Saturday, February 17, 2018

Downey Courthouse, Downey California

I took this photograph last October, when I was, perhaps not surprisingly given the photo, in Downey, California.

Sunday, February 11, 2018

Kimberly Rule Presenting at "Death is Not the End" Continuing Legal Education Course

Kimberly Rule of our firm will be one of the group leaders at the two-day estate-administration workshop, "Death is Not the End." The course will be held on March 8th and 9th at the Pan Pacific Hotel, 999 Canada Place, Vancouver, B.C. For further course information and registration, see the Continuing Legal Education website here.

Sunday, January 28, 2018

MacKinnon v. Donauer

There is no shortage of court cases in British Columbia of informal family arrangements going awry. A parent may assist a child and the child’s spouse in purchasing a home with the expectation of sharing the home. The idea may make good sense. Unfortunately, neither side may consider what will happen if the arrangement doesn’t work out. In the case I am about to write about, MacKinnonv. Donauer, 2017 BCCA 437, for example, Madam Justice Newbury, noted at paragraph 3,

As is usually the case in family arrangements of this kind, none of the parties sought legal advice, and no one seems to have considered various contingencies that could arise in the parties’ lives or in their relationship.

Fortunately, the courts do have a fair amount of flexibility in fashioning a remedy consistent with what the parties may have reasonably expected had they turned their minds to the potential problems that might arise. Unfortunately, by the time the matter gets to court, the parties may spend a hundred times as much in legal expense than what they would have spent if each had received independent advice and entered into a formal agreement.

Joy MacKinnon paid $150,000 to her daughter, Tina Maria Donauer, and her daughter’s husband, Michael Donauer, toward the purchase of a home. In return the Ms. MacKinnon and her husband (who later died in 2013), moved in to the new home to live in the basement suite. The understanding among the parties was that Ms. MacKinnon would be entitled to live in the suite indefinitely without paying rent. She was 58 years old when she contributed the funds toward the purchase and moved into the suite,

She lived in the suite for about 9 years. She contributed $28,500 towards some of the property expenses. Following a disagreement with her daughter and son-in-law, Ms. MacKinnon moved out of the suite in January, 2015.

Ms. MacKinnon sued her daughter and son-in-law, claiming a 29 percent interest in the home on that basis that she contributed 29 percent of the purchase price. She claimed the interest on a resulting trust, or, alternatively, unjust enrichment. The trial judge dismissed her claim for an interest in the home, but awarded her $28,500 for the funds she contributed to the expenses. The trial judge found that she did not prove her claim in either resulting trust or unjust enrichment.
Ms. MacKinnon appealed to the British Columbia Court of Appeal, which overturned the trial judge’s decision in respect of the initial contribution of $150,000. Madam Justice Newbury held that on the facts, Mr. and Mrs. Donauer would be unjustly enriched if they were allowed to retain the full benefit of Ms. MacKinnon’s initial $150,000 contribution. They were enriched by her contribution, she suffered a corresponding deprivation, and there was no juristic reason for the enrichment. Madam Justice Newbury held that the family arrangement did not constitute a juristic reason for the enrichment as the trial judge had found, However, Ms. MacKinnon also received the benefit of living in the suite for nine years, without contributing to the full rental value.

Madam Justice Newbury wrote:

[45]         It seems to me that the appropriate analysis emerges if one imagines a situation in which after a short period of living with Ms. MacKinnon under the family arrangement, the Donauers had expelled her from their home. In that event, I suspect a court would have little difficulty in finding that the defendants had been unjustly enriched – i.e., that it would be unjust for them to retain the full $150,000. Ms. MacKinnon would be found to have a reasonable expectation of some remedy – despite the existence of a family arrangement. It was, of course, Ms. MacKinnon who chose to leave – and not, if I may say so, for any reason that would withstand objective scrutiny. Was it reasonable for her to expect she could unilaterally bring the arrangement to an end and claim a proprietary interest in McClure, with the resulting disruption of a forced sale? It is difficult to say she was “prejudiced” by her own decision to leave. On the other hand, would it be reasonable for the defendants to expect to retain the entire benefit of the funds and their appreciation in the real estate market?
[46]         Considering objectively what the parties could have reasonably expected in light of all the circumstances when they entered into the family arrangement, I believe the trial judge erred in ruling that it constituted a juristic reason that justified the Donauers’ retaining the entire benefit of Ms. MacKinnon’s funds. At the same time, the fact the Donauers accommodated her in their home for over nine years and thus provided a benefit to her must be taken into account in fashioning the appropriate remedy for the enrichment. (As the Court stated in Kerr [v. Baranow, 2011 SCC 10], ‘mutual benefit conferral’ is generally to be taken into account at this “remedy stage” of the analysis: see para. 109.)
Madam Justice Newbury considered that a financial award would be appropriate in the circumstances. In arriving at a formula for calculating the award, she took into account the nine years Ms. MacKinnon lived in the suite by directing that the value of a 29 percent interest as at the date of trial, be reduced by a fraction representing the nine years she was in the suite over her life expectancy when the home was purchased. Madam Justice Newbury wrote:

