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Secret Trust Based on Verbal Instruction of Deceased

Secret Trust Based on Verbal Instruction of Deceased

Bergler et al v Oderthal 2019 BCSC 1882 is an example of the court finding a secret trust based on verbal instructions of the deceased that were accepted by the trustee.

The case was upheld at 2020 BCCA 175.

The facts in Bergler are very simple. On her death bed the deceased, having no will, told her common law spouse that she wanted her assets to be given to her niece, the plaintiff and the defendant agreed that he would abide by her wishes. The deceased told the defendant that he did not need to transfer the assets to the niece unit he began a new relationship which he in fact did.

The defendant admitted the conversation at his examination for discovery and the court found that a secret trust had been created that entitled the plaintiff niece to inherit the entire estate.

The defendant further admitted that he mixed the deceased’s assets with his own and prepared a new ill leaving the assets to others than the plaintiff.

The court held that the defendant had a fiduciary duty to protect the estate assets for the plaintiff and that he breached that trust.

The court stated that in circumstances where a person dies intestate relying upon the fat that the intestate heir has accepted the trust, the law compels the trustee to carry out the trust. Chinn v Hanrieder 2013 BCCA 310 at paras. 66-67.

 

What is a secret trust?

A fully secret trust arises where a testator gives property to a person apparently beneficially, but has told that person certain trusts on which the property is to be held. The trust arises outside of the will, is hidden from view, and is revealed only by extrinsic evidence. Where the beneficiary agrees to act as trustee or acquiesces in such arrangement, a Court of equity will enforce the secret trust to prevent the requirements of the Wills Act, or the Statute of Frauds, from being used as an instrument of fraud. The communication can be either oral or in writing, or both.

 

What is required to create a secret trust?

A plaintiff must prove on the balance of probabilities that:

(i) There was an intention of the testator to subject a primary donee to an obligation in favour of a secondary donee;

(ii) There must be communication of that intention from the testator to the primary donee;

(iii) The primary donee must accept to carry out that obligation. The method by which the primary donee is to carry out the obligation, whether by the making of a will in favour of the secondary donee or by some form of inter vivos transfer, is immaterial. Ottoway v. Norman [1971] 3 All E.R. 1325 and Hayman v. Nichol [1944] 2 D.L.R. 4 (S.C.C.)

The facts in Ottoway v. Norman were as follows:

The testator owned a bungalow where he lived with his housekeeper, and they in fact lived together as man and wife for many years. The testator’s son from a former marriage frequently visited. On one visit the testator told his son in the presence of the testator’s wife, that his wife should have the bungalow for the rest of her life, but that she should then leave it to his son on her death. The wife agreed to that plan. The testator subsequently made a will by which he devised the bungalow to his son. He also left his wife a pecuniary legacy and the residue of his estate divided between his son and wife. Between the date of the will and his death, the testator discussed the future plans for the bungalow with both his son and wife on a number of occasions. Immediately after the testator’s death, his widow made a will where she devised and bequeathed all of her real property to the testator’s son and his wife. However five years later the wife made a new will whereby she appointed a third party who had become her friend after the testator’s death, to be her executor. The following year she had a discussion with the son with respect to the construction of a proper bedroom to the bungalow and the son agreed to pay for it since the bungalow was going to be his. The son and widow then had an argument over the plans, and the widow subsequently changed her will whereby she left the bungalow to the third party and his wife. Following the widow’s death, the son and his wife sued alleging that the estate of the widow held the bungalow in trust for the son and his wife, and the Court action was allowed.

In Hayman v. Nichol, the Supreme Court of Canada dealt with whether a secret trust had been created or not, on the following facts, namely:

The testatrix died in 1937 having made her last will and four codicils thereto. In the fourth codicil she bequeathed an amount of money which she had on deposit at her death to her daughter, in “full confidence that she will dispose of the same in accordance with the wishes I have expressed to her”. The daughter received the money and treated it as her own, and died intestate in 1940, without having disclosed any wishes of the testatrix mentioned in the codicil.

The residuary legatees of the testatrix brought an action against the administrator of the estate of the daughter, alleging that the bequest to S was a trust which the daughter failed to carry out, and thus in the absence of any evidence showing the nature of the trust, the money should go to the residuary legatees.

The Court followed the reasoning stated aforesaid in Ottoway v. Norman, but declined to impose a secret trust on the wording of the will, on the basis that the language of the will was precatory, not imperative, and thus did not create a legal obligation.

 

V PRECATORY VERSUS IMPERATIVE WORDING:

Dr. Donovan Waters, in the Law of Trusts, 2d ed., page 110 states that:

Every care has to be taken not to make mandatory words from those which are the mere indication of a wish or request and that to construe the true intention of the testator the Courts must examine the will as a whole and not be mesmerized by particular words.

Dr. Waters relies upon the decision of Re Atkinson (1911), 103 L.T. 8 60 at 862 (CA) for this proposition.

