Saturday, December 13, 2014

Pasadena Courthouse

I took this photograph of the Superior Court of California, County of Los Angeles, Pasadena Court last March.

Saturday, December 06, 2014

Fraud on the Power: TLC The Land Conservancy of British Columbia v. The University of British Columbia

In her will, dated February 15, 2007, Jessie Binning, expressed the hope that her home, designed by her late husband, architect and artist, Bertram Charles Binning, would be preserved as a historic site.  Specifically, her will provided:

(i)         the lands and buildings at 2968 Mathers Crescent, West Vancouver, British Columbia, … which my late husband, B.C. BINNING and I used as our residence (the “Residence”), have been designated a National Heritage Site and have been listed on the heritage inventory of West Vancouver, British Columbia;
(ii)        it is my hope that the Residence and historic household furnishings will be preserved for historical purposes;
(iii)       if my Trustees decide it is feasible and practical to do so, to establish a foundation or other organization, society, association or corporation (the “Entity”), as my Trustees decide, and to transfer any interest (the “Property”) I have in the Residence, along with those household furnishings selected by my Trustees, to the Entity to hold, maintain and use the Property and those household furnishings for those purposes it decides are desirable;
(iv)       if the Property is transferred to the Entity and, due to unforeseen circumstances, the Entity decides it is no longer feasible or practical to retain the Property and it subsequently sells the Property, it is my hope that it will give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, administered by THE UNIVERSITY OF BRITISH COLUMBIA, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;
(v)        if my Trustees decide not to retain the Property and historic household furnishings, the Trustees will sell the Property, and sell or otherwise dispose of those household furnishings, and give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;

She also provided in her will that if the Entity were established, the residue of her estate would be divided equally between the Entity and the B.C.Binning Memorial Fellowship Fund, or if the Entity were not established it would go to the Fellowship Fund.

Mrs. Binning died in May 2007.

Her executors and trustees sought to give effect to Mrs. Binning’s hope that the residence, or the Binning House as it is known, would be preserved for historic purposes. The practical difficulty they faced was that after various bequests were paid out of her estate there was no residue left to pay to a new Entity to maintain the Binning House.

A more practical alternative would be to donate Binning House to an established entity to maintain, such as the TLC The Land Conservancy of British Columbia, which I will refer to as TLC. The problem is that the will did not give the executors and trustees the authority to do so.

After receiving legal advice from their lawyers, the executors and trustees decided to incorporate a non profit society. They then transferred title to the Binning House to the new society, which in turn, immediately transferred the title to the TLC. The new society also executed a deed of gift giving TLC the residence “for the purpose of restoring, developing and preserving the Binning House, formerly the home of B.C. Binning, for historical purposes with a view to educating the public and commemorating the site”.

In this way, the executors and trustees sought to both follow the letter of the will, by setting up a new entity and transferring the Binning House to the new entity, while finding a more practical manner of giving effect to Mrs. Binning’s hope to preserve the historic residence. Clever. Perhaps, too clever?

Unfortunately, TLC has had some significant financial problems in recent years, and has sought protection under the federal Companies’ Creditors Arrangement Act. When TLC received an offer to purchase the Binning House for $1.6 million to a collector of Bertram Binning’s art, it applied to court for approval of the sale, with the proceeds to be used to assist with TLC’s restructuring.

The University of British Columbia did not oppose the sale, but took the position that the proceeds should be paid to UBC for the B.C. Binning Memorial Fellowship Fund. UBC argued that executors and trustees acted outside of the scope of their authority in transferring the Binning House to TLC indirectly through the new society.

UBC was unsuccessful in the Supreme Court of British Columbia, and appealed to the British Columbia Court of Appeal.