[48]         In normal circumstances, I would calculate a money judgment with reference to Ms. MacKinnon’s life expectancy when she was 58 years old. I would multiply 29% of the fair market value of the house at the date of trial by a fraction the denominator of which would be the number of years the Donauers could have expected Ms. MacKinnon to be in the house from 2005 on, and the numerator of which would be that number minus nine. I would then adjust for contingencies arising on the evidence that was before the Court at trial, including the contingency she would have left the suite during her lifetime – for health reasons, for example. 
[49]         Unfortunately, there is no evidence before us of the life expectancy of women of the plaintiff’s age in 2005, nor of the market value of McClure as at the date of trial. I would therefore allow the appeal and direct counsel to attempt to determine that market value as at the trial date and Ms. MacKinnon’s life expectancy in 2005, and then to calculate the amount of a judgment in accordance with the foregoing – or to settle upon some other amount. If they are unable to determine or agree upon a figure within 60 days of the date of this court’s order, either party shall be at liberty to return to the Supreme Court of British Columbia, which shall determine an amount in accordance with these reasons.

I have tried working through the formula using made-up values. Say the house was worth $1 million at trial. The value of a 29 percent interest would be $290,000. If her life expectancy in 2005 were 27 years, then she would receive two-thirds of $290,000, which is $193,333. Again, I made these values up, and I don’t know what Ms. MacKinnon will receive in addition to the $28,500, which the Court of Appeal did not disturb. 

Thursday, January 04, 2018

B.C. Court of Appeal Confirms that Notaries are Not Permitted to Draw Wills with Life Estates

The British Columbia Court of Appeal confirmed that notaries public are not permitted to draw wills that create life estates or trusts in a decision released December 21, 2017. In British Columbia, generally only lawyers may practice law, which includes drawing wills for a fee. However, members of the Society of Notaries Public of British Columbia are also permitted to draw wills for a fee, but there are restrictions on the types of wills they may draw.  Specifically, as set out in section 18 of the Notaries Act, notaries may,

(b)     draw and supervise the execution of wills 
(i)    by which the will-maker directs the will-maker’s estate to be distributed immediately on death,
(ii)    that provide that if the beneficiaries named in the will predecease the will-maker, there is a gift over to alternative beneficiaries vesting immediately on the death of the will-maker, or
(iii)   that provide for the assets of the deceased to vest in the beneficiary or beneficiaries as members of a class not later than the date when the beneficiary or beneficiaries or the youngest of the class attains majority….
In Society of Notaries Public of British Columbia v. Law Societyof British Columbia, 2017 BCCA 448, the Society of Notaries Public sought a declaration that Notaries Public are permitted to draw wills creating a life estate.

Let me give you an example of a life estate. In my will, I might give my spouse the right live in my house during her lifetime, and provide that on her death, the house will then be divided among my children equally. My spouse would have a life estate or life interest, and my children the remainder interest.

The Society of Notaries Public argued that the remainder beneficiaries would have an interest in the property at death of the will-maker, even though they would not have possession of the property until the death of the beneficiary for life. The interest of the remainder beneficiaries vest at the time of the will-maker’s death. According to the Society of Notaries Public, the property can be said to be "distributed immediately on death," in such a case.

The Society of Notaries Public were unsuccessful in the Supreme Court of British Columbia, and appealed to the Court of Appeal.

