Charitable Purpose Trusts

Charitable Purpose Trusts | Disinherited Vancouver Estate Litigation

Doukhobor Heritage Retreat Society 1999v Vancouver Foundation 2019 BCSC 54 involved a decision relating to the criteria of whether or not a document qualified as a charitable purpose trust.

If the document was not a charitable purpose trust, then the trust would be void pursuant to section 24 of the Perpetuity act, which was the basis on which upon it was challenged.
The court reviewed the criteria to qualify it as a charitable trust and found that the October 2001 cheque charitable donation in the amount of $175,000 that was in dispute, was contributed for a charitable purpose, and thus was not voidable under the Perpetuity act

The cheque for $175,000 was to be held permanently by the Vancouver foundation and invested, and the income to be paid each year to be used for the charitable purposes of supporting the Whatshan Lake retreat and supporting programs that will assist in the sponsorship of youth, as well as at, seminars and other events”.

To qualify as a charitable purpose trust, the trust must have a purpose that falls within one of the four recognize heads of charity, and be concerned with public benefit, rather than private advantage.

Vancouver Society of Immigrant and Visible Minority Women V Minister of National Revenue (1991) SCR 10 at 105

The four recognized heads of charity comprise:

1) relief of poverty;

2) advancement of education

3) advancement of religion;

4) and other purposes beneficial to the community amateur youth soccer Association v Canada Revenue Agency 2007 SCC 42

The question is always whether the primary purpose of the trust falls within ahead of charity.

Once a purpose has been found to fall within ahead of charity, the court must assess whether it meets the second requirement, that is to benefit the public at large, or sufficiently large section of the public, rather than simply conferring private benefits. ( Vancouver Society at 121)

“Knowing Receipt” of Trust Property

"Knowing Receipt" of Trust Property | Disinherited Estate Litigation

Vancouver Coastal Health Authority v Moscipan 2019 BCCA 17 dealt with the proceeds of misappropriated funds from the employer of the deceased, in favor of her husband, and the court reviewed the law relating to “knowing receipt” of trust property.

The leading decision is Citadel and Gold v Rosenberg 1997 ( 3) SCR 767, where the court described the essence of a knowing receipt claim at paragraphs 41, 46 and 49:

The essence of unknowing receipt claim is that, by receiving the trust property, the defendant has been enriched. Because the property was subject to a trust in favor of the plaintiff. The defendants enrichment was at the plaintiff’s expense. The claim, accordingly falls within the law of restitution.

A stranger in receipt of trust property is unjustly enriched at the expense of the trust beneficiary. Participation in a fraudulent breach is irrelevant to the plaintiff’s claim. Liability essentially turns on whether or not the defendant has taken property subject to an equity in favor of the plaintiff. The jurisprudence is long held that, in order to take subject to an equity, a person need not have actual knowledge of the equity, notice will suffice. In my view, the same standard applies to cases of knowing receipt.

Rather, the cause of action in knowing receipt arises simply because the defendant has improperly received property which belongs to the plaintiff. The plaintiff’s claim amounts to nothing more than “you unjustly have my property. Give it back.” Unlike knowing assistance, there is no finding of fault, no legal wrong done by the defendant, and no claim for damages. It is at base, simply a question of who has a better claim to the disputed property.

In order to prove recovery of the disputed property, the plaintiff must prove the following:

1) That the property was subject to a trust in favor of the plaintiff;
2) that the defendant did not take the property as a bona fide purchaser for value without notice. The defendant will be taken to have notice if the circumstances were such as to put a reasonable person, on inquiry, and the defendant made man, or if the defendant was put off by an answer which would not have satisfied a reasonable person.

With respect to constructive knowledge, the court referred to Groves-raffin Construction Ltd fee. Bank of Nova Scotia (1975) , 64 DLR (3-D) 78 BC CA were at paragraph 138, the court set out the test:

“ Under what I think is the proper test no necessity to take care arises until either. It is clear that a breach of trust is being, or is intended to be, committed, or until there has come to the attention of the person something that should arouse suspicion in an honest reasonable man and put them on inquiry. The person for his own protection, in the first event should have nothing to do with the improper transaction, then the second event should not continue to be involved in the suspected transaction until his inquiry shows him, or more correctly caught, which will reasonable man, that the suspicion is unfounded”

Suspicious Circumstances and Testamentary Capacity

Suspicious Circumstances and Testamentary Capacity

It’s important that will drafters be aware of and watch for any suspicious circumstances that might exist when taking will instructions.

