Alter Ego Trusts
Usher v Larabee 2010 BCSC 1608 discusses the general principles of inter vivos gifts and an alter ego trust set up by a mother, that was attacked by two sons in litigation.
The mother’s assets consisted of property in the stock portfolio with a total value of $650,000.
Her three children were placed in care of the provincial government when she had a nervous breakdown in 1963.
In 2000, the mother decided that she would not include one son as a beneficiary in her will as result of his criminal activity, his failure to repay loans, and his constant lying about her.
That son as well as another stated to her that they would contest her will and threaten to put a lien against her home.
In 2003, the mother established an alter ego trust, with the trust and will making provisions for her daughter during her life, and upon her death, to her daughter’s children.
The sons brought action for a declaration that the mother held the estate in trust for them, that the mother transfer of the portion of the estate to them, or alternatively damages for breach of contract that the trust be set aside.
The action was dismissed.
The court found that the evidence of the mother was straightforward, and she claimed that she did not estate to her son’s that they would have an interest in her property, and that there was no agreement to pay the money through her estate or in any other manner.
The court found that the alleged promises made by the mother to the sons had no context and were bald assertions, and the sons accordingly failed to meet the onus of proof on them to prove the verbal agreement with their mother.
The evidence given by the sons was vague and contradictory.
Certain verbal agreements could be enforced and result in express trust, however the evidence in this case did not establish such an agreement. The evidence in fact lacked specificity, time and place and some was simply unbelievable.
Since there was neither evidence of agreement, nor consideration for such agreement, the mother was free to set up the trust to benefit her daughter and defeat any future claims by her sons.
THE LAW
It is not disputed that alter ego trusts are standard estate planning tools used to achieve estate planning objectives: Mordo v. Nitting, 2006 BCSC 1761(B.C. S.C.).
42 A person is entitled to arrange their affairs as they choose, including dealing with potential claims of adult children such as the Wills Variation Act, R.S.B.C. 1996, c. 490: Hossay v. Newman, [1998] B.C.J. No. 3289(B.C. S.C. [In Chambers]).
43 In Antrobus v Antrobus, May 9, 2007, Vancouver Registry S066312, Mr. Justice Powers rejected the existence of the parents’ promises, who, in their 40s at the time, agreeing that the plaintiff would be the sole beneficiary of the estate was not sufficient to support an express trust. He concluded that the real nature of the plaintiff’s claim may be that of a constructive trust. However, in Antrobus, Mr. Justice Powers concluded that before proceeding with the summary trial pursuant to Rule 18A there ought to be examinations for discovery.
44 In order for the Court to make an order for constructive trust of an asset, or for that matter an order of compensation, there must be: an enrichment by one party, in this case Mrs. Larabee; there must be a corresponding deprivation by the other parties, Michael and Patrick who have not been compensated, and there must be an absence of any juristic reason for the enrichment.
45 An oral agreement is capable of enforcement: Hall v. McLaughlin Estate(2006), 25 E.T.R. (3d) 198(Ont. S.C.J.).
46 In order to have an enforceable secret trust, three certainties in an express trust must exist. These three certainties of an express trust are:
1) the intention to the primary donee of an obligation to a secondary donee;
2) the communication is made to the primary donee; and
3) the acceptance of that obligation has been made to the primary donee.
Chinn v. Hanrieder, 2009 BCSC 635(B.C. S.C.).