The Court of Appeal also rejected the Society of Notaries Public’s argument. Although remainder beneficiaries of a life estate may acquire an immediate vested interest, that is not the same thing as a distribution. Mr. Justice Frankel wrote,

[23]         Reduced to its core, the Notaries’ argument is that the words “distributed immediately on death” should be interpreted as “vested immediately on death”.  For example, they say that when a will-maker leaves real property to A subject to B having a life interest in that property, since A’s interest vests immediately, the property has been “distributed immediately” to A, notwithstanding the fact that A is not entitled to possession or use of the property until B dies.  I am unable to accept this argument.

[25]         There are principles of statutory interpretation that assist in determining the meaning of the words a legislature has chosen to use.  As I will explain, those principles lead to the conclusion that the Legislative Assembly used the expression “distributed immediately” in s. 18(b)(i) of the Notaries Act in its ordinary sense, namely, to describe a will in which the will-maker directs the assets of the estate to be immediately given out or delivered to those entitled to receive them; in other words, a will that directs the immediate transfer of both the legal and beneficial interest in the assets of the estate to the beneficiaries.

This decision means that if you wish to have a professionally drawn will in which you provide the right to a beneficiary to enjoy the property for life, but for other beneficiaries to receive the property after the life beneficiary’s death—which is fairly common in second marriages—then you will need to retain a lawyer to draw the will.

Sunday, December 17, 2017

Supreme Court of Canada Decision on Proprietary Estoppel in Cowper-Smith v. Morgan

The Supreme Court of Canada rendered it judgment in Cowper-Smith v. Morgan, 2017 SCC 61, this last Thursday, December 14, 2017. The main legal issue is whether a person who relies on a promise that he will receive property to his detriment may become entitled to the property even if the person who made the promise did not own the property at the time she made the promise. Let me explain.

Elizabeth Flora Cowper-Smith died in 2010. She had three children: Gloria Morgan, Max Cowper-Smith and Nathan Cowper-Smith. In her will, she named her daughter as her executor and she provided that after payment of debts, her estate would be divided equally among her three children. She had investments and her family home in Victoria, British Columbia.

In 2005, Max Cowper-Smith visited Victoria from England, where he had been living and working as a lawyer. Gloria told Max that their mother could no longer care for herself in her own home. Gloria and Max agreed that he would leave England and move in with their mother, and care for her and the family home, after Gloria agreed that he would be able to live in the home permanently, and that he would be able to acquire Gloria’s one-third interest after their mother’s death. On the basis of his sister’s promises, Max moved back to Victoria, and cared for his mother.

After her mother’s death, Gloria said she was going to put the house on the market.

Nathan and Max sued their sister.

As an aside, there is more to this story. Elizabeth Cowper-Smith had transferred title to her house and investments into joint tenancy with Gloria, and they signed a trust declaration pursuant to which Gloria held her interest in the title to the house and investments for her mother during her mother’s lifetime, but would receive these assets on her mother’s death. The Supreme Court of British Columbia trial judge set aside the transfers into joint tenancies and the trust declaration on the basis that Gloria had exercised undue influence over her mother and that Gloria had not rebutted the presumption that the gratuitous transfer is not a gift, but is held on a resulting trust for her mother and her mother’s estate. The Court of Appeal upheld this aspect of the trial judge’s decision, and it was not part of the appeal to the Supreme Court of Canada.

On finding that the family home was part of Elizabeth’s estate, the trial judge, Madam Justice Brown considered Max’s claim to the right to purchase Gloria’s interest in the home from Gloria on the basis of what is known as proprietary estoppel. In her reasons reported at 2015 BCSC 1170, she summarized the law as follows:

[116]     The claim for proprietary estoppel begins with an assurance or representation in relation to an interest in land. The assurance can be made through words or conduct and does not have to be as precise as it would need to be in order to give rise to a binding contract. The claimant's belief in the assurance must be reasonable. A finding of reliance does not necessarily lead to a finding of detriment and the court must be satisfied that there has been detriment because this is what gives rise to an unfairness. Reliance is a change in a person's conduct as a result of the assurance. Detriment does not flow automatically from reliance and detriment must be assessed on a holistic basis, looking at the overall benefits gained and losses suffered by the claimant. Once inequity has been established, the court must determine the extent of the inequity and the relief needed to satisfy it.

