Trustee Cannot Be in Conflict With Duty

Trustee Cannot Be in Conflict With Duty

Equity will not allow a person who is in a position of trust to carry out a transaction where there is a conflict between his or her duty and his or her interest.

It is a rule of universal application that no trustee shall be allowed to enter into engagements in which he or she has, or can have, a personal interest, conflicting, or which may possibly conflict, with the interests of those whom he or she is bound by fiduciary duty to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness, or unfairness, of the transaction; it is enough that the interested parties object. It may be that the terms on which a trustee has attempted to deal with the trust estate are as good as could have been obtained from any other quarter or better, but so inflexible is the rule that no inquiry into that matter is permitted. It makes no difference whether the contract refers to real estate, personalty, or mercantile transactions, as the disability arises not from the subject matter of the contract, but from the fiduciary character of the contracting party. Broadly speaking, the reason for the rule is that the trustee should not be placed in a position in which his or her interests are liable to conflict with his or her duty to the cestui que trust. This reason applies equally to a person acting as an agent of the trustee.

For example in Butcher Estate v Hamilton 1997 CarswellBC 1917 (B.C. S.C.) a mother transferred substantial sums of money to her daughter. The transfers were not an  outright gift to the daughter, but were intended to be held in trust by her to use for care of mother and father. The mother and father lacked mental capacity at time of transfers. The daughter breached her  duty as trustee by dealing with funds as though her own.

Bare Trusts

The Liability and Duties of a Trustee of Bare Trust

Scoretz v Kensam Enterprises Inc 2017 BCSC 1356 was an action for breach of trust brought by the beneficiary of a bare trust  and discusses the liability and duties of a trustee of a bare trust.

The Court found that the trustee was liable in damages for failing to hand over the  shares when directed to do by the beneficiary who suffered damages as a result.

40      In Waters Law of Trust in Canada, 3rd ed. (Toronto: Thomson Carswell), 2005, the learned author makes this statement regarding the nature of a bare trust and the duties of a bare trustee:

The usually accepted meaning of the term “bare,” “naked” or “simple” trust is a trust where the trustee or trustees hold property without any duty to perform except to convey it to the beneficiary or beneficiaries upon demand. It is true, of course, that so long as a trustee holds property on trust he had the duty to account for the property, keeping it secure and unharmed. The trustee cannot divest himself of this duty, and, if that is his sole duty, he must transfer that property to the beneficiary on demand. . . .

(at pp. 33 and 34)

41      In Bronson v. Hewitt, 2010 BCSC 169, Goepel J. (as he then was), made this statement regarding the nature of a bare trust:

In Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 64 O.R. (2d) 65 at 75, the Ontario Court of Appeal described a bare trust and the role of its trustee as follows, quoting from Maurice C. Cullity, “Liability of Beneficiaries-A Rejoinder” (1985-86), 7 E. & T.Q. 35 at 36.:

The distinguishing characteristic of the bare trust is that the trustee has no independent powers, discretions or responsibilities. His only responsibility is to carry out the instructions of his principals  the beneficiaries. If he does not have to accept instructions, if he has any significant independent powers or responsibilities, he is not a bare trustee.

(at para. 636)

42      In Bronson, supra, Goepel J. held that a trustee breached the terms of the trust which had required the trustee to return the trust property on demand when the trustee required the beneficiaries to sign a release and indemnification before releasing proceeds of a share transaction. I find that what was prohibited in Bronson, supra, is prohibited here.

43      As a bare trustee, Kensam was obligated to deliver the trust property upon demand and, as the principal of Kensam, Mr. Sai was required to take whatever steps that were required so that Kensam would make such a delivery to Mr. Scoretz. The failure to deliver the LIM Shares to Mr. Scoretz when they were demanded constitutes a breach of trust. The failure to deliver the Napier Shares to Mr. Scoretz when they were demanded also constitutes a breach of trust.

44      I am also satisfied that Kensam and Mr. Sai have acted other than in accordance with the obligation to act in the interests of Mr. Scoretz to the exclusion of the separate interests of Kensam and Mr. Sai.

45      One of the fundamental duties owed by a bare trustee to a beneficiary was set out by Gow, J. in MacDonald v. Thompson (1988), 26 C.C.E.L. 269 (B.C.S.C.) in the following statement:

A trustee in his dealings with one who has an interest in the fund which the trustee administers is under a duty to that someone of exceptional honesty. The standard is known “fiduciary” and was recently described by our Court of Appeal in Litwin Construction (1973) Ltd. v. Peter Pan et al., [1988] B.C.J. No. 1145 (No. CA006245/6/7 June 28, 1988) at p. 23 as follows:

It arises where the obligation that is undertaken or imposed is the obligation of loyalty or selflessness arising from the fiduciary having entered a relationship where the other party is entitled to expect that the fiduciary will act in the other party’s interests, or in the interests of both parties (where those interests coincide), to the exclusion of the fiduciary’s own separate interests (where those interests are opposed), and where the fiduciary has the power to affect the other party’s interests in a legal or practical sense, giving rise to a position of vulnerability in the other party.