Justice Fletcher Moulton L.J. in Re Atkinson stated:

“I can see that there has been a very great change of opinion in later years, if one regards the words which are considered to create a precatory trust now and what words were so considered in olden times. but I do not think that the principle on which the courts have acted can have changed. The principle is that you have to find from the words of the will the intention of the testator. The doctrine of precatory trusts does not mean that the courts may create an intention which they do not think from the words of the will was in the mind of the testator. It means that they may come to the assistance of weak or even inapt words and recognize his intention to create a trust in spite of the language being such that lawyers would not have used it for that purpose. It only meets the case of recognition of the intention of the testator and is not a doctrine by which an intention that did not exist is read into the will.”

The more modern view of the Courts is probably that precatory words may in fact create a trust, if it can be established on the evidence as a whole that the testator clearly intended to create a trust. There probably are really no such things as precatory trusts anymore, if the precatory words are imperative. If the precatory words are imperative, then the trust is an expressed trust. If the words used are not imperative, then there is no trust at all, and it’s a matter of interpretation. See McHugh v. McGuire 1917 (45 NBR 167)

 

Requirements of the 3 Certainties to Constitute a Trust

1. Certainty of Intention

It must be clear that the settlor intended that the property received by the trustee to be held in trust, is a binding obligation and not just a moral wish. The language used by the alleged settlor must be imperative, with the intention of creating legal relations.

2. Certainty of Subject Matter

The trust property must be clearly identified as must the entitlements of the beneficiaries in the property. It must be possible to clearly identify the property which is to be subject to the trust. In addition, even if the trust property is clearly defined, the share or shares in that property to which the beneficiaries are entitled must also be clearly defined.

3. Certainty of Objects

The beneficiaries or purposes for which the trust property is held must be clearly identified. The word “objects” is a neutral word because a trust may be created in favour of persons, as well as in favour of purposes, which the settlor or testator would like to see carry out. For example, the settlor or testator may not wish to benefit an individual directly, but instead may wish to indirectly benefit individuals through the use of a trust to “fund cancer research”.

If any one of the three certainties does not exist, the trust fails to come into existence and is void.

 

Examples of Successful Claims for Secret Trusts

(a) Re D’Amico 1974 2 W.W.R. 559 – one of the most “classic” fact patterns involving a secret trust is found in Re D’Amico.

Facts: The residuary clause of the last will of the deceased read: “(e) To pay or transfer the residue of my estate to my Trustees, Nigel Morgan and Maurice Rush subject to the Trusts that I have indicated to them.” The day before signing his will the deceased had written to the two trustees named therein advising them that he had appointed them as his trustees, that he was leaving the residue of his estate to them and adding: “I direct that you transfer the said residue of my estate to the Provincial Committee of the Communist Party of Canada, or its successor.”

Held: There was a secret trust communicated to the trustees prior to the execution of the will. There had been no contravention of The Wills Act, and trust was not rendered unenforceable by reason only that the trustees of the secret trust were also the trustees and executors named in the will. The secret trust was not so vague as to be void for uncertainty: Blackwell v. Blackwell, [1929] A.C. 318; Re Young; Young v. Young (No. 2) Ch. 344, [1950] 2 All ER 1245 applied.

In Blackwell v. Blackwell [1929] A.C. 318, at 339, Lord Summer stated:

“It is communicated of the purpose to the legatee, coupled with acquiescence or promise on his part, that removes the matter from the provisions of the Wills Act [1837 (Imp.), c. 26] and brings it within the law of trusts.”

(b) Re Romanow 17 Sask. R. 384

Facts: A sister of a testatrix challenged the validity of a second will. The sister submitted that the will did not correspond with the testatrix’s wishes that were orally expressed by the testatrix. The testatrix orally had provided for the distribution of a number of her personal effects.

Held: The Court held that the will was valid. Instructions had been given to the woman and accepted by her, and this created a secret trust in favour of the beneficiaries that had been described by the testatrix. The Testatrix was entitled to make these arrangements which she did following the execution of her will. As such the executors were legally bound to carry out the trust imposed by those instructions.

(b) Re Poohachoff Estate [1971] 1 W.W.R. 463

Facts: A testator gave her entire estate to her executor in trust “to be distributed in accordance with my wishes expressed to the said executor”.

Held: That the will must be admitted to probate. The Court followed the Supreme Court of Canada in Hayman v. Nichol supra, and stated that where a gift was made to a person upon trust to be applied for purposes already communicated to the legatee, evidence was admissible to show what the trusts or purposes were; if communicated to and accepted by the legatee before the date of the will, effect would be given to them if they were otherwise valid.

(c) Glasspool v. Motiuk and Everett (1998) 22 ADAIR (2d) 66; upheld by the B.C. Court of Appeal January 19, 1999, Vancouver CA024500.