Madam Justice Brown found that Max had established the necessary evidence to support his claim. She wrote at paragraph 118 and 119,

[118]     I am satisfied that Max acted to his detriment in moving from England to Victoria, giving up employment income, the long-term lease of a cottage, his contacts with his children, and his social life to look after his aged dementing mother. He did so relying on Gloria’s agreement to his conditions for the move. In doing so, he acted reasonably. His discussions with Gloria were not done in a moment, they covered several months.
[119]     The relief that Max seeks is the right to purchase Gloria’s one-third interest in the house. I consider the relief sought by Max to be the minimum required to satisfy the equity. In a sense it will cost Gloria nothing. That Gloria now would rather not sell to Max for personal reasons has no bearing on the equity, or the reasonableness, of the relief sought.

Gloria appealed. In the British Columbia Court of Appeal, reported at 2016 BCCA 200, the majority held that because Gloria did not own an interest in the family home when she made the promises to Max, and it was uncertain whether she would receive an interest in the family home, Max could not rely on Gloria’s promises to assert a claim based on proprietary estoppel. Mr. Justice Willcock for the majority (Madam Justice D. Smith dissented on this issue) wrote at paragraphs 106 though 108,

[106]     Even assuming there to be some basis for the view that proprietary estoppel might arise as a result of an assurance given by one about to be the owner of property, I would not expand that class of persons so far as to include a potential beneficiary who gives an assurance to another, years before the death of a testator, with respect to what she will do with an inheritance that she merely anticipates receiving, if the person receiving the assurance acts as requested in the meantime. Not only is there uncertainty, in such a case, with respect to the promisor’s ability to deliver a proprietary interest to the promisee at the time the assurance is given, the uncertainty is not resolved when the promisee acts in reliance upon the promise.
[107]     Leaving aside, for the moment, the question whether Gloria was in a position to exert undue influence upon her mother, there was uncertainty with respect to the property interest Max was being promised. First, there was uncertainty whether Gloria would inherit anything from her mother. She might have predeceased her mother. Her mother might have changed her will and left Gloria more or less than a one‑third interest in the property. Her mother might have sold the house and moved into accommodation more suited to her declining health. Simply by liquidating her property Elizabeth Cowper-Smith would have precluded Max from asserting a right to buy anything from Gloria. Certainly it is not suggested that Elizabeth was in any way restricted in her dealings with the property simply because her daughter made assurances to Max about what she would do on Elizabeth’s death.
[108]     Without exerting undue influence upon her mother, Gloria was not in a position to determine what property interest Max would receive in exchange for his move to Victoria. The fulfilment of Gloria’s promise was entirely conditional on her mother’s actions, which were outside her control.
Max appealed to the Supreme Court of Canada.

Writing for the majority, Chief Justice McLachlin held that Max was entitled to require Gloria to sell him her interest in their mother’s home based on the principles of proprietary estoppel. She rejected the majority’s reasoning in the Court of Appeal. Although Max could not have enforced the promise if Gloria had not acquired an interest in the property, it can be enforced if she later does receive an interest in the home. After summarizing the majority decision in the Court of Appeal, the Chief Justice wrote at paragraphs 35 and 36:

[35]                          I cannot agree. With respect, the conclusion reached by the Court of Appeal majority conflates proprietary estoppel with the equity to which it gives effect. That Gloria did not own an interest in her mother’s property at the time of Max’s reliance is not dispositive in itself: see MacDougall, at p. 456; see also Thorner, at para. 61, per Lord Walker; Re Basham (deceased), [1987] 1 All E.R. 405 (Ch.), at p. 415. An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance. Proprietary estoppel may not protect that equity immediately. It may not protect the equity until considerable time has passed. If the party responsible for the expectation never acquires a sufficient interest in the property, proprietary estoppel may not arise at all; where there is proprietary estoppel, there must be an equity, but not vice versa. When the party responsible for the expectation has or acquires a sufficient interest in the property, however, proprietary estoppel attaches to that interest and protects the equity: see MacDougall, at p. 458; Wilken and Ghaly, at pp. 265-66; see also Watson v. Goldsbrough, [1986] 1 E.G.L.R. 265 (C.A.), at p. 267. Ownership at the time the representation or assurance was relied on is not a requirement of a proprietary estoppel claim.
[36]                           An equity arose in Max’s favour when he reasonably relied to his detriment on the expectation that he would be able to acquire Gloria’s one-third interest in their mother’s house. That equity could not have been protected by proprietary estoppel at the time it arose, because Gloria did not then own an interest in the property. But that does not mean that proprietary estoppel cannot attach to Gloria’s share of the house once she receives it. I conclude that it can.