In reasons released earlier this week, in TLC The LandConservancy of British Columbia, v. The University of British Columbia, 2014 BCCA 473, the Court of Appeal found that the executors and trustees had committed a fraud on their powers under the will by transferring the Binning House to the TLC through the new society. Despite the strong term “fraud,” this does not mean that they acted dishonestly, but rather that what they did was beyond the scope of their powers under the will. Mr. Justice Tysoe explained what a fraud on the power is at paragraphs 42 and 43:

[42]         In order to succeed in having the transfer of the Binning House declared void, UBC had the onus of proving that the transfer was a fraud on the power contained in the Will authorizing the Trustees to transfer it.  The phrase “fraud on a power” is a term of art, and it does not connote fraud in the usual sense of dishonesty.  This is explained by Geraint Thomas in Thomas on Powers, 2d ed. (Oxford: Oxford University Press, 2012) at para. 9.03:
The doctrine of fraud on a power is not founded upon a state of conscience imputed to the donee in equity.  Dishonesty of some kind is often present, but it is not essential.  Indeed, the donee’s intention or motive may be perfectly honest.  Thus, the doctrine may apply where the donee honestly believes that, by his exercise of the power, he is disposing of the property in a more beneficial manner, or in a way which is consonant with what he believes would have been the real wish of the donor of the power …
[Footnotes omitted.]
[43]         The parties are agreed, as they were before the chambers judge, that the two basic elements of a fraud on a power are as set out in Thomas on Powers at para. 9.02:
 (a)      “a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power;” and
 (b)      “a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose”.

Mr. Justice Tysoe found that the will required that the executors and trustees would need to determine whether it was practical and feasible not only to establish the Entity and transfer the Binning House to it, but also that it was practical and feasible for the Entity to hold, maintain and use it. But in this case the executors and trustees knew it would not be feasible for the society they incorporated to retain the Binning House in view of the fact that there was no cash available to do so.

Although the executors and trustees transferred the Binning House to a new Entity, the purpose of doing so was so that the Binning House would end up with TLC, which was not an “object of the power,” or in other words, a beneficiary of Mrs. Binning’s will. Although the executors and trustees acted in good faith, they had an ulterior purpose when they incorporated the new society and transferred the Binning House to it. In this sense, they exercised their powers fraudulently.

Mr. Justice Tysoe wrote at paragraph 67:

The Trustees had received legal advice from the Estate Lawyers that the Binning House could not be transferred directly to TLC or, in other words, TLC was not a proper object of the power given to them under the Will.  The Trustees then set out to do indirectly that which they knew could not be done directly.  They transferred the Binning House to the New Society with the intention that the New Society would immediately transfer it to a non-object, TLC.  The Trustees deliberately used the power in the Will for the purpose of benefiting a non-object.  They used it for an ulterior purpose.

 The Court of Appeal ordered TLC to transfer the Binning House back to Mrs. Binning’s estate. The result is that when it is sold, the net proceeds will go to UBC for the B.C. Binning Memorial Fellowship Fund.

Saturday, November 29, 2014

Re Mulgave School Foundation

If you make a large gift to a charity, you may have a specific purpose in mind, such as buying equipment for a hospital, building a new church, or funding scholarships in the Faculty of Engineering. Whatever you have in mind, consider whether you wish to make your gift to charity conditional on the funds being used for the specific purpose, or whether you want to give the charity some flexibility.

The advantage of making the gift conditional is that the charity will be required to use the gift for the purpose you have specified. The disadvantage is that the charity will lose flexibility in using the funds in accordance with its needs, which may change over time.

This point is illustrated by a Supreme Court of British Columbia decision, Re Mulgrave School Foundation, 2014 BCSC 1900.

Bjorn and Rochelle Moller, and Donald Kirkwood and Penny Levitt gave substantial gifts to the Mulgave School Foundation. When they made their contributions, the conditions of the gifs as set out in endowment letters were that the funds were to be used to create an endowment, and the income used for scholarships for students. The Foundation was set up to provide scholarships and bursaries as well as operating grants for the Mulgave School.

