian of) (2005), 18 E.T.R. (3d) 25 (Sk. Q.B.), the judge considered, amongst other things, whether the requested change would be fit, having regard to all the circumstances. In this case, the Public Guardian and Trustee applied to vary the trust to exclude some of its assets to determine whether the beneficiary was entitled to receive social assistance benefits. The application was denied as the court found that the beneficiary`s needs were being satisfied by the existing trust assets.
A court may approve an application to vary or change the terms of a trust on behalf of any person related to the trust, including unascertained beneficiaries who may become entitled, directly or indirectly, to an interest under the trust at a future date or on the happening of a future event. However, in order to be approved, the variation must be in the best interest of, among others, the beneficiaries of the trust, including the unascertained beneficiaries.
A landmark British case in which a trust was varied is that of Saunders v. Vautier, (1841), 4 Beav. 115. In that case, a testator died leaving a will in which the beneficiary (Vautier) was given a gift of some company stock in a spendthrift trust. As you may know, a spendthrift trust is one which a trustee is named who will manage the trust money and make decisions as to what purchases and expenditures will be made for the beneficiary’s welfare until they reach a specified age. In this case, the trust for the benefit of Vautier stipulated age 25 as the age of final distribution. However, the will did not specify who should be the alternate beneficiary in the event Vautier did not live to age 25, sometimes referred to as a gift over provision. Thus, upon reaching the age of adulthood (then 21 years), Vautier applied to the Court to have the trust broken and the gift given to him outright, notwithstanding the terms of the will. The Court ruled that because Vautier had an absolute vested interest in the gift as there was no gift over, the laws of equity (or fairness) dictated that he should be allowed to obtain the gift upon reaching the age of legal competence, which in this case was age 21.
Since this case, it has become good practice when preparing a testamentary trust clause in a will that will include a provision that the beneficiary will receive the gift past age 18, to provide for a gift over (or alternate beneficiary) in the event the first-named beneficiary dies before the trust is fully distributed. The gift over prevents the breaking of the trust (I have heard this phenomenon referred to as “bust a trust”) because the court is required to consider the best interests of any alternate beneficiaries before allowing the trust to be broken.
If you are considering establishing a trust, or desire to change the terms of an existing trust, please call Andrea Kelly.
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.