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Vested – Did You Inherit?

vestedBlack’s Law dictionary defines vested or vesting “as having the character or given the rights of absolute ownership; not contingent; not subject to be defeated by a condition precedent.”

To be vested, a right must be more than a mere expectation based on an anticipation of the continuance of an existing law, it must have become a title, legal or equitable, to the present or future enforcement of a demand, or a legal exemption from the demand of another.”

Fargey v. Fargey Estate, 2015 BCSC 721 contains extensive discussion of the law of whether a gift has vested in the beneficiary of the testamentary bequest, as opposed to whether the bequest was contingent or conditional.
I normally do not print the entire judgment, but in this particular case Mr. Justice McEwen does an extremely thorough review of the law in this area, pertaining to the interpretation of the wording of the deceased will, leading to the question of whether the gift to the plaintiff had vested, which the court found it had, or had been terminated.
McEwan J.:
1      Matthew Fargey seeks an order terminating a trust in his favour created by the last will and testament of Donald Robert Fargey, his grandfather. Depending on the court’s ruling in his petition, his brother, Joseph, by his guardian ad litem, seeks related relief in a separate petition.
2      The will is dated June 28, 1995. A codicil appointed a son, Bruce Patrick Fargey, and a daughter, Jillian Fargey, the respondent, to be executors of the will. The will left the residue of the estate to Donald Fargey’s wife, Elspeth. She predeceased him on October 10, 1977. Bruce Patrick Fargey also predeceased him on October 22, 2006.
3      The will provided that in the event that one of Mr. Fargey’s children predeceased him, the share of that child was to be divided among his or her children and the trustee was to:
invest and keep invested each such sub-share and to pay the income therefrom or so much thereof as may be necessary or advisable in my Trustee’s discretion for the grandchild’s maintenance, education or benefit during his or her minority, (any income not so paid in any year to be added to the capital of the share) and upon my grandchild attaining the age of twenty-five (25) years to distribute the capital of the sub-share to him or her
4      The petitioner and Joseph Fargey are Bruce Fargey’s sons.
5      The petitioner takes the position that his interest under the will has “vested” in him as a result of his father predeceasing Donald Fargey. He submits that the proper characterization of this bequest is that his entitlement is not contingent upon his attaining the age of 25, but that only his receipt is postponed.
6      Jillian Fargey, the remaining executor of Donald Fargey’s will, takes no position on the application except to point out that there is some doubt as to whether his interest is vested. The executrix submits that it is possible that if the petitioner died after attaining age of majority but before the age of 25, the gift would lapse and be dealt with as on an intestacy under s. 84 of the Estate Administration Act.
7      The authority cited by the petitioner is Saunders v. Vautier (1841), 41 E.R. 482 (Saunders). It was considered in British Columbia in Grieg v. National Trust Co. Ltd. (1997), 47 B.C.L.R. (3d) 42 (B.C.S.C.), where Grist J. observed:
 Donovan Waters in The Law of Trusts In Canada, 2d Ed. (Toronto: Carswell, 1984) at 962-963, comments on the rule in Saunders v. Vautier (1841), 41 E.R. 482,
If there is only one beneficiary, or if there are several (whether entitled concurrently or successively), and they are all of one mind, and he or they are not under any disability, the specific performance of the trust may be arrested, and the trust modified or extinguished by him or them without reference to the wishes of the settlor or the trustees. (Approved in Re Johnston (1964), 48 D.L.R. (2d) 573 (B.C.S.C.) per Nemetz, J., as he then was).