In 2011, after the gifts were made, the Mulgave School, the Mulgave School began a fundraising campaign to buy land and build a Seniors School. If the Mulgave School could use the funds given to them by the Mollers, Mr. Kirkwood, and Ms. Levitt to fund the new building, the Mulgave School would save an estimated $200,000 in borrowing costs.

The Mulgave School Foundation applied to court for an order permitting the Foundation to apply the donations to the construction of the new school. All four of the donors agreed to the order sought allowing the funds they had donated to be used for the construction.

The application was opposed by the Attorney General of British Columbia.

Mr. Justice Masuhara held that the Foundation could not use the funds for the construction of the Senior School. The Charitable Purposes Preservation Act requires a charity that is given funds for a “discrete purpose” use those funds for that purpose.

He considered section 3(4) of the Charitable Purposes Preservation Act, which provides that if a charity is unwilling or unable to use funds for the discrete purpose, the Court

may make whatever orders, including arrangements, it considers appropriate, including transferring the property to a new charity, so that the property is kept, administered and used to
(a)        advance the discrete purpose, or
(b)        advance another charitable purpose that the court considers is consistent with the discrete purpose.

Mr. Justice Masuhara also considered the common law doctrine of cy-pres, which allows the Court to apply donated funds in a different manner if the purpose for which they were provide is “impossible” or “impractical.”

In this case, there was no evidence that the Foundation was unwilling or unable to use the funds for an endowment to funds scholarships, nor that the original purpose was impossible or impractical.

Although the donors were in agreement with the proposal to use the funds they donated for the construction they had not retained any power to change the purpose of the donations. Once they donated the funds, they had no further control.

In dismissing the application, Mr. Justice Masuhara wrote:

[32]         Unfortunately, as laudable as the Foundation’s initiative and intent is, the petitioner has not met the necessary conditions to obtain the relief sought. 

Saturday, November 22, 2014

Milne Estate v. Milne

Separation Agreements or court orders following marriage breakdown may include a clause requiring one former spouse to maintain a life insurance policy on his or her life, naming the other as the beneficiary. Life insurance is a good way to either secure spousal or child support payments, or to replace the payments, in case the former spouse required to pay support dies. But what happens if, contrary to the agreement or court order, the party required to maintain the life insurance cancels the policy or changes the beneficiary?

The Supreme Court of British Columbia recently considered this issue in Milne Estate v. Milne 2014 BCSC 2112. Following the breakdown of their relationship, Scott Milne agreed to maintain his $500,000 life insurance with Sherry Milne as the beneficiary for so long as he was required to pay child or spousal support to Ms. Milne. Mr. and Ms. Milne agreed to include this term in a consent court order. In breach of the order, Mr. Milne changed the beneficiary to his new partner, Albertina Vincente. Mr. Milne died on August 4, 2013, while still obligated to pay child support to Ms. Milne for their son.

Ms. Milne claimed that she was entitled to the insurance proceeds because Mr. Milne was in breach of the consent order. If she wasn’t entitled to the proceeds, then she claimed that she was entitled to the $500,000 she would have received if Mr. Milne had not changed the beneficiary out of his estate.

Madam Justice Fleming held that Ms.Vincente was entitled to retain the insurance proceeds, but that Ms. Milne was entitled to receive the $500,000 from Mr. Milne’s estate.

In denying Ms. Milne’s claim to the insurance proceeds, Madam Justice Fleming rejected her argument that because Mr. Milne was in breach of the consent order when he made Ms. Vincente his beneficiary, it would be against good conscience for Ms. Vincente to retain the proceeds, and that the court may impose a remedial constructive trust on the proceeds in favour of Ms. Milne.

