It is often difficult to determine if a document is an inter vivos gift, or alternatively, a document that only takes effect upon death, and thus a will (testamentary).
Such was the case with a certain agreement agreed upon between Norman v. Watchtower Bible and Tract Society of Canada 2014 BCCA 277
The trial Judge found the donations to a registered charity were inter vivos and not testamentary. The funds were donated under an agreement that allowed the donors to recall the donated funds at their request. After the donors’ deaths, any unrecalled funds were to remain with the charity.
The appellant submitted the trial judge erred in finding the donors intended to transfer an immediate proprietary interest to the charity during their lifetimes, arguing that the control the donors retained until their deaths to recall the funds was inconsistent with passing an immediate proprietary interest to the charity.
The appeal was dismissed.
The trial judge found that an interpretation of the agreement in its surrounding circumstances showed the donors conveyed an immediate proprietary interest in the donations.
Most importantly the court held: The reservation of a power of revocation is not inconsistent with the creation of a valid trust and does not have the effect of making the document creating it testamentary
The agreement had immediate effect: the donors could only recall the funds in accordance with the terms of the agreement and the charity could spend the funds until they were recalled. The presence of a revocation clause is consistent with an inter vivos trust. The appellant has not identified any error in the finding of the trial judge that the intention of the disposition was to create a trust.
The Criteria of a Testamentary Document are:
The trial judge began her analysis with the settled test for determining whether a disposition is testamentary as set out in Cock v. Cooke (1866), L.R. 1 P. & D. 241 at 243 (Eng.):
It is undoubted law that whatever may be the form of a duly executed instrument, if the person executing it intends that it shall not take effect until after his death, and it is dependent on his death for its vigour and effect, it is testamentary.
[19] At para. 22 of her reasons, the judge further noted that in Wonnacott v. Loewen (1990), 44 B.C.L.R. (2d) 23 at 26-27 (C.A.), this Court adopted the above test and endorsed the explanation in Corlet v. Isle of Man Bank Ltd., [1937] 3 D.L.R. 163, [1937] 2 W.W.R. 209 (Alta. C.A.), that the words “vigour and effect” apply not to the result to be obtained by, or to the performance of, the terms of the instrument, but to the instrument itself.
[20] The judge (at para. 23) then extracted the following principles from Wonnacott:
· The question of whether a disposition is or is not testamentary depends upon the intention of the maker (para. 19).
· The intention of the maker is a question of fact. In determining the intention, the court is not restricted to the wording of the document alone, but can and should consider extrinsic evidence relevant to the transaction (para. 20).
· If the document is not intended to have any operation until the maker’s death, it is testamentary (para. 19).
· If the document is intended to have and does have the effect of transferring some interest in the property or of setting up a trust thereof in praesenti, it is not testamentary (para. 19).
· The reservation of a right to revoke the transfer or bring a trust to a close does not necessarily have the effect of making the document testamentary (para. 19).
· Cases where documents are held to be testamentary often include the following factual elements: 1) no consideration passes; 2) the document has no immediate effect; 3) the document is revocable; and 4) the position of the donor and donee does not immediately change (para. 21).
[The paragraph number references are to 1990 CarswellBC 46; in the reporter cited, the pinpoint page references are 27 and 28.]
[21] The judge also extracted (at para. 24) the following principles from the parties’ submissions:
· Even where an intended disposition is revocable by the maker or where enjoyment of it is postponed until the death of the maker, if, at the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary: James MacKenzie, Feeney’s Canadian Law of Wills, 4th ed. (Markham, ON: LexisNexis Canada Inc., 2000), para. 1.20.
· The level of control the donor exercises over the property during his or her lifetime is a factor to be considered in determining whether a disposition is inter vivos or testamentary and the more control the donor exercises, the more likely the disposition will be considered testamentary: MacKenzie, paras. 1.25 to 1.27.
· However, the central question is whether the maker of the document intended the document to pass some immediate interest or whether the maker intended the document to have no effect until his death. The degree of control the donor retains over the property during his or her lifetime is relevant to ascertaining that intention. However, if it is clear that the document is intended to have immediate effect it is not testamentary even if the donor retains control, such as the ability to call for the return of the property during his or her lifetime: Mordo, para. 335.
[22] In my view, the judge correctly described those authorities which apply in distinguishing an inter vivos disposition from a testamentary disposition. I would also endorse those principles as set out by the trial judge above as principles of general application for determining such cases.