In order to perform properly that fiduciary duty a trustee when considering and dealing with the interest of that someone must rid himself of bias (prejudice) and be scrupulous to act with fairness and impartiality c.f. Boe v. Alexander, (supra), at pp. 113-114

(at paras. 73 and 74)

46      The standard of care and diligence required of a trustee was also set out in Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302 where Dickson J., on behalf of Court stated:

Traditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whitely, at p. 733; Underhill’s Law of Trusts and Trustees, 12th ed., art. 49: Restatement of the Law on Trusts, 2nd ed., para. 174) and traditionally the standard has applied equally to professional and non-professional trustees. The standard has been of general application objective though, at times, rigorous.

(at p. 315)

47      A beneficiary is entitled to expect that a trustee will act in his or her best interests to the exclusion of the interests of a trustee: Litwin Construction, supra at p. 95.

Beneficiary Trusts in Leasehold Estates

Beneficiary Trusts in Leasehold Estates

Pallot v Douglas 2017 BCCA 254 discusses the interest of a beneficiary of a trust in a decision that held that the beneficiary of a leasehold interest in a trust does not have the standing to partition the property and force a sale. This is because  the very nature of an interest in a trust only gives one the use of an asset as opposed to actually owning an interest in the asset.

The Personal Nature of the Trust Interest

[30]      Regardless of the terminology used, Mr. Pallot says his interest as a beneficiary under a trust of an interest in a leasehold estate gives him a right to immediate possession of the property. However, in my view, that position ignores one of the fundamental features of a trust.

[31]        One of the essential features of a trust is that one or more parties hold title to property and manage it for the benefit of one or more parties who have a right to enjoy the property. The beneficiaries under the trust enjoy the property subject to the terms of the trust. Professor Waters describes the principle as follows:

The trust is, perhaps, better described by isolating its essential features. The hallmarks, the essential characteristics of the common law trust, are heavily reflective of a particular legal history. The foremost of these is the fiduciary relationship which exists between trustee and beneficiary. One party holds the title to property, and

manages it. for the benefit of another who has exclusive enjoyment of the property. As we have seen, it is possible to have a variation on this basic framework, for the trustee may himself be a beneficiary. In that case he will have a share in the enjoyment….

Donovan W.M. Waters, Mark Gillen & Lionel Smith, Waters’ Law of Trusts in Canada,

4th ed. (Toronto: Thomson Reuters, 2012) at 9.

[32]        There are both personal and propriety aspects to a beneficiary’s rights under a trust. The proprietary aspect concerns a beneficiary’s rights to pursue trust property as against, for example, a buyer with actual or constructive notice of the trust. With respect to the personal aspect of a beneficiary’s right, Professor Oosterhoff says this:

If we consider first the personal aspect of the beneficiary’s right, it will be apparent that, since the management and control of the trust property is vested in the trustee, the beneficiary only has a personal right against the trustee that the latter perform the trust that he is bound to perform. The trustee can never “go around” the trustee and assert a claim to the trust property directly. On the contrary, the beneficiary’s claim must always be against the trustee….

…only the trustee, and not the beneficiary, has the right and the duty to make claims against third parties who may have interfered with or damaged the trust property….

A.H. Oosterhoff, Robert Chambers & Mitchell Mclnnes, Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed. (Toronto: Carswell, 2014) at 38.

[33]        Professor Oosterhoff further explains the respective rights of trustees and beneficiaries:

Similarly, the beneficiaries are not generally entitled to direct the trustee. For example, the beneficiaries cannot require the trustee to resign and appoint another person as a replacement. In general, then, we see that the structure of the trust is that trust property is held by the trustee, and this gives the trustee rights in rem. rights against the whole world: the beneficiary, on the other hand, can reguire the trustee to use those rights according to the terms of the trust. It is not so much that the beneficiary has an interest in the trust property that lies alongside the interest of the trustee.

Rather the rights of the beneficiary encumber the rights of the trustee, with the result that the trustee can be forced to use his rights in a particular way. As one legal historian has put it, “The interest of cestui que trust depends on the interest of the trustee: the creation of a trust is a process of cumulation, and not division”.

Oosterhoff on Trusts at 39.