8      In Coman Estate Re, 2000 CanLII 1415 (NUCJ), Hetherington J. of the Nunavut Court of Justice considered an application by a 21-year-old for an order terminating a trust postponing payment until she had attained the age of 25. The court observed:
[5] I will deal first with Heather’s application for an order terminating this trust, and directing that the assets held by the trustees be distributed to her for her own use absolutely. In support of this application her counsel relies on the rule in Saunders v. Vautier, (1841) 4 Beav. 115; 49 E.R. 282 (Ch.); aff’d 1 Cr. & Ph. 240; 41 E.R. 482. In D.W.M. Waters, Law of Trusts in Canada, 2nd ed. (TORONTO: Carswell, 1984) at 964, the author concluded that this rule operates in three situations. Only one is relevant here. It is described as follows (at 964):
A beneficiary who is adult, of sound mind, and entitled to the whole beneficial interest may require the trustees to transfer the trust property to him.
Counsel for Heather contends that this is exactly the situation in which she finds herself.
[6] Heather Coman is an adult and of sound mind. Is she presently entitled to the whole beneficial interest in the assets held in trust for her? Counsel for the trustees says that she is not.
[7] Counsel for the trustees argues that paragraph 5.4. and paragraph 7 of Mr. Coman’s will are contradictory, or that the effect of the former is modified by the latter. I will repeat the relevant parts of those paragraphs for ease of reference.
5. I give all property owned by me at the date of my death and all property over which I have a power of appointment at the date of my death to my Executor on the following trusts:
. . .
4. to transfer and deliver to my daughter Heather Anne Coman one half of my remaining estate, for her own use absolutely;
7. In the event that any portion of my estate is to be delivered to a Beneficiary then under the age of 25 years, I instruct that such portion be instead delivered in trust to my Trustees and retained or paid in the following manner:
. . .
And that upon the Beneficiary reaching the age of 25 years that the capital and accrued income of the Trust, if any, be distributed absolutely to the Beneficiary.
[8] Under paragraph 5.4, Heather acquired a vested interest in one half of the residue of her father’s estate when he died. However, counsel for the trustees argues that the effect of paragraph 7 is that this interest is subject to divestment if Heather does not reach the age of twenty five years. Should that happen, counsel says that the assets held in trust for Heather would fall into the residue of her father’s estate, and that they would then be held in trust for Oolahnee under the terms of paragraph 5.5. of the will. As a result, Heather is not yet entitled to the whole beneficial interest in the assets.
[9] With respect, I do not agree. Paragraphs of a will must be read in context, not in isolation, with a view to giving effect to the intention of the testator. When read in context, paragraphs 5.4 and paragraph 7 do not conflict. The latter does modify the former, but not in the way set forth by counsel for the trustees. Under paragraph 5.4 Heather acquired a vested interest in one half of the residue of her father’s estate. Under paragraph 7 her enjoyment of that interest is postponed until she reaches the age of twenty five. There is nothing in paragraph 7 to suggest a divestment if she does not reach that age. As a result, she is now the sole beneficial owner of the assets held in trust for her.
[10] I therefore grant Heather’s application, and order that the trust provided for in paragraph 7 of her father’s will is to be terminated. I order as well that the assets held in trust for her pursuant to paragraph 7 are to be delivered to her for her own use absolutely.
9      In Fast v. Van Vliet, 49 D.L.R. (2d) 616 (Fast), the Manitoba Court of Appeal considered a will that included the following provisions:
(d) The residue of my estate I divide into three equal shares. One-third to be paid to my son, Rollin Ralph Fast, of the City of Winnipeg, in the Province of Manitoba, as soon as conveniently may be after my decease. In the event of Rollin Ralph Fast predeceasing me and/or upon his death his share of my estate to be divided equally between Wade Leroy Fast and Rollin Carl Fast, upon their attaining the age of twenty-five years.
(e) Two-thirds share to be paid to my infant (G. M. Fast: Jessie A. Stevenson: Seija H, Jarvi:) grandchild, Calvin Ralph Fast, upon his attaining the age of twenty-five years.
(f) If any beneficiary hereunder shall be under the age of twenty-one years, to use so much of the income and/or capital of the share of such beneficiary as my Trustee in his discretion shall deem necessary to provide for his or her maintenance and education, as well as for any illness or other emergency him or her affecting.