There were a couple of other important issues remaining. First, Elizabeth Cowper-Smith did not give her children the family home in the will. Rather she gave her children a one-third interest in the residue of the estate. Gloria would only acquire an interest in the home if she distributed the home itself to the three beneficiaries, rather than selling it and distributing the proceeds. As an executor she had discretion to sell the house.

In this case, the Chief Justice held that Gloria had a conflict of interest as executor, on the one hand, and as a beneficiary. The court could order her to distribute the home in order to allow Max to be able to purchase Gloria’s interest in the home, and the majority of the Supreme Court of Canada did just that.

Secondly, the question arose as to when Gloria’s interest would be valued. Elizabeth Cowper-Smith had died in 2010 and this decision came out seven years later. The value of the home has likely increased significantly, given the changes in the Victoria real estate market. Chief Justice McLachlin held that the appropriate time for determining the purchase price was the time Max may have reasonably have expected to have purchased Gloria’s interest. The majority used an appraisal as of February 2, 2011.   The Chief Justice wrote at paragraphs 52 through 54,

[53]                          Neither Max nor Gloria could reasonably have expected to wait the better part of a decade to exchange Max’s cash for Gloria’s interest in the property. It is safe to assume that, had Gloria not sought to escape her promise, Max’s equity would have been satisfied and Gloria’s share of the house sold to him not long after February 2, 2011, which is when, in the course of administering their mother’s estate, the property was in fact appraised for $670,000.00. Rather than sell her interest in the house to Max at that point — that is, roughly when both she and he originally contemplated she would — Gloria took the position that she was under no obligation to do so at all. This litigation was the result. In the years since, Max has had the benefit of the money he would have had to pay Gloria in 2011 for her share of the house, Elizabeth’s estate has incurred expenses associated with the upkeep of the property, and the property, the parties agree, has increased in value.
[54]                          February 2, 2011 is a reasonable approximation of when Max expected to be able to purchase Gloria’s one-third interest in the property. That expectation reflects the defined right that Gloria promised Max in exchange for his returning to Victoria to care for their mother. In these circumstances, the claimant’s expectation must be the court’s guide in exercising its remedial discretion. This is because, as Walker L.J. put it in Jennings, at para. 45:
. . . the consensual element of what has happened suggests that the claimant and the benefactor probably regarded the expected benefit and the accepted detriment as being (in a general, imprecise way) equivalent, or at any rate not obviously disproportionate.

The majority of the Supreme Court of Canada also recognized that because of the delay Max has had the benefit of the use of the funds he would have used to purchase Gloria’s interest in 2011, and that estate assets were used to maintain the property. According, Max is required to pay Gloria interest on the purchase price at post-judgement interest rates from February 2, 2011, and also to account to the estate for any expenses paid out of estate funds to maintain the property since February 2, 2011.

This decision was released the day before Chief Justice McLachlin’s retirement on December 15, 2017. She was the longest serving Chief Justice of Canada. Here is a biography from the Canadian Encyclopedia. 

Saturday, December 02, 2017

Report on Vulnerable Investors

The Canadian Foundation for Advancement of Investor Rights and the Canadian Centre for Elder Law have published their Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence and Diminished Mental Capacity.  The report is co-authored by Marian Passmore and Laura Tamblyn Watts. 