[34]        In short, the interest of the beneficiary under a trust is the right to claim that the trust be performed in accordance with its terms. It is not an immediate right to possession of the trust property. This position was clearly shown in relation to a beneficiary’s equitable interest in Taylor v. Grange (1879), 13 Ch. D. 223, affd (1880), 15 Ch. D. 165 (C.A.). In Taylor manages it. for the benefit of another who has exclusive enjoyment of the property. As we have seen, it is possible to have a variation on this basic framework, for the trustee may himself be a beneficiary. In that case he will have a share in the enjoyment….

Donovan W.M. Waters, Mark Gillen & Lionel Smith, Waters’ Law of Trusts in Canada,

4th ed. (Toronto: Thomson Reuters, 2012) at 9.

[Emphasis added.]

Trusts: The Certainty of Intention

Trusts: The Certainty of Intention

In order to create a valid trust the  “three certainties” must be present- the certainty of the intention to  impose enforceable trust obligations on the trustee, the certainty of the subject matter to be included in the trust and the certainty of objects, a clearly identifiable group of persons entitled to benefit from the trust.

Dusanjh v Wright Estate 2017 BCSC 340 involved a discussion of the three certainties, but primarily dealt with the certainty of intention.

The deceased was a sophisticated businessman and the argument advanced by the plaintiffs was that certain documents such as the articles of association of a company of which  the deceased was the principal shareholder created a trust in favour of his children.

The court dismissed the claim finding inter alia that there was no certainty of intention on the part of the deceased to create a trust.


(a) Certainty of Intention

[63]         With respect to the first certainty, what must be shown is “an intention on the part of the settlor to impose enforceable trust obligations on the trustee. The language used by the settlor is critical and must show a clear intention that the recipient of the trust property holds that property on trust”: Mordo  v Nitting 2006 BCSC 765 at para. 293.

[64]         While it may be useful for the settlor to use such words as “trust” or “trustee”, no such wording is required to create a trust: Donovan W.M. Waters, Mark R. Gillen and Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) at 204; Re Kayford, [1975] 1 All E.R. 604 at 607. Even conduct may suffice. The question is one of fact: McInerney v. Laass, 2015 BCSC 1708 at para. 40:

… In the absence of formal documentation creating a trust, the court may infer an intention to create a trust from the surrounding circumstances. Evidence of what the parties intended, what they actually agreed upon and how they conducted themselves will be considered (Elliott at paras. 26 and 28).

[65]         The petitioners rely on a series of cases, primarily involving laypeople and more informal circumstances, whereby the courts held trusts to exist without formal documentation or wording: Union Bank of Chicago v. Wormser, 256 Ill. App. 291; Re Kayford, supra. In Paul v. Constance, [1977] 1 All E.R. 195 (Eng. C.A.), the alleged settlor was described as a man of unsophisticated character and the trust was created by him telling his girlfriend that the money in a particular account was as much his as it was hers.

[66]         The executors do not disagree that courts are capable of inferring a trust in a document without express language. However, they contend that a court should be less willing to do so when documents prepared by a lawyer do not contain specific and clear declarations of trust: Daley, Kero, Morgan and Wong v. OHR Whistler Management Ltd., 2007 BCSC 383 at para. 14:

[14] I find no trust is created by the terms of the Hotel Management and Rental Pool Agreement. This is a sophisticated legal document prepared by lawyers to create a very specific and defined bundle of legal rights. If it was intended that a trust be created, I would expect a trust would have been expressly stipulated.

[67]         Further, the following principles may weigh against an inference of the establishment of the certainty of intention:

·       the parties to the agreement may alter the terms of the agreement without reference to the alleged beneficiaries: Mohr v. C.J.A., [1989] B.C.J. No. 2083 (S.C.), aff’d [1991] B.C.J. No. 209 (C.A.);

·       the parties to the agreement may cancel the agreement without reference to the alleged beneficiaries: Mohr;

·       the agreement is not in the form of a declaration of trust; there is no settlor, no disposition of trust property from a settlor to a trustee and no express declaration of trust by a trustee: Khavari v. Mizrahi, 2016 ONSC 101 at para. 48;

·       the parties to an agreement do not treat the agreement as a trust in their dealings with third parties: Khavari, supra at para. 55; and

·       it is possible for certainty of intention to be found even where the settlor retains legal title to the item, provided the beneficial ownership is transferred: Elliott (Litigation Guardian of) v. Elliott Estate, 2008 CarswellOnt 7448 (S.C.J.) at para. 37.