(g) To pay to the parent, guardian or custodian of any beneficiary hereunder under the age of twenty-one years any monies directed to be used for the benefit of such beneficiary and the receipt of such parent, guardian or custodian shall be a sufficient discharge to my Trustee.
10      The majority carefully considered whether the interest was vested or contingent:
37 The question is whether the residuary bequest to the applicant upon his attaining the age of 25 years is vested or contingent. The law is said to favour the vesting as well as the early vesting of estates; yet this is essentially a question depending upon the construction of the instrument read as a whole. As a will takes effect upon the death of the testator, it follows that a bequest or devise in favour of a person in being normally confers an immediate vested interest. Courts have been strongly inclined to hold interests to be vested, so much so that they have devised the system, in cases which were obviously contingent, to declare that the terms of the bequest conferred an absolute interest in the first instance, subject to being divested on the happening of a definite contingency.
38 The soundness of that rule is not in doubt. It was derived from the anxiety of Judges to permit the failure of a contingent devise taking effect in the future, because of the death of the legatee prior to attaining a certain age. But this rule of early vesting is not an absolute one.
39 I must therefore look at the meaning of “vested” as opposed to “contingent interests”. I had occasion to look into the meaning of these words in Re Patterson Estate (1958), 66 Man. R. 416.
40 Jarman on Wills, 8th ed., vol. 2, has a lengthy chapter [chapter XXXIX] on vested and contingent interests, as well as the various rules applicable, commencing at p. 1341. The length of the chapter and the number of rules, many of them complex and some contradictory, indicate the difficulty of the problem. One can find quotations both supporting and conflicting to suit his wishes.
41 A contingent interest is one in the future liable to be defeated by the death of the beneficiary prior to the happening of the future event. “Vested” is therefore the opposite of “contingent” and contingent has the nature of “conditionalness”. In the instant case there is no necessity to speculate on the testatrix’ motives or desires. The language used is not an attempt to postpone the date of payment but clearly a condition that the bequest is to take effect upon the attainment of the age of 25.
11      The court observed further at para. 48:
This principle of early vesting, which at best in an indefinite one, is not a binding presumption of law. In the instant will the language is clear and unambiguous. One need not strain words or mind to find the testatrix’ clear intention. She did not wish her grandson to inherit until he attained the age of 25, and clearly said so. No one but a person who has attained the age of 25 can claim anything under such a gift. This is not the case of an antecedent gift followed by a postponement of enjoyment. The clause read in the context of the will indicates that there is no vesting until the applicant has reached the age of 25.
And at para. 50:
In the instant case we are not dealing with a direction as to payment after a clear bequest, but with a bequest conditional upon the beneficiary attaining a given age. The condition upon which the grandson is to inherit is so clearly expressed that to treat the bequest as vested upon his attaining the age of 21 would be to do violence to the plain, unambiguous language used by the testatrix.
12      What is clear in that case is that the will provided that the estate was not to be divided into shares for the beneficiaries until they attained the age of 25 years.
13      In contrast the shares in Donald Fargey’s will are to be created at the time of his death and the distribution of the share is postponed to the age of 25. It appears that what was anticipated was that equal shares would be created immediately and the income administered as the differing needs of the beneficiaries dictated, until their majority. There is then a gap until each share can be distributed to each brother as each attained the age of 25. The division into shares appears to take place before, not upon the attaining of the age of 25.
14      Accordingly, an intention to vest the shares before the beneficiaries attain their majorities is reasonably clear. To the extent that the provision may be ambiguous, the tendency of the law is to avoid intestacy, as noted in Fast at para. 56:
Courts do not normally incline towards intestacy but, even at that, the possibility of an intestacy in a residuary clause must be considered; at times it may be avoided, but when the testator’s language is specific and can be gathered with certainty from the entire will, one is not free to alter that which is clear simply because of the possibility or even the probability of an intestacy. The testator may well have anticipated just that and our modern devolution of estates Acts exist to cover such a situation.