Preparing a will in the presence of suspicious circumstances simply increases the risk that the wills draftsperson might end up testifying about the validity of the will in subsequent years.

The litigation issue is usually an allegation of lack of testamentary capacity when the will instructions were given and when the will was acknowledged (signed?) , both being requirements of a valid will.

The Doctrine of “Suspicious Circumstances”

In addition to testamentary capacity, the propounder of a will must establish “that the testator knew and approved of the contents thereof.” With regard to this requirement, the Supreme Court of Canada in Lidstone, 1931 SCR 695

“When it has been established that a will has been duly executed by a testator having testamentary capacity, and also established that it was read by, or read over to, the testator before execution, there arises ordinarily, in the absence of suspicious circumstances, a strong presumption that he knew and approved of its contents, but there is no inflexible rule on the subject. If, however, there are circumstances which arouse the suspicions of the Court — as, for example, if the will was prepared by a person who takes a benefit under it – the party propounding the will must remove the suspicion by proving that the testator knew and approved of the contents of the document, and it is only when this has been done that the onus of proving fraud or undue influence is thrown on the opponents of the will.”

The doctrine of suspicious circumstances may arise in circumstances in which the background concerning the making of the will gives rise or should give rise to some suspicion.

The doctrine is intended to ensure that there is no doubt that the making of the will was the free and voluntary act of the testator.

In dealing with the will, the Supreme Court of Canada in Vout v. Hay 1995 125 D.L.R. (4th) stated that when dealing with the doctrine of suspicious circumstances and the onus of proof, the party alleging undue influence must prove it, and the question becomes which is more persuasive: the evidence calling into question the validity of the will (the suspicious circumstances) or the evidence supporting it.

It is crucial that a will practitioner look for and identify factors which might appear to be suspicious and to ensure that there is ample evidence to override those circumstances as having had an effect on the testator, prior to the execution of the will. Again there should be a detailed record made of the practitioner’s observations after “probing the mind of the potential will maker” , and the notes preserved.

A seemingly in-exhaustive short list of the innumerable circumstances which might be suspicious is as follows:

(a) where a gift is made to a person with whom the testator had a close relationship but which was not known or recognized by the testator’s family;

(b) where a gift is made to a person who is in a position to influence the testator, such as a care-giver, or the worst example, the party preparing the will;

(c) where an apparently unwarranted, undeserving, or unpopular gift is made to a beneficiary who, in the minds of the those left behind, should not receive the gift;

(d) where a gift is made to a beneficiary to whom the testator has had no close relationship, such as a charity;

(e) where the division of assets among the children of the testator is substantially unequal, or a certain child or children are harshly treated;

(f) where the will substantially deviates from previous wills . Always review previous wills prior to taking instructions and having a new will executed.;

(g) where a gift is made to a person standing in a fiduciary relationship;

(h) where the beneficiary accompanies the testator on each trip to your office during the process to complete the will;

(i) where you receive the testator’s instructions from someone other than the testator;

(j) where there has been a recent serious illness or hospitalization;

(k) where there is any question at all about testamentary capacity;

(l) where there are indications of alcohol abuse or medications that are potentially mind altering, being used;

(m) where there is a hasty or unwise marriage or common-law relationship;

(n) where there is evidence of depression;

(o) where there is a language/cultural disability or illiteracy;

(p) if you have been asked to prepare a will for someone by which you are to inherit, then you should ensure that the testator receives independent legal advice, and preferably take no part whatsoever in the preparation of the will.

(q) The recent widower and the young woman to inherit everything scenario

In circumstances where the testator has a will and substantial changes are being made, it would be prudent for the wills drafter to enquire of the testator as to the provisions of the previous will and the reasons for the changes.