[68]         I do not find that the Articles established a trust in favour of the petitioners. While a court may infer a trust in a document that does not contain express language to that effect, I am not satisfied that it is appropriate to do so here. I base this conclusion on the following:

·       Mr. Wright was familiar with the legal requirements of a trust and had previously set up the Alter Ego Trust and was in the process of setting up the Joint Partner Trust;

·       the fact that Mr. Wright chose to create the trusts through formal trust documents prepared by his lawyer suggests that, if he wished to set up a trust for the petitioners, he would have done so in a similar manner, or, if he chose to do so through the Articles, he would have made it expressly clear that he was setting up a trust;

·       Mr. Wright was a highly sophisticated businessman and the Articles were drafted by a lawyer based on instructions from him. It is doubtful that a sophisticated businessman working with a lawyer for many years would not have inserted express language to set up a trust if that had been the intention. The majority of cases put forward by the petitioners considered laypeople who set up trust situations without knowing it or using express words. Mr. Jamieson and Mr. Wright were fully aware of how to effect a trust and the lack of express language, while not fatal to the existence of a trust, points away from a trust existing;

·       the fact that Mr. Wright chose to give the shares to his children in his Will and clearly considered he had provided for them by his Will, supports the conclusion that there is no trust. If Mr. Wright had set up a trust, there would have been no need to distribute the shares through his Will;

·       if subsequent conduct may be considered pursuant to a finding of ambiguity, the fact that Mr. Wright issued the contested Preferred Shares to himself personally and issued the Yun Preferred Shares to himself as trustee for the Joint Partner Trust is helpful in demonstrating his intention. If Mr. Wright had considered himself a trustee, it is likely that he would have issued the shares to himself in that capacity, as he did with the Yun Preferred Shares; and

·       the Articles could have been amended at any time without the knowledge or consent of the petitioners, which is inconsistent with a trust. The shares could also have been revoked at any time.

[69]         I conclude that the requisite certainty of intention does not exist.

Fiduciary Cannot Avoid Liability By Delegating

The Sas Law Society reasons for judgment re unprofessional solicitor conduct, repeated a basic rule of trusts-( 2015 LSBC 19, April 20,2015  at paragraph 220)- a trustee cannot avoid liability by using the defence of having delegated core authority  to an employee.

The exception would only be if the employee was fraudulent where it couldn’t be reasonably for-seen or determined by the employer using proper Supervision.

The judgment cited as authority for the proposition a one line reference at paragraph 140 of  Rowland v. Vancouver College Ltd., 2001 BCCA 527  at paragraph  140 that states” Nor is delegation of core authority permissible under trust law.

Ryan Fights For the Warhol of Farrah Fawcett (worth maybe 12 million)

Ryan O’Neal testifies about disputed Warhol portrait of Farrah Fawcett

Love is never having to say your sorry, and that she gave me the $12 million dollar painting that I talk to each day so I own it and not the claimant University, says Ryan O’Neill..

Ryan O’Neal told a jury that an Andy Warhol portrait of Farrah Fawcett that hangs in his home is one of his deepest connections to his long-time partner and that he does not believe he should have to hand it over to the actress’s alma mater.

The University of Texas at Austin is suing O’Neal to try to gain possession of the portrait. Fawcett left all her artwork to the school and it claims O’Neal improperly took it from her condo days after her death.

The Oscar-nominated actor took the stand for the second time in the trial to assert his ownership of the portrait and why it’s important for him to keep it.

“I talk to it,” O’Neal said. “I talk to her. It’s her presence. Her presence in my life. In her son’s life.”

The actor’s portion of the trial is drawing to a close, with jurors hearing for the past several days from some of Fawcett’s closest friends. Each has said Fawcett told them that one of the Warhol portraits belonged to her and the other one was owned by O’Neal. They also recounted the same origin story for the artwork: Fawcett told them that O’Neal arranged for two portraits to be made, and both actors picked them up from Warhol’s New York studio at the same time.

One of Fawcett’s former caretakers, Maribel Avila, testified on Tuesday that the “Charlie’s Angels” star told her that one of the Warhol portraits of her belonged to O’Neal.

Avila was allowed to testify about Fawcett’s words despite coming forward with her story just days before opening statements began on Nov. 25. Avila saw a story in the New York Post about the case and contacted O’Neal’s attorneys.

O’Neal told the same story about the portrait’s origins on Wednesday, adding that his daughter Tatum O’Neal accompanied him to the photo shoot with Warhol.

The actor does not deny that he took one of the portraits from Fawcett’s condominium in the days after her death, but said he was given permission by her estate’s trustee. The artwork was kept in both his home and Fawcett’s homes over the years.

He said he considers the portrait a family heirloom and he plans to leave it to his son with Fawcett, Redmond. Both treasure the portrait for its connection to Fawcett, O’Neal said.

“We lost her,” he said. “It would seem a crime to lose it too.”

Redmond O’Neal is expected to testify on Thursday.