Madam Justice Fleming found that the conditions set out by the Supreme Court of Canada in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, for a court to impose a constructive trust on the basis that it would be against good conscience to allow a party to retain property were not met. Those conditions are set out by Madam Justice McLachlin (now Chief Justice) at paragraph 45 of the judgment:

(1)   The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(2)   The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

(3)   The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;

(4)   There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

Madam Justice Fleming found that Mr. Milne’s relationship with Ms. Milne following the consent order was not of such a nature that the law imposes a high duty of loyalty on Mr. Milne to protect Ms. Milne. He was not a trustee or other fiduciary. That being the case, there was no basis for the Court to impose a good conscience constructive trust on the insurance proceeds.

Ms. Milne was successful in her claim against Mr. Milne’s estate, and Madam Justice Fleming awarded her $500,000 out of the estate to compensate her for Mr. Milne’s breach of the consent court order.

Although the reasons for judgment do not state the value of Mr. Milne’s estate, it appears that there will likely be substantial assets for Ms. Milne to recover the $500,000 judgement. But in other circumstances, a former spouse relying on support payments or life insurance proceeds in lieu of support if the payor former spouse dies, could be left with nothing if the courts will not impose a constructive trust on insurance proceeds. This will happen if the former spouse whose obligation it was to keep the other former spouse as the beneficiary dies leaving little or no estate from which to pay any judgement for failing to maintain the life insurance beneficiary designation. This may occur even if the now deceased had substantial assets, but structured his or her affairs so that they pass outside of the estate, such as by holding a residence and investment accounts in joint tenancies with a new partner.

Madam Justice Fleming was careful to leave open the possibility that the court might find that a separated or divorced spouse may have fiduciary duties to the other, but she found that the facts in this case did not warrant such a finding.

This decision is consistent with the Court of Appeal decision in Ladner v. Wolfson, 2011 BCCA 370, which Madam Justice Fleming applied in reaching her decision. But are British Columbia courts taking too narrow of a view when a constructive trust is available as a remedy?

The context in which the remedy of constructive trust s most often applied is unjust enrichment, which involves one party being enriched to another’s detriment, without any requirement that the enriched party had fiduciary duties to the other. In a case where there are insufficient assets in the estate to compensate the former spouse for the deceased’s wrongful conduct in changing a beneficiary of the life insurance, it seems to me that as between the wronged former spouse and the new beneficiary, the equities favour the former spouse. Settlements are the product of negotiations and trade-offs. Almost invariably the spouse for whose benefit the life insurance is to be maintained has given up something in return, while the proceeds are likely to be a pure gift to the new beneficiary. It may be that the former spouse has a claim in unjust enrichment, but even if not, surely the law is flexible enough for the courts to impose a constructive trust in these cases by analogy to both unjust enrichment and good conscience constructive trusts.

In practice, a separated spouse might own the life insurance on the other’s life and pay the premiums so that she or he can ensure that the life insurance is maintained for her or his benefit. Any spousal support or division of property could be adjusted to reflect the costs of the insurance.

Sunday, November 16, 2014

Uniform Trustee Act Provisions for Remuneration

The British Columbia Government appears to be considering passing new legislation modeled on the Uniform Conference of Canada, Uniform Trustee Act. As I wrote before, the Ministry of Justice was requesting comments on the Uniform Trustee Act.

Among the changes that may be brought by new legislations are changes relating to remuneration for personal representatives of estate, and trustees.

Currently, under section 88 of the Trustee Act, there is a statutory ceiling for the fees that personal representatives (executors of wills and administrators of estates) and trustees may charge of 5 per cent of the aggregate value of an estate or trust, including income and capital and a care and management fee of 0.4% of the average market value of the assets. This is a ceiling and in many cases the courts awards lower percentage based on the Judge’s or Registrar’s assessment of what amount is reasonable in all of the circumstances. It should also be noted that you can allow your personal representative or trustee to charge a higher percentage by sayings so in your will or trust or in a separate contract.

In contrast, the Uniform Trustee Act would not set a statutory ceiling on remuneration that a court may award. Instead, the Uniform Trustee Act sets out the factors that the Judge or Registrar may consider. The Uniform Trustee Act would preserve the right of a will-maker or settlor of a trust to determine the amount of compensation by will, by the trust agreement, or by contract.