Similarly if a child or children are being disinherited, the wills drafter should consider preparing a detailed memorandum pursuant to the provisions of the Wills Variation Act, ( now S 60 WESA) and enclosing a copy of that signed memorandum with the original will. The memorandum’s facts must be accurate so that the testator is not subsequently viewed by the court as being vindictive, as opposed to objective.

Laszlo v Lawton 2013 BCSC 305

The law relating to testamentary capacity and suspicious circumstances was canvassed in Laszlo v Lawton 2013 BCSC 305.

The court recognized that faltering mental capacity is prone to fluctuate and the court authorities permit variation of the degree of capacity required at these pivotal times.

To lack of testamentary capacity does not mean that the testator must be in a perpetual state of substandard competence. Seemingly rational persons may be without mental capacity while seemingly compromised persons may possess it. It may change in fluctuate slightly or wildly so that at times a person may be of sound mind, while at other times may not be.

The Courts recognize that dementia can impair a testator’s mental powers, such that he or she is not capable of making a will, however, a diagnosis of dementia, standing alone, does not automatically correspond to testamentary incapacity.

Similarly, a person who is judicially declared incapable of managing his or her affairs pursuant to adult guardianship legislation or suffers a chronic psychotic illness such as schizophrenia may still have the capacity to make a valid will.

The issue of whether a testator has the requisite capacity to make a will is a question of fact to be determined in all of the circumstances. Testamentary capacity, however, is not a medical concept her diagnosis- it is a legal construct.

Medical evidence, while important and relevant, is neither essential nor conclusive in determining the presence or absence of testamentary capacity.

Lay witnesses who have known the testator for many years can be very significant witnesses, and it is open to the court to accord greater weight to lay evidence than to medical evidence, or reject the medical evidence altogether.

The leading decision of Vout v Hay (1995) 2 SCR 876 , affirmed that the legal burden of proving due execution of the will and both testamentary capacity and that the testator knew and approved of the contents of the will is with the party propounding the impugned a will.

There is a rebuttable presumption that the testator does it stop the requisite knowledge and approval and testamentary capacity were the will was duly executed.

The Vout decision clarified that the presumption may be rebutted by evidence of well grounded suspicions, known as “suspicious circumstances” relating to one or more of the following circumstances:

1) surrounding the preparation of the will;

2) tending to call in to question the capacity of the testator;

3) tending to show that the free will of the testator was overborne by acts of coercion or fraud.

This presumption, places and evidentiary burden on the party challenging the will to induce or point to some evidence which accepted, would tend to negative knowledge and approval or testamentary capacity Vout at para. 27.

The usual civil standard of proof, namely proof on a balance of probabilities generally applies to dispelling the suspicious circumstances that have been raised. As a practical matter, the extent of proof required will be proportionate to the gravity of the suspicion, which will vary with the circumstances peculiar to each case.

The courts are clear that a general miasma of suspicion that something is unsavory may have occurred will not be sufficient. Clark v. Nash (1989) 61 DLR (4th) 409 BCCA

Conclusion

Suspicious circumstances exist in a wide array of situations and are not necessarily sinister in their nature. Very often a close observation and questioning of the testator will reveal one or more of a non-exhaustive list of circumstances which might give rise to being labeled suspicious circumstances and thus reversing the onus of proof in a testamentary capacity case.

Accordingly, will drafters should spend extra time questioning such a testator, and confirming records and ownership documentation in determining whether the suspicious circumstances are sufficient to question whether the proposed testator has sufficient mental capacity.

Wills Drafting: The Myth of the “Simple Will”

Wills Drafting- The Myth of the “Simple Will” _ Disinherited

It must be stressed that any document that has consequences as permanent and far-reaching as a Will can never be “simple.”

Even a straightforward Will can be fraught with drafting problems and potential liability.

A Will speaks from death and cannot be altered after death. Thus Wills can be viewed as potential
“time bombs” of liability. Although sections 58 and 59 of the Wills, Estates and Succession Act now allow an opportunity to correct errors, to confirm what the testator really meant, to fill in the gaps, or to modify the ambiguous, a small drafting error can create an ambiguity that may take years to resolve in the Courts.

A Will is a very personal document, quite literally, a testator’s last word about how his or her
estate is to be disposed of. The only constraints on the testator’s wishes are public policy and the law. If neitheris contravened, the testator can make almost any type of Will.