Jurors will also hear from Karen McManus, a contemporary art appraisal expert who told the panel Wednesday that she estimates that O’Neal’s portrait is worth $800,000 (U.S.) to $1-million. An expert for the university testified last week that the portrait was worth up to $12-million.

The Use of Discretionary Trusts in Estate Planning


I always fell asleep during my law school trusts class. I could never have imagined then what an important role trusts would come to play in my day-to-day career as a Wills and Estates lawyer. I suspect that there are many other lawyers, notaries and estate planners who have sometimes been mystified about this area of law.

Over the years the use of trusts has grown dramatically to the point that they are now a major cornerstone of estate planning and commercial law. The purpose of this article is to attempt to explain some basic trust principles, with an emphasis on the use of discretionary trusts in estate planning.


Trusts have been with us for hundreds of years and they are playing an increasingly greater role in estate planning. Trusts are most commonly used to distribute property to family members and others under either a will or an inter vivos agreement. The trust developed through the interaction of England’s two parallel legal systems, being the common law and equity. Its origin lies in the concept of the “use”, which was simply a transfer of property by A to B, who was bound by conscience to hold the property for the use of C. While the common law did not recognize C’s rights under such a transfer, the courts of equity would intervene to enforce the moral obligations associated with the use. Thus, the trust was developed by the courts of equity to overcome the inflexibility and harshness of the common law.

Essentially, a trust is an equitable obligation binding one person (the trustee) to deal with property over which he or she has control (the trust property) for the benefit of one or more other persons (the beneficiary or beneficiaries). The trust arises when the owner of the trust property (the settlor, in the case of an inter vivos trust, or the testator, in the case of a trust created by a will) transfers the property to the trustee on specified terms (the trusts), which the trustee accepts. The trustee may also be a beneficiary and any one of the beneficiaries may enforce the obligation. In law, a trust is not a separate legal entity (as a corporation is), except for specific purposes such as income tax. Rather, it is a relationship where one party holds and administers property for the benefit of others.


The most important characteristic of a trust is that it is a fiduciary relationship (i.e. a relationship based on confidence or trust). The fiduciary relationship exists between the trustee, who holds title to and administers the trust property, and the beneficiaries, for whose benefit the trust property is held. As a fiduciary, the trustee is subject to onerous obligations, including the obligation to act only in the best interests of the beneficiaries.

Another distinguishing characteristic of a trust is the dual nature of the ownership of the trust property as between the trustee and the beneficiaries. That is, while the trustee has the legal ownership of the property (i.e. the title and legal control), the beneficiaries are entitled to the beneficial ownership of the property (i.e. the rights to use and enjoyment).


Three criteria–commonly called “the three certainties”– must be met in order to establish a valid trust. These are:

1. Certainty of intention: It must be clear that the settlor intended that the property transferred to the trustee be held in trust, as a binding obligation. The language used by the alleged settlor must be imperative and not merely an expression of wishes.

2. Certainty of subject-matter: This “certainty” has two aspects. First, it must be possible to identify clearly the property which is to be subject to the trust. Secondly, it must also be possible to define clearly the interests in the trust property to which the beneficiaries are entitled.

3. Certainty of objects: The objects of the trust–that is, the beneficiaries or the purposes for which the trust property is held–must be clearly identified. The word “objects” is a neutral word since a trust may be created either to benefit individuals or to further a particular purpose (e.g. to support cancer research). In each case, however, the objects of the trust must be defined clearly enough that the trust can be carried out.

All three certainties must be present or the trust will fail.


Estate planning is the process whereby an individual identifies and implements steps to achieve the following:

1. the individual’s personal and family objectives for the control and enjoyment of his or her property during his or her lifetime; and

2. the orderly succession to the individual’s property following his or her death.

Estate planning steps may be implemented to take effect either during the individual’s lifetime or following his or her death. In either case, a primary concern will be to achieve the individual’s objectives with as much certainty as possible. Put another way, the goal will be to ensure that the estate plan will be as free as possible from the interference of others, including the courts. While each family and individual is different, in order to achieve estate planning certainty, the estate plan will often involve the use of trusts.

One reason why trusts are used so frequently in estate planning is that they enable an owner of property to give the benefits of the property to others, without having to relinquish ownership or control of the property.

Another reason for the increased use of trusts in estate planning is that there are generally few compliance or reporting requirements, which allows a significant degree of estate planning privacy.


In appropriate circumstances, the discretionary trust may be a particularly effective estate-planning tool. In his text, The Law of Trusts in Canada, Professor Donovan Waters defines a discretionary trust as follows:

A discretionary trust arises when property is vested in trustees and a class of beneficiaries or named persons appear as the trust objects, but the trustees have complete discretion as to the payment of the income, or the capital, or both. The trust may obligate them to distribute all the trust property among the class, but give them a discretion as to whom they make payments within the class, and as to how much they pay to each.