As set out in the Executive Summary:

The report focuses on two main areas of specific challenge for vulnerable investors: 
i. Elder financial abuse and undue influence: A person or persons may be trying to financially exploit the investor through a variety of forms of elder abuse, which can include abuse of a power of attorney or other legal authority, fraud, theft, threats, misuse of funds, coercion, abuse of trust, physical threats or by other means. Additionally, a client may exhibit behaviour or provide instructions to a financial services representative that the representative believes to be unduly influenced by a person close to the client.  
ii. Diminished capacity: A client may lose the capacity to provide instructions to a representative, due to dementia, a psycho-social or developmental disability or health reasons such as episodic delirium or medication use. The representative, staff member or compliance officer may be concerned that trades are radically different than previously, or that the client is exhibiting erratic behaviour or is forgetful. If the client does not have a functioning enduring power of attorney on file, this situation can become very complex and delicate.  
A representative or staff member who observes signs of elder financial abuse or undue influence, or diminished mental capacity, may want to assist and/or take protective action, but be unsure about whom to contact, his or her authority to act, and the legal ramifications of notifying others or not following the client’s disbursement instructions. 
Depending on the circumstances, these situations may warrant protective action. A representative may want to notify a person close to the client, report a suspected abuser to the authorities, or prevent the disbursement of funds from a client’s account. Currently, Canada’s securities regulatory regime does not equip representatives to protect vulnerable investors in these ways. There are many reasons for this, spanning from inadequate training on mental capacity and undue influence, to unclear reporting requirements and processes, to insufficient regulatory guidance and protection for representatives who want to take protective action. As a result, many representatives are unfamiliar with the warning signs of vulnerability, unsure of how to escalate issues when they do notice them, and unclear of their authority to act.
The report comprehensively sets out the problems, practices and in Canada, and other jurisdictions, and sets out several specific recommendations.

Sunday, November 26, 2017

Banton v. Banton (Part 4)

This is my fourth post, on the decision in Banton v. Banton, 1998 CanLII 1496, a case involving Muna Yassin who married George Banton when she was 31 and he, 88. The dispute was between Ms. Yassin in George Banton’s five children. I described in my first post Mr. Justice Cullity’s finding that two wills Mr. Banton made leaving his estate to Ms. Yassin were invalid on the grounds that he did not have the requisite mental capacity to make the wills, and that she exercised undue influence over him. In my second post, I outlined Mr. Justice Cullity’s finding that Mr. Banton’s marriage to Ms. Yassin was nevertheless valid, which had the effect of revoking the will Mr. Banton made before the marriage in which he left the residue of his estate to his five children. Because Mr. Banton died without a valid will, Ms. Yassin was entitled to a large portion of his estate. In my third post, I discussed a trust created for him by his sons using a power of attorney he had granted to them. If the trust had been found valid, then most of Mr. Banton’s assets would have gone to his children on his death, instead of falling into his estate. But, Mr. Justice Cullity set aside the trust.

The “in the past episodes” of my post is getting a little long. So I will conclude this series in this post.

There is one more twist.

In 1992, Mr. Banton and his two sons, George Jr. and Victor Banton, signed an agreement pursuant to which the residence he owned was transferred into his sons’ names to hold in trust. The beneficiaries of the trust were George and his then wife, Lily Banton (who died before he married Ms. Yassin) during their lives, following which the residence or proceeds of sale were to be held in trust for Mr. Banton’s five children. Mr. Banton signed a transfer of the residence to his children as trustees. Mr. Banton told his sons that he did this to protect the residence. Lily was not capable of managing her affairs, and Victor and George Jr. Banton signed a consent to the transfer on her behalf as her attorneys under an enduring power of attorney. I will refer to this trust, as Mr. Justice Cullity did, as the Residence Trust.

After Mr. Banton moved into a retirement home, Victor and George Jr. Banton sold the residence, and gave the proceeds of about $200,000 to their father. It was apparent that they did not understand the significance of the Residence Trust, and considered the residence and the sale proceeds to belong to their father, despite the agreement they had all signed.

Mr. Justice Cullity found from the evidence including the clear language of the trust document that Mr. Banton intended to create a trust. He also found that the trust met the requirements that the trust assets and beneficiaries were certain.