Duties of the Wills-Drafter

The Wills practitioner has several important duties, including the following.

1. Spending sufficient time to properly canvass with the client his or her instructions, and then understanding those instructions precisely after giving appropriate advice with respect to same

2. Translating the instructions into testamentary provisions that are valid and clearly express the testator’s intentions

3. Gathering all the information required to properly prepare the Will and to give effect to the testator’s wishes

4. Taking into account other documents to which the testator is a party, such as those dealing with assets that pass outside of the estate, and applying legal principles that may affect the provisions of the Will

Simply put, it is the Wills practitioner’s duty to ask the right questions and draft the Will properly in accordance with the client’s instructions.

Fees

1. Fees should be based on the practitioner’s actual time and not the supposed “going rate.”

2. The practitioner should explain to the client the amount of time it properly takes to prepare a Will, the amount of expertise required for same, the risk of liability, and the value of the assets that are being dealt. That will help persuade the client that the cost may be higher than he or she wishes to pay, but that it is still good value in the “big picture” of things. It should be stressed that the Will is dealing with the client’s lifetime accumulated assets.

3. If the client is unwilling to pay, then it is open to the practitioner to refuse to do the work.

4. If the practitioner accepts the work, he or she accepts the responsibility of doing it properly and promptly.

Getting the Necessary Information From The Client

Clients frequently attend at the Will- drafter’s office with firm instructions about how they want to dispose of their estates. It is the Will-drafter’s duty to properly examine and scrutinize such instructions because many of them may be neither practical nor advantageous to the interest of the estate or to the beneficiaries. The Will-drafter must educate the client and explain to him or her the nature and consequences of the proposed testamentary provisions.

It is not uncommon for the client’s initial instructions to be flawed. Clients often have firm opinions as to what they want to achieve with their Will that are often simply not practical, or even possible, and would almost certainly end in litigation. It is the job of the drafting practitioner to provide proper objective counsel in this regard.

To get the correct information, the practitioner must ask the right questions. The Will practitioner can simply never have too much information to give proper advice.

The bottom line is there is a duty on the Will-drafter to carry out the client’s instructions as closely as possible, but there is an equally important duty to make sure that clients understand they should not necessarily do what they want to do, and if they insist after proper advice, they must accept and approve the consequences.

Probing the Client’s Mind

I would be remiss in any discussion regarding the taking of Will instructions, especially from the elderly and frail, not to start with a wise quote from Chalmers v. Uzelac 2004 BCCA 533.

1. Every solicitor who, as part of his or her practice draws Wills, should read, mark and inwardly digest at least once each year the judgment of Sir John Alexander Boyd, C. in Murphy v. Lamphier (1914), 31 O.L.R. 287, the Canadian locus classicus on a solicitor’s duty in taking instructions, especially at pages 318-321.

2. That duty is owed not only to those who might, or ought to be, objects of the testator’s bounty but also to the testator, for only the solicitor can be the testator’s voice from the grave; the solicitor discharges that duty by making proper inquiries of the testator at the time of the making of the will and by taking and preserving proper notes of the responses and of any observations relevant both to capacity and to knowledge and approval of the contents of the will. The reason for the latter obligation ought to be obvious but, lest it is not, I state it: How can a judge put confidence in the testimony of a solicitor who says, years (here 9) after taking instructions, but keeping no notes of those instructions, that the testator said this or that as the reason for changing an earlier will?

In Murphy v. Lamphier, as cited in the Chalmers case, the duty of a lawyer taking Will instructions was discussed as follows.

It is an error to suppose that, because a person can understand a question put to him and give a rational answer, he is of sound mind and capable of making a Will: the competency of the mind must be judged by the nature of the act to be done, and from a consideration of all the circumstances of the case.

The grand criterion by which to judge, whether the mind is injured or destroyed, is to ascertain the state of the memory. Memory affords all the materials on which to exercise judgment and to arrive at a conclusion or resolution.