[23] The Estate characterizes the dispositions as testamentary because the Normans did not convey any proprietary interest in the donations during their lifetimes, but rather intended any money that remained with the Society after their deaths would become the property of the Society. The Estate submits the trial judge erred in finding that Mr. and Mrs. Norman intended the Agreement to pass an immediate interest in the donations. Instead, the Estate submits, the Agreement is properly construed as creating a loan. Under a loan, it says, the Normans pass no proprietary interest to the Society in the donations, aside from a possessory interest. In support of this characterization of the disposition, the Estate emphasizes that the Agreement reserved for the Normans a power of revocation. It argues that such a power indicates a degree of control that is inconsistent with an inter vivos trust.
[24] On the other hand, the Society characterizes the Agreement as creating a valid inter vivos trust. An inter vivos trust passes a proprietary interest from the settlor during the settlor’s lifetime. By definition, it is inconsistent with a testamentary disposition. The Society submits that the ability to withdraw funds from a trust or reserving a power of revocation does not per se invalidate or render a trust unenforceable. The Society says the Estate’s argument overlooks that the trial judge found as fact that the Agreement was irrevocable.
[25] When considering whether the Agreement took immediate effect, the trial judge, at para. 37, determined from the Agreement itself that it had vigour and effect upon execution. Significantly, the judge found the following:
[38] On the signing of the Conditional Donation Agreement, the defendant obtained both an immediate and future interest in the funds. The defendant already had physical possession of, and at least legal title to, the initial $200,000, but the terms upon which the defendant held those funds and any future contributions were settled with the signing of the Conditional Donation Agreement. The defendant acquired the immediate right to use the funds: the Conditional Donation Agreement expressly states that the funds are “to be held for the use and benefit of [the defendant] for the purpose of advancing the work of Jehovah’s Witnesses of preaching the good news about Jehovah’s Kingdom according to the judgment and sole discretion of the [defendant]”. Further, as would be the case if the money was in a joint account, the defendant received an unrestricted future interest when the condition was cleared upon Mr. Norman’s death. The Supreme Court of Canada in Pecore v. Pecore, 2007 SCC 17, at paras. 48 and 50, held that the gift of the right of survivorship is inter vivos in nature and not testamentary.
[39] The Conditional Donation Agreement changed the position of the Normans in that upon its execution they were bound by its terms. They gave up the funds and, unless they requested a refund of them in accordance with the terms of that agreement, nothing would change on their deaths. The ultimate disposition did not depend on the Normans’ deaths but rather on their decision not to request a full refund during their lifetime.
[26] The judge considered her view of the Agreement was reinforced by extrinsic evidence that included the Normans’ cover letter sent on June 5, 2001 to the Society. She found, at para. 40, this letter clearly indicated an intention that the funds would immediately become the property of the Society. She also observed, at para. 41, that subsequent correspondence from Mr. Norman was consistent with her interpretation of the Agreement that it vested an immediate interest in the funds in the Society, including a December 2009 letter in which Mr. Norman thanked the Society for its “kind offer of restitution if needed”.
[27] In her reasons, the trial judge addressed the level of control the donors exercised over the property during their lifetime as a factor in determining whether the disposition was inter vivos or testamentary. She quoted at para. 43 the “guiding principle” adopted in MacInnes v. MacInnes, [1935] S.C.R. 200 at 209, “that it would be held testamentary if it was the intention of the maker that the gifts made by it should be dependent on his death.” Distinguishing MacInnes, and Anderson Estate v. Polson, 2003 BCSC 1721, the judge noted that here the Normans did not have the power to take back or change the Agreement itself; any refund request had to be in accordance with the terms of the Agreement, which amounted to a concession that the Agreement had immediate effect in governing the parties: at paras. 45-49.
[28] In sum, the judge found, at para. 54:
… the Conditional Donation Agreement on its face did have immediate effect and the extrinsic evidence is consistent with that conclusion. The Conditional Donation Agreement itself was not revocable, although the Normans had the right to a refund of their donations in accordance with its terms. Finally, the position of the Normans and the [Society] immediately changed upon the execution of the Conditional Donation Agreement. As already discussed, on the signing of the Conditional Donation Agreement, the [Society] obtained both an immediate and future interest in the funds and the Normans’ rights in respect of the funds became subject to the Conditional Donation Agreement.