15      I am of the view that the proper reading of the will is that the gift to Matthew vested upon Donald’s death, and only receipt was postponed.
16      Matthew Fargey’s application is for an order terminating the trust with the funds held to be paid for his benefit forthwith. There is a complication, however, in applying the rule in Saunders, which permits a trust to be extinguished where the beneficiary is of full capacity, and has the full beneficial interest. Matthew Fargey qualifies in that he is an adult, aged 23 years, and has a vested interest, but he does not have the full beneficial interest.
17      Where there is more than one beneficiary, Saunders provides that they must be of one mind and none may be under a legal disability (see para. 7 herein).
18      Joseph Fargey was born September 8, 1998 and is presently 17 years old. On the face of it, he lacks the capacity to consent to the arrest or collapse of the trust. He has an application before the court to vary the trust to permit encroachment on capital for his maintenance, education, or benefit.
19      The application is brought by Joseph’s mother, Sarah Sherratt, as litigation guardian.
20      None of the people who, in a legal sense, have a say in Joseph Fargey’s affairs oppose Matthew’s application, although they seek to have Joseph’s vested share dealt with differently because of his infancy. Apart from his mother, and Jillian Fargey, as trustee of the estate, the Public Trustee is not opposed:
I write to advise that the Public Guardian and Trustee has now reviewed your Petition to the Court and the materials and information provided in support.
The Petition and materials were reviewed on the basis that Joseph’s interest in the trust is vested and not contingent. Provided that Joseph’s interest in the trust is vested, the Public Guardian and Trustee is not opposed to a variation of the trust that provides Joseph with access to interest and capital sufficient to allow him to continue at Brentwood College. However, the Public Guardian and Trustee is of the view that the discretion in providing those funds should remain with the trustee and not be transferred to Joseph’s mother.
In the event that the Court finds that Joseph’s interest in the trust is contingent, we would need to consider the interests of any other contingent beneficiaries who were also minors.
I understand you will be providing a copy of this letter to the Court.
21      The materials before the court are sparse but counsel have advised, and it appears to be uncontroversial, that Joseph attends an expensive school, that it is in his best interests that he continue there, and that the income from the trust will not cover his tuition, which is the reason for the application on his behalf.
22      Taking the whole situation in view, I am satisfied that the gift to each brother is vested and that despite their differences in capacity, those who speak in a legal sense for Joseph do not stand in the way of the application of the rule in Saunders.
23      I am further satisfied that there is sufficient latitude under the Trust and Settlement Variation Act, R.S.B.C. 1996, c. 463, to grant the order Joseph’s litigation guardian seeks. The Act reads:
1 If property is held on trusts arising before or after this Act came into force under a will, settlement or other disposition, the Supreme Court may, if it thinks fit, by order approve on behalf of
(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting,
(b) any person, whether ascertained or not, who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of a specified description or a member of a specified class of persons,
(c) any person unborn, or
(d) any person in respect of an interest of the person that may arise by reason of a discretionary power given to anyone on the failure or determination of an existing interest that has not failed or determined,
any arrangement proposed by any person, whether or not there is any other person beneficially interested who is capable of assenting to it, varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.
24      I am prepared to allow the application filed on behalf of Joseph, with the modification that I accept the recommendation of the Public Trustee and Guardian that the discretion over the funds in trust remain with the existing trustee and not be transferred to Joseph’s mother.
25      Accordingly, in relation to petition No. S150894 Vancouver Registry, brought by Matthew Robert Fargey, I order that the trust in his favour be terminated and the funds be paid to him forthwith after payment of all just and outstanding accounts.
26      In relation to petition No. S150895 Vancouver Registry, brought by Sarah Sherratt, as litigation guardian of Joseph Fargey, I order that the trustee may apply so much of the income and capital for the maintenance, education, and benefit of Joseph Fargey as she deems appropriate.
27      If further directions are required there shall be liberty to apply.

 

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