The Uniform Trustee Act would permit a personal representative or trustee who is a profession to charge fees for professional services in addition to remuneration for acting as the personal representative or trustee. This would change the law in British Columbia. Currently unless expressly permitted in the will or trust, a lawyer or other professional acting as a personal representative or trustee may not charge professional fees in addition to remuneration for acting as a personal represent or trustee unless the will or trust expressly authorizes professional fees.

Section 64 of the Uniform Trustee Act reads as follows:

64 (1) A person is entitled to fair and reasonable compensation to be paid out of the trust property for services rendered as trustee of the trust.
(2) As part of the compensation to which a trustee is entitled under subsection (1), a trustee who
(a) has professional skills, and
(b) has rendered services to the trust, apart from those generally associated
with the office of trustee, that required the exercise of those professional
is entitled to charge fees at reasonable rates for those services that are reasonably necessary for the purpose of carrying out the trust.
(3) The trustees of a trust are not presumed to be entitled to equal compensation under subsection (1).
(4) On application by a trustee during the administration of the trust or on the passing of accounts, the court may determine the amount of compensation to which the trustee is entitled under subsection (1).
(5) In determining a trustee’s compensation, the court may consider the following:
(a) the gross value of the trust property at the time compensation is claimed;
(b) any change in the gross value of the trust property since compensation was last claimed or the trust was created and the portion of that change attributable to decisions of the trustee;
(c) the amount of revenue received and expenditures incurred in administering the trust;
(d) the complexity of the work involved in administering the trust, including whether or not any difficult or unusual questions were raised;
(e) any unusual difficulties or situations encountered in administering the trust;
(f) whether or not the trustee had to instruct on litigation relating to the trust;
(g) whether or not the trustee was required to manage a business, be the director of a corporation or perform other additional roles in administering the trust;
(h) the amount of skill, labour, responsibility, technological support and specialized knowledge required in administering the trust;
(i) the number and complexity of tasks relating to the administration of the trust that were delegated to others;
(j) the time expended in administering the trust;
(k) the number of trustees.
 (6) A trustee may make an application under subsection (4) even if the trust instrument provides for the determination of the amount of compensation.
(7) Subsection (4) does not authorize the variation of a contract, with respect to compensation between a settlor and a trustee, that is not part of the trust instrument, whether or not the contract is incorporated by reference in the trust instrument.

Section 65 would allow a personal representative or trustee to receive interim remuneration before the amount is approved by the beneficiaries or the court provided that at least one beneficiary is a capacitated adult. The personal representative or trustee must give notice to “qualified beneficiaries,” which means beneficiaries with a vested interest in the estate and trust, and any contingent beneficiaries who have given notice that they wish to be included as qualified beneficiaries. If the Court ultimately approves a lower amount of remuneration, then the personal representative or trustee must repay the difference (section 68).

Saturday, November 08, 2014

Are Future Payments from a Trust Created by Will Available to the Creditors of a Bankrupt?

If you make a will leaving your estate to your child, and after your death, your child is assigned into bankruptcy, then your child’s inheritance from you will be available to his or her creditors. That’s not too surprising.

But what if the will provides that your child is to receive her inheritance in stages, with so much payable when she reaches a certain age, more payable and a later age, and all of it payable at a later age still? After your death, but before she has reached the age to receive the full amount of her inheritance, she is assigned into bankruptcy. Will her trustee in bankruptcy be entitled to the future payments for the benefit of her creditors?

This issue was considered by Master Baker in re Bolt Estate, 2014 BCSC 2095.

Vesta Bolt died in 1994. In her will, which she made in the year of her death, she left most of her estate in trust for her daughter, Jody Bolt. The terms of the trust provided that her daughter would receive income from the trust, one-quarter of the capital when she attained the age of 26, one-quarter at the age of 35 and the balance at the age of 45. If she died before attaining the age of 45, whatever was left in the trust would go to her descendants per stirpes (equally among her children, and if a child died before her, the children of that deceased child would receive the deceased child’s share).