[29] The Estate argues the trial judge erred in finding that the control the Normans retained over the donations was consistent with an inter vivos trust. It submits, following Re Pfrimmer, [1936] 2 D.L.R. 460 (Man. C.A.), that unless a donor or grantor has effectively placed an interest in the property beyond his or her reach, a valid trust is not created. It argues the cases of Western Smallware & Stationery Co. Ltd. v. Bell (1965), 53 D.L.R. (2d) 574 (Man. Q.B.), aff’d 55 D.L.R. (2d) 193 (Man. C.A.), and Copp v. Wood (1923), [1926] 2 D.L.R. 224 (N.B.S.C. (A.D.)), are analogous to the case at bar. In those cases, the deceased gave the alleged trustee funds to hold at interest and reserved the right to demand repayment. If the funds were not recalled during the deceased’s lifetime, they were to be distributed to the beneficiaries. In both cases, the court found the deceased had not created a valid inter vivos trust since the deceased had not parted with ownership and control of the money. Neither case involves a situation in which, as here, the alleged trustee had discretion to use the property for the objects of the trust during the deceased’s lifetime, which would suggest an immediate transfer of legal title. Accordingly, I do not find either authority helpful.
[30] The Estate further contends the trial judge erred in distinguishing MacInnes on the basis that here the Normans could only request their donations to be returned in accordance with the terms of the Agreement, and could not revoke the Agreement itself. The Estate submits this is a “distinction without consequence”. I do not agree. I consider the following passage from Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611 at 643, to be apposite:
The settlor of a trust can reserve any power to itself that it wishes provided the reservation is made at the time the trust is created. A settlor may choose to maintain the right to appoint trustees, to change the beneficiaries of the trust, or to withdraw the trust property. Generally, however, the transfer of the trust property to the trustees is absolute. Any power of control of that property will be lost unless the transfer is expressly made subject to it.
[31] There may be circumstances in which a settlor creates a valid trust instrument with a power to revoke the trust property, as long as the settlor has actually transferred legal title to the trustee and is not unrestricted in his or her use of the trust property. I agree with the Society’s submissions regarding Re Pfrimmer that it is not the law in British Columbia that any power of revocation will defeat a trust. The Society refers to this Court’s decision in Wonnacott, which I note adopted at 27 the following statements of the Alberta Court of Appeal in Anderson (Costello) v. Patton, [1948] 2 D.L.R. 202, [1948] 1 W.W.R. 461 at 463:
The question of whether a document evidencing a voluntary settlement, either by way of gift, in the sense of transferring the property in question, or by way of the creation of a trust, is or is not testamentary, depends upon the intention of the settlor.
If the document is not intended to have any operation until the settlor’s death it is testamentary.
If the document is intended to have and does have the effect of transferring the property or of setting up a trust thereof in praesenti, though to be performed after the settlor’s death, it is not testamentary.
The reservation of a power of revocation is not inconsistent with the creation of a valid trust and does not have the effect of making the document creating it testamentary.
[Emphasis added.]
[32] The Estate further argues the trial judge erred at para. 50 of her reasons in relying on Mordo. The trial judge noted that in Mordo the settlor had reserved an even more expansive right to call for the trust property than provided for in the Agreement. Nevertheless, the court found there was a valid inter vivos trust. In Mordo, the Estate notes, the settlor was also the beneficiary of the trust and was able to recall the trust property in her capacity as beneficiary, not as settlor. It submits this error by the trial judge was critical because in Mordo at para. 285 the trial judge relied on this distinction to distinguish Re Pfrimmer.
[33] To the extent the Manitoba decision of Re Pfrimmer holds that a settlor cannot in any circumstances reserve a power of revocation, as the Estate contends, it is not the law of this province. In this case, it was properly not central to the reasons of the trial judge that Mordo distinguished Re Pfrimmer on the basis that the settlor could recall the trust property in her capacity as beneficiary. Furthermore, the trial judge’s reasons show she was aware that the settlor in Mordo was also a beneficiary of the trust, who had the right to receive from it income and capital. I read the trial judge’s reasons as citing Mordo as an example of a case in which the settlor had structured the trust to give herself an expansive right to recall the trust property, and where the court nevertheless held there was a valid inter vivos transfer of the trust property. I do not consider the trial judge erred in doing so.
[34] The Estate on this appeal must demonstrate that the trial judge made a palpable and overriding error in finding the Normans’ intention, on an objective interpretation of the Agreement and in the surrounding circumstances, was to transfer an immediate proprietary interest in the donations to the Society. I am not persuaded that the judge erred in her analysis. The judge found that the Normans were bound by the terms of the Agreement, which they could not revoke at any point. The Normans did not have the unrestricted opportunity to dispose of the property as they saw fit. They could revoke their donations, but only in compliance with the terms of the Agreement. They could not revoke the Agreement itself. In the interim, the Society could spend the funds at its discretion. This indicated a transfer of a proprietary interest to the Society during the Normans’ lifetimes. As a result, the transfer was inter vivos. The Estate has not identified a basis on which to overturn that finding.