The facts of the case briefly stated are as follows:

Facts: (i) The deceased made a will leaving his entire estate to his common-law wife of eight years, with no mention of his son. The plaintiff’s son brought an action against the estate of the deceased for a declaration of ownership of certain mineral rights over property held by the deceased’s mother, or alternatively, a claim under the Wills Variation Act. Evidence of an independent witness (the deceased’s brother) was that the intention of the plaintiff’s grandmother was to bestow a gift on the deceased on the condition that he leave his share of the mineral rights to the plaintiff on his death, and the deceased promised to do so.

The Trial Judge regarded the mineral rights as a secret trust in favour of the plaintiff, and not forming part of the testator’s estate that had been bequeathed to his common-law wife. The deceased had not seen the plaintiff in approximately twenty-five years. The Trial Judge believed the evidence of the independent witness as to the conversation that led to the creation of the secret trust.

The entire evidence that created the secret trust was as follows:

Q. Is that — yes. Did you have — Did you and Larry, your brother, Larry and you, the deceased, Larry, you, and your mother have a conversation about a will?

A. Yes, we did.

Q. Yes, what was that conversation?

A. She wanted Larry to leave his share of the oil rights to his son.

Q. That would be the plaintiff?

A. Yes.

Q. Now, what did Larry say to that?

A. He agreed.

Held: The Trial Judge found that the grandmother created a secret trust in favour of the plaintiff by reason that:

(i) the intention of the testator (the grandmother) to subject the primary donee (the deceased) to an obligation in favour of the secondary donee (the plaintiff);

(ii) the communication of that intention by the testator to the primary donee; and

(iii) the acceptance of that obligation by the primary donee.

The Trial Judge found that the grandmother’s use of the word “want”, was not precatory, and that she intended to create a legal obligation by the use of that word.

Accordingly the mineral rights did not form part of the deceased’s estate, and were imposed with the provisions of a secret trust in favour of the plaintiff.

The Court of Appeal had no difficulty at all in unanimously finding that the Trial Judge came to the conclusion that the grandmother did in fact intend to create a binding trust, and that the essential ingredients of her finding a secret trust were present. As such the Court would not interfere with the Trial Judge’s findings.

The Court of Appeal also stated that corroboration is not an essential ingredient and the evidence of the independent witness was treated by the Trial Judge as being disinterested evidence, and itself was corroborative of the claim that was being put forward by the plaintiff.

 

Corroboration

The Court of Appeal in Glasspool v. Everett also stated that while corroboration is required as a matter of practice, corroboration is not an essential ingredient to prove a secret trust. In any event the evidence of the independent witness in Glasspool v. Everett, was treated by the Trial Judge as being a disinterested evidence, and itself was corroborative of the claim that was being put forth by the plaintiff.

In J.M. Lumber King Ltd. v. Von Transehe-Roseneck Estate, Mr. Justice Hutchinson examined the necessity for corroboration in claims by or against deceased persons, and after stating several authorities, found that there is a rule of practice but not a rule of law in British Columbia, that corroboration is generally required for a claim against an estate of a deceased person.

At paragraph 7 of his decision, Mr. Justice Hutchinson states “Counsel submits that the Courts generally require corroboration before allowing a claim against the estate of a deceased person. Until 1976 there was a statutory requirement in s. 11 of the Evidence Act, R.S.B.C. 1960, c. 134, which provided that a party could not obtain judgment against the estate of a deceased person on his own evidence alone, unless the evidence was corroborated by some other material evidence. In 1976 that section was repealed, S.B.C. 1976, c.2, s. 20(a) and the law that is to be applied is the law that existed before that legislation. The common law rule and the rule applied in equity was summarized by the Supreme Court of Canada in Adamson v. Vachon (1974) 6 W.W.R. 114 by Anglin, J. at page 20:

“A more suspicious claim against a dead man’s estate it would be difficult to imagine. While there is no absolute rule requiring corroboration in the case of a claim against the estate of a deceased person (In Re Griffin (1898) 1 Ch. 408, 413, 68 L.J. Ch 220), the uncorroborated evidence of a claimant will be regarded with jealous suspicion (In re Garnet (1885) 31 Ch. D. 1), and the Court will in general require corroboration (In re Hodgson, 31 Ch. D. 177, 183, 55 L.J. Ch. 241). The plaintiff’s testimony did not convince the learned Chief Justice who heard it. The Court ought to be completely satisfied before allowing such a claim as this (Rawlinson v. Scholes (1898) 79 L.T. 350. I am far from being so satisfied”.

“In a more recent decision Aikins J. in Re Murray (1966), 60 D.L.R. (2d) 76 (B.C.S.C.), suggested that this was a rule of practice rather than a rule of law. I proposed to apply those principles to the claim against the estate of the personal defendant as fairness requires that any allegation that cannot be rebutted due to the death of the defendant be very carefully scrutinized.”

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