In January 2014, before attaining the age of 45, Ms. Jody Bolt made an assignment in bankruptcy. There remains a little over $96,000 in the trust created by her mother’s will She argued that future payments from the trust were not property available to her creditors.

Her trustee in bankruptcy took the contrary position that the future payments were available to her creditors, pointing to the definition of property in section 2 of the Bankruptcy and Insolvency Act:

“property” means any type of property, whether situated in Canada or elsewhere, and includes …every description of property, whether real or person­al, legal or equitable, as well as …every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property….

Master Baker agreed with the trustee in bankruptcy’s submissions. Ms. Bolt as a beneficiary of her mother’s will has a contingent interest in the remaining assets of the trust, which falls within the above-quoted definition of property available to her creditors.

The future payments were not exempted in either the Bankruptcy and Insolvency Act, or the Court Order Enforcement Act.

However, because her interest in the remaining capital of the trust is contingent on her attaining the age of 45, the trustee in bankruptcy will also have to wait until she attains that age before the trustee in bankruptcy can receive those funds to distribute to the creditors. The trustee in bankruptcy can have no greater right to the funds than she. If she died before attaining the age of 45, the remaining capital of the trust would go to her children pursuant to her mother’s will.

In this case, it is very doubtful that the will-maker would have contemplated her daughter’s bankruptcy twenty years after the will-maker’s death. But what can you do if you have a child, or other person you wish to benefit, who is either in bankruptcy or in such financial difficulty that you can see a significant risk that after your death, he will be bankrupt?

One option is to create a discretionary trust in your will for your child and his family. You select a trustee for your child’s trust, and the terms of the trust provide that your trustee can decide if an when to make payments to your child, his spouse, his children and other descendants, and whoever else you wish to include among the potential beneficiaries. In these circumstances, you would not select your child as the trustee. If, after your death, your child is assigned into bankruptcy, your trustee need not make payments to your child, but instead can assist his family by making payments to or for the benefit of his spouse or children. Even if your child’s interest is considered “property” under the Bankruptcy and Insolvency Act, it is arguably of little or no value, your child’s interest being subject to the exercise of your trustee’s discretion. 

Wednesday, October 29, 2014

Dempsey v. British Columbia

British Columbia's Property Transfer Tax Act is an incoherent, and at times absurd, taxation statute. Apart from the dubious economic and social policy of a tax that adds to the cost of housing in the province with the least affordable housing in Canada, there is little rhyme or reason to the types of transactions that are taxed, and those that are exempt.

In very broad strokes, the Property Transfer Tax Act taxes transfers of real estate based on the value of the property, with the first $200,000 of the fair market value taxed at one per cent and the value above $200,000 at two per cent. In many cases the tax will reflect the sale price of real estate between a buyer and seller of a piece of real estate.

But title to real estate may also be changed in circumstances other than a sale, for example as a gift between family members, or to a trustee as part of an estate plan. The Property Transfer Tax Act does have a variety of exemptions from the tax, including some that facilitate transfers between family members either as gifts or for estate planning. The problem is that these exemptions are tightly pigeon holed, and unless a transfer falls squarely within a pigeon hole, the transferee in a non-market transaction may be caught by a significant tax. The narrowness of the exemptions demonstrates little understanding of the nuances of estate planning on the part of the legislators.

The provisions considered in the recent decision of the Supreme Court of British Columbia in Dempsey v. British Columbia, 2014 BCSC 1977, illustrate my point. I should say at the outset that I do not take issue with the reasoning of the Court in this decision, but rather with the absurdity of the legislation when viewed in light of the facts of this case.

Ms. Rita Dempsey settled a trust, which held title to her residence in Victoria. She was also the trustee and a beneficiary of the