The essence of a discretionary trust is that the trustee cannot be compelled to pay anything to a beneficiary–that any payment of either income or capital, is completely within the discretion of the trustee. Thus, the beneficiary will have no determinable or vested interest in the assets of the trust.

A discretionary trust may be established during the lifetime of the settlor, or alternatively, through a testamentary disposition made under a will.


The flexibility of the discretionary trust as an estate-planning tool is illustrated in the following estate planning situations.

1. Supplementing Government Disability Benefits

A common use of discretionary trusts in estate planning is to provide additional benefits to a disabled person who is receiving government benefits (e.g. a guaranteed annual income) without disentitling the person to the government benefits. Careful planning is often required to avoid the reduction or cancellation of such benefits. In British Columbia, for example, if a disabled person receives an outright inheritance, the amount inherited is deducted dollar-for-dollar from the amount of the government benefits.

Since a discretionary trust gives the trustee an absolute discretion as to whether or not to pay any income or capital to the beneficiary, it can be successfully argued that the beneficiary does not have an equitable interest in the trust. Accordingly, there are certain payments that can be made for a disabled person that will not disentitle him or her to government benefits. Such payments may include medical costs, certain caregiver costs, home repairs and renovations, educational costs and the like. It may also be possible for the trust to purchase capital assets such as a house or vehicle for the use of the beneficiary, without the beneficiary losing entitlement to benefits.

2. Avoiding Wills Variation Challenges

For many British Columbia residents, estate planning must involve a careful consideration of the potential impact of the Wills Variation Act. However, since the Act contains no anti-avoidance provisions, an individual is free to arrange his or her affairs so as to avoid its provisions.

For example, an individual may concerned about a substance-addicted or spendthrift child or spouse challenging his or her will. The individual might use a discretionary trust to provide adequately for the addicted or spendthrift beneficiary, so that any challenge brought by that beneficiary under the Wills Variation Act might fail. The trustee, in his or her discretion, could provide for the beneficiary so that he or she is adequately maintained, but not able to have access to the capital and spend it unwisely.

Furthermore, the Wills Variation Act applies only to those assets that form part of a testator’s estate. If an inter vivos trust is established by a settlor prior to his or her death, and assets are transferred by the settlor to the trustee before the settlor’s death, those assets will not form part of the settlor’s estate. Since the assets are not part of the estate, those assets will not be subject to claims under the Wills Variation Act.

3. Protecting Assets

Almost every individual who undertakes to plan his or her estate will seek a plan that protects his or her assets from the claims of general creditors. In appropriate situations, a discretionary trust may be used to achieve that objective.

If an individual establishes a trust primarily for the purpose of protecting his or her assets from the claims of his or her creditors, and if the individual voluntarily transfers of assets to the trust without consideration, then the trust may be voidable under the Fraudulent Conveyances Act.

On the other hand, if the primary reason for creating the trust is estate planning, then achieving protection against the claims of creditors is simply an ancillary benefit flowing from the creation of the trust. Since the primary purpose for its creation is not to avoid creditors, then the trust should be valid and enforceable. The principal goal is to remove assets from the individual’s estate, before creditor problems arise, so that the assets cannot be attacked by creditors that the individual may subsquently acquire. If placed in a discretionary trust, the assets may be used for the benefit of the individual’s family but may also be protected from the individual’s creditors.

4. Avoiding Claims of Spouses Under the Family Relations Act

With careful drafting, a discretionary trust can be a valuable estate planning tool to enable an individual to enjoy the beneficial use of and interest in property while at the same time protecting the property from claims of his or her spouse under the Family Relations Act.

Consider, for example, an individual who is embarking on a second marriage and wishes to shelter certain property from potential claims of his or her intended spouse under the Family Relations Act. The individual could transfer the property to an irrevocable inter vivos trust under which the individual and his or her children from a previous marriage would constitute the class of beneficiaries. The trust could provide for a discretionary distribution of income and capital during the individual’s lifetime and for an equal distribution of the remaining trust property to the children on the individual’s death. The existence of the trust should effectively prevent the trust property from any subsequent claim by the new spouse under the Family Relations Act.


The discretionary trust is a powerful and flexible legal tool that can be used for estate planning in many different situations and .for many different purposes. Discretionary trusts are increasingly being used to address unique needs and to achieve specific goals that require a flexible vehicle to suit personal estate planning objectives.