But what about the fact that the trustees, Mr. Banton’s two sons, appear not to have understood the Residence Trust and acted inconsistently with it in transferring the sale proceeds to their father? The fact that the trustees did not understand the Residence Trust was not relevant to the questions of whether it was a valid trust. Mr. Justice Cullity wrote at paragraph 167:

[167]      The effectiveness of the agreement to create a trust of the residence, and its proceeds, does not, of course, depend upon the understanding or intention of Victor and George Jr. as the named trustees. Their failure to understand the responsibilities that the agreement purported to impose upon them might have allowed them to disclaim the trusteeship, but this would not have destroyed the trust, if it was otherwise validly constituted: Mallott v. Wilson, [1903] 2 Ch. 494 (Ch. D). Subject to the effect of section 21 of the Family Law Act, R.S.O. 1990, c. F.3, which I will refer to below, the question whether the trust was validly created depends, in my judgment, entirely upon the intention of George Banton at the time, and not after, the trust instrument was executed.

Further at paragraph 170:

[170]      Quite apart from the restraints imposed by the parol evidence rule, there is nothing to suggest that George Banton did not have the intention expressed in the document at the time it was signed, except the fact that the intended trustees considered him to remain the owner of the property and he subsequently accepted their cheque for the proceeds of sale. Neither of his sons claimed to have any legal knowledge or to understand how the trust would achieve its purpose of protecting the property. They simply accepted what they were told by their father and Mr. Harrington [the lawyer who prepared the documents]. Their evidence that they regarded the property as his is completely consistent with their attitude towards his financial affairs generally. They were prepared to assist him by seeing that the property and the other funds he placed in joint names were used for his benefit and they were not interested in obtaining benefits for themselves or any others of his children and grandchildren during his lifetime. In my judgment, that, by itself, is not enough to justify me in ignoring the unequivocal terms of the document George Banton signed—a document prepared by a solicitor at George Banton’s request for a specific purpose and capable of achieving that purpose only if it reflected his intention to divest himself of his property and create a trust. Although it purported to have, and was capable of having, effect inter vivos, its terms were quite consistent with those of his will dated January 30, 1991, which Mr. Harrington had also prepared. The fact that the trustees did not understand the legal effect of the document and that, as far as they were concerned, the property “belonged” to their father during his lifetime, is not to the point.

When they transferred the proceeds of sale of the residence to their father, Mr. Banton’s sons, George Jr. and Victor Banton, breached the terms of the Residence Trust. Neither they nor George Banton had the power to terminate the trust. Although the trustees had the power to expend trust funds for their father’s benefit, in this case they gave no consideration to whether the funds were required for his maintenance and support. The Residence Trust did not give then authority to hand over the proceeds to them.

Mr. Justice Cullity wrote at paragraph 173,

[173]      When Victor and George Jr. delivered the proceeds of sale to George Banton, this was not because they had determined that he required the funds for his maintenance and support. They did not consider this question. They ignored the terms of the trust agreement and the interests of the beneficiaries in remainder and simply delivered the proceeds of sale to him because they considered them to belong to him and because, probably, he wished to receive them. In so doing, they acted outside the scope of their power, ignored relevant considerations and took irrelevant considerations into account. Accordingly, the payment of the funds to George Banton cannot be justified under the terms of the trust agreement and must be set aside if the provisions of sections 21 and 23 of the Family Law Act on which counsel for Muna relies do not affect the validity of the trust.

Ms. Yassin sought to argue that the Residence Trust was invalid on the grounds that it prejudiced Lily Banton’s rights under Ontario family law. Mr. Justice Cullity rejected these arguments, and held that even if the Residence Trust could have been set aside at Lily Banton’s behest, Ms. Yassin did not have standing to advance a claim on the basis of Lily Banton’s rights.

Mr. Justice Cullity held that, because Mr. Banton’s sons had breached their obligations as trustees by paying the proceeds of sale of the residence to their father, they had an obligation to restore the proceeds to the Residence Trust. This was accomplished by tracing those proceeds into the trust they created in 1994, which was invalid.

The result is that the proceeds from the sale, or investments made with those proceeds, will go Mr. Banton’s five children under the terms of the Resident Trust. They do not form part of Mr. Banton’s estate, and will no portion of them will go to Muna Yassin as an intestate heir.

The outcome of this case is that Ms. Yassin was found entitled to receive some of Mr. Banton’s wealth as his lawful wife as an intestate heir (the amount is not clear from the decision). But by settling the Residence Trust, Mr. Banton had removed about $200,000 from his estate, and those funds went to his children.