In the case of a person enfeebled by old age or with faculties impaired by disease, and particularly in the case of one labouring under both disabilities, a solicitor called in to prepare a Will does not discharge his duty by simply taking down and giving expression to the words of the client, without being satisfied by all available means that testable capacity exists and is being freely and intelligently exercised in the disposition of the property; and, in dealing with a person needing protection and advice, it is important for the solicitor to find out if there be a former Will, and its nature, with a view of getting at the reasons for any variations or changes therefrom, if such changes be contemplated.

The notes of haste, stealth, and contrivance attached to this transaction, and were not removed by the evidence.

The duty was similarly described by Kroft J. in Friesen v. Friesen Estate (1985) 33 Man.R. (2d) (Q.B.) at para 77, as follows.

6. The duty upon a solicitor taking instructions for a Will is always a heavy one. When the client is weak and ill, and particularly when the solicitor knows that he is revoking an existing Will, the responsibility will be particularly onerous.

7. A solicitor cannot discharge his duty by asking perfunctory questions, getting apparently rational answers, and then simply recording in legal form the words expressed by the client. He must first satisfy himself by a personal inquiry that true testamentary capacity exists, that the instructions are freely given, and that the effect of the Will is understood.

Sample Organizational Chart for a Will

One tried-and-true technique of Will-drafting is to break the Will down into its basic components, to demystify the task at hand. Here is a sample of how most Wills can be broken down.

Part One: Initial Matters

(A) Revocation of prior Wills

(B) Appointment of executor and trustee

(C) Appointment of alternate executor and trustee

(D) Appointment of guardian, if applicable

Part Two: Disposition of Estate

(A) Vest property in trustee

(B) Payment of debts, testamentary expenses

(C) Disposition to beneficiaries

(a) Specific bequests
(b) Legacies
(c) Residue
(d) Alternative gift(s) of residue

Part Three: Administration of Estate

Powers of Executor/Trustee
(1) Power of sale or conversion

(2)  Trust for minors

(3)  Payment for minors

(4)  Investment powers

(5)  Power of distribution in specie

(6)  Power to carry on business and other powers that may be necessary or appropriate

Part Four: Closing Matters

Miscellaneous provisions, for example

(1) Charging clause
(2) Funeral wishes

Remember that the client must “know and approve the contents” of the Will. So that can be achieved, 5. the goal should be to draft a Will the client may read and understand for him or herself. The use of a logical arrangement of paragraphs and clauses such as displayed in the above-noted organizational chart will assist the client in that endeavour. The use of headings and definitions and the numbering of paragraphs and clauses will also assist in that regard. Bearing 6. in mind the aging population, using a reasonably large font is advisable.

It should be noted that words used in a Will are given their ordinary meaning by the Courts. Also, a judge should consider only the Will and the facts and circumstances known to the client at the time the Will was made to determine the client’s testamentary wishes.

Style of Drafting: 20 Dos and Don’ts

1. Strive for simplicity without sacrificing precision.

2. Be brief without sacrificing comprehensiveness.

3. Be consistent in the use of tense and the use of terms. All of the clauses to be used must then be looked at together to ensure a uniform drafting style throughout. The Will created must not look like a patchwork quilt of style and language as this could lead to interpretation problems and possible negligence claims.

4. Use modern plain language rather than verbose and archaic expressions. For many years now, there has been a movement toward the use of plain language to replace legalese and bureaucratic writing. Plain language is straightforward prose, carefully written with the needs of its primary readers in mind. Strive to make your average sentence length shorter and to simplify your sentence structure.

5. Eliminate redundant words and phrases. Will-draftspersons have the tendency to use couplets and triplets when one word carries the intended meaning. For example the words “nominate, constitute, and appoint” could be condensed to simply “appoint.” The words “give, devise, and bequeath” could be shortened to simply “give.”

6. Strive to not use foreign words in Wills unless you are referring to foreign places or persons. For example, do not use Latin phrases such as “bona fide” when the English “good faith” conveys the same meaning. Similarly, do not use expressions such as “cy-pres” or “en ventre sa mere,” when they can be replaced with “as near as possible” and “in its mother’s womb.”

7. Do not use the word “issue” that ordinarily means all of a person’s lineal descendants, but instead use the words “child,” “children,” “grandchild,” and/or “grandchildren,” as appropriate. Similarly, do not use the words “per stirpes” or “per capita” but instead describe the method of distribution.

I once litigated the following clause from a Will that used the word “issue.”

To divide the residue of my estate between my daughters Mary and Joan who survive me in equal shares per capita but if any child of mine predeceases me leaving issue him or her surviving, the issue of that deceased child surviving me shall take (and if more than one in equal shares per stripes as tenants in common) the share which his or her or their parent would have taken if living.

The deceased had a son who had predeceased him by 10 years leaving two children. At the time the deceased executed his Will, he had only the two daughters Mary and Joan. The Will was poorly drafted in that it used both the words “any child of mine” as well as the words “leaving issue him or her surviving.” I argued that the issue of the deceased son, namely the deceased son’s children and grandchildren, should share equally in the estate with Mary and Joan.

Leaving aside the poor draftsmanship that resulted in the litigation, I have never yet met a client who wishes to provide for all of his or her lineal descendants. Clients usually wish to provide only for their children, but if a child has predeceased, leaving children of his or her own, then for those children, that is the grandchildren of the client, in the place of the deceased child.

8. Do not do a codicil to revise an existing Will, as it is too easy to make a mistake. Disregard the client’s concerns about costs in this regard. If the client wants to make a change to a Will, then draw a new Will.

9. When providing for the distribution of the estate residue, try to use percentages or shares rather than specific amounts. Then add the percentages or shares several times to ensure they add up to 100 per cent. In Sarkin v. Sarkin Estate, 36 E.T.R.139, the draftsperson did use shares, but the shares added up to only 55 per cent of the residue. As a result, the remaining 45 per cent went by way of a partial intestacy.

10. Do not use precatory words such as “wish” or “request,” as they are not binding on the executor.

11. Be precise in your description of assets to avoid ambiguities.

12. Check carefully for inconsistent clauses.

13. Check to see that no intestacy or partial intestacy has been created. I once litigated a homemade Will where the testatrix included a specific clause stating she did not wish her brother to ever share in her estate by reason of bad past behaviour. She executed the Will without having included a residual beneficiary clause and thus created a partial intestacy. The effect was that her next-of-kin, namely, her brother, inherited.

14. Sufficiently identify each beneficiary and record his or her contact information. Charities can be a particular problem, as it is necessary to understand the structure of the charity and to ascertain which part of the charity the testator wishes to benefit, as well as to ensure the charity’s name is stated correctly. If possible, the charity should be contacted to ensure accuracy. Leaving a bequest to “charitable and educational institutions” will undoubtedly lead to much litigation among various charities and education institutions.

15. Be consistent in the words you use.

16. Try not to include a gift of a specific parcel of property to a beneficiary as there is a good likelihood the testator will not own the property at the time of his or her death. A better way to accomplish such an intention is to use a clause such as “to transfer to Mary, if she survives me, whatever house and property I own at the time of my death,” or such similar-type wording.

17. Only attempt to do the type of Wills with which you are completely experienced and are totally comfortable doing.

18. Review the Will clause by clause very carefully with the client. It should never be a cursory review. It may be helpful to paraphrase each clause to the client in simple terms, as many clients will not really understand what most of the clauses mean. It is suggested that where possible and practical, email, fax, or mail a copy of the Will to the client to review prior to seeing him or her in your office. That will give the client time to consider and reflect on the Will and to make any changes he or she considers appropriate. That is preferable to the client attending at your office and requesting changes to be made on the spot, as such changes are often rushed.

19. Use technology but beware that it sometimes does strange things, like leave out paragraphs and make other such unexplained mistakes.

20. Do not rely solely on a checklist- type Will instruction sheet. Make real notes, including observations confirming you probed the Will- maker’s mind to check for mental capacity and noted his or her statements as to next-of-kin and the value of assets. On completing a Wills file, avoid using a form reporting letter that has clauses that do not relate to the particular instructions.

Conclusion

I again stress there is no such thing as a simple Will. While a Wills practice can be enjoyable and rewarding, the draftsperson can never let his or her guard down for one instant regarding the myriad potential problems that can arise in this type of practice.

The client needs firm advice and guidance throughout the taking of instructions and again during the review of the Will at the time of execution.

 

This article was originally published by The Scrivener Volume 27 Number 4 Winter 2018.