Rebutting the Presumption of a Resulting Trust

Dhaliwal v Ollek 2012 BCCA 86 discusses rebutting of the presumption of a resulting trust, and upholds that the recipient done bears the onus of proof, on the balance of probabilities, to rebut the presumption of a trust and to attempt to prove a gift.

Madam Justice Fenlon’s decision in Demir v. Peyman, 2009 BCSC 445, 68 R.F.L. (6th) 319, sets out a useful statement of the legal principles governing the ownership of property. The case arose from the breakdown of the marriage between James Peyman and Seylan Demir. The mother of Mr. Peyman, Elizabeth Peyman, had contributed a large sum of money to Mr. Peyman and Ms. Demir for the purchase of a residential property. Ms. Demir viewed her mother-in-law’s contribution as a gift, but Mrs. Peyman and her son James testified that the mother’s money had been advanced to enable the young couple to purchase a home containing a guest suite to house Mrs. Peyman.

[6] If Mrs. Peyman’s contribution was not a gift, then she would own about 80% of the property and the married couple would own about 20% based on their respective contributions to the purchase price. In the course of her reasons, Fenlon J. said:

[9] I turn first to a preliminary matter, which is the burden of proof in these proceedings. James Peyman and Seylan Demir are registered as the owners of the property and, under the Land We Act, R.S.B.C. 1996, c. 250, s. 23(2), such title is conclusive at law and in equity that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the title. In short, the law begins with the presumption that if your name is on the title in the Land Title Office, you own that property. That statutory presumption is, however, subject to equitable principles, one of which is the enforcement of an agreement between the parties in order to prevent unjust enrichment if the face of the title is upheld.

[10] In a case such as this where property is purchased with funds provided by a third party without consideration the law presumes that the person receiving the funds holds the property in trust. This is known as a resulting trust. As stated by the Supreme Court of Canada in Pecore v. Pecore, [2007] 1 S.C.R. 795, the presumption of a resulting trust is rebuttable. The effect of the presumption, though, is to alter the general rule that in a civil case the person who wants to challenge the names on title in the Land Title Office bears the legal burden of proof.

[11] In the case at bar Ms. Peyman challenges the legal title to the property on the basis that she made a gratuitous transfer of funds to her son and daughter-in-law so that they could purchase the property. A resulting trust is presumed with respect to the portion of the property paid for with those funds. It follows that Ms. Demir bears the burden of rebutting that presumption, that is. she bears the burden of proving that the money was a gift.

[Emphasis added.]

In the case of Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, the Supreme Court of Canada established that, as a general rule, ownership will be determined having regard to the intentions of a party at the time the transfer of property occurs:

56 The traditional rule is that evidence adduced to show the intention of the
transferor at the time of the transfer “ought to be contemporaneous, or nearly so”, to the
transaction: see Clemens v. Clemens Estate, [1956] S.C.R. 286, at p. 294, citing Jeans
v. Cooke (1857), 24 Beav. 513, 53 E.R. 456. Whether evidence subsequent to a
transfer is admissible has often been a question of whether it complies with the Viscount
Simonds’ rule in Shephard v. Cartwright, [1955] A.C. 431 (H.L.), at p. 445, citing Snell’s
Principles of Equity (24th ed. 1954), at p. 153:

The acts and declarations of the parties before or at the time of the purchase, [or of the transfer] or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration ….But subsequent declarations are admissible as evidence only against the party who made them….

The reason that subsequent acts and declarations have been viewed with mistrust by courts is because a transferor could have changed his or her mind subsequent to the transfer and because donors are not allowed to retract gifts. As noted by Huband J.A. in Dreger, at para. 33: “Self-serving statements after the event are too easily fabricated in order to bring about a desired result.”

57 Some courts, however, have departed from the restrictive — and somewhat
abstruse — rule in Shephard v. Cartwright. In Neazorv. Hoyle (1962), 32 D.L.R. (2d)
131 (Alta. S.C., App. Div.), for example, a brother transferred land to his sister eight
years before he died and the trial judge considered the conduct of the parties during the
years after the transfer to see whether they treated the land as belonging beneficially to
the brother or the sister.

59 Similarly, I am of the view that the evidence of intention that arises subsequent to a transfer should not automatically be excluded if it does not comply with the Shephard v. Cartright rule. Such evidence, however, must be relevant to the intention of the transferor at the time of the transfer: Taylor v. Wallbridge (1879), 2 S.C.R. 616. The trial judge must assess the reliability of this evidence and determine what weight it should be given, guarding against evidence that is self-serving or that tends to reflect a change in intention.

[40] In the recent case of Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, Cromwell J. writing for the Court, noted that it is the intention of a transferor (or donor of funds) that is significant and that the concept of a joint intention trust is discredited.

Sham Trusts and the Three Certainies

Sham Trusts

The three certainties: certainty of intention and the issue of sham trusts

In order to be valid, trusts must comply with the three certainties at the time of settlement:

It is of course trite law that for a valid trust to come into existence, the three certainties -certainty of intention, objects and subject matter – must be met…. If the first requirement is not met — i.e., a transfer of property is construed as not intended to have been subject to a trust obligation – the transferee takes the property beneficially … If the first test is met but the intended trust fails due to uncertainty of subject matter or objects, then … the property is held on a resulting trust in favour of the settlor…(Lewis v. Union of B.C. Performers, (1996) 18 B.C.L.R. (3d) 382 at para. 21 (C.A.) [Lewis]).

To meet the first certainty, there must be an intention on the part of the settlor to impose enforceable trust obligations on the trustee. The language used by the settlor is critical and must show a clear intention that the recipient of the trust property holds that property on trust: Lewis at para. 22.

The issue of sham trusts is treated in different ways by different authors. WJ. Mowbray et al, Lewin on Trusts, 17th ed. (London: Sweet & Maxwell, 2000) at paras. 4 -19 to 4 – 28 [Lewin] considers that whether a trust is invalid as a sham depends primarily on the intention of the settlor at the time the trust is created (citations omitted):
The sham concept…would appear to involve a finding of fact akin to, but nevertheless falling short of, actual fraud. In the trust context, a finding will be necessary that, whilst an apparent settlor did not in fact intend to part with the beneficial interest in the trust property, nevertheless he executed documentation with the apparent effect of so parting (Lewin at paras. 4-21).

If at the [time of execution] the settlor genuinely intends the documentation to take effect according to its terms, and those terms are such as to create a trust, then nothing the settlor or trustees do thereafter can render a valid trust a sham (Lew/77 at paras. 4 – 22).

Mere examination of the deed itself will, of course, be incapable of revealing its sham nature (Lewin at paras. 4-22).
[Courts have] distinguished between the class of case where parties entered into a written agreement which was “a sham intended to mask their true agreement”, and the distinct class of case where, without any question of sham, there “has been held to be some objective criterion in law by which the courts can test whether the agreement the parties have made does or does not fall into the legal category in which the parties have sought to place their agreement {Lewin at paras. 4-24).
The difference [between a sham and merely an improperly constituted trust] is that between an apparent settlor who has no relevant intention to create a trust, but executes documentation by which he pretends to have such an intention; and the quite distinct settlor who fully intends his documentation to take effect according to its terms, but, as a matter of proper legal analysis, fails to create a trust (Lewin at paras. 4 – 25, emphasis in original).
[A] finding of sham makes it unnecessary for the court to consider the requirement of certainty of intention at all, because it has evidence before it that the settlor’s documentation has been crafted to mislead {Lewin at paras. 4-27).

[7]he mere retention of wide beneficial powers and interests by the settlor does not of itself make the trust a sham, so long as the trustee genuinely has control over the assets and exercises his own independent discretions in respect of those matters where the terms of the trust require him to do so (Lewin at paras. 4 – 28).

Simply put, Lewin distinguishes between a settlor with devious intent and a settlor who signs
a document that does not have the legal effect he or she thought it would have. The discussion in Donovan Waters et al., Waters’ Law of Trusts in Canada, 3rd ed. (Toronto: Thomson Carswell, 2005) at 145-149 [Waters] is consistent with the Lewin approach.

A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it (Lewin at paras. 4-26 citing Miles v. Bull, [1969] 1 Q.B. 258 at 264 [Miles v. Bull]).

Certainty of Subject Matter In Trusts

One of the three requirements of a valid trust is the “certainty of the subject matter”,

There are two elements to certainty of subject matter:

  • First, the property which is subject to the trust must be clear.
  • Second, the nature of the interest due to each beneficiary must be clear.

To satisfy the first of the two elements, the subject matter must be described with “sufficient exactness to permit that such matter be ascertained at the time the trust was created”: Re Beardmore Trusts, [1952] 1 D.L.R. 41 at 46 (Ont. H.C.) [Beardmore].

Clearly, the subject matter must also be certain on future dates when the trustees are required to deal with the trust property. However, the trust property need not be fixed in quantity or nature; property can be added later, and the nature of existing property may be changed by the trustees exercising their power of investment. If the initial trust property is certain, and the property which may be added is certain, then the subject matter is certain because at any point the current trust property can be determined by tracing the original property to its current form: Waters at 155 -156.

The second element of certainty of subject matter requires that it be clear what beneficial share each beneficiary will receive in the trust property: Boyce v. Boyce (1949), 60 E.R. 959 (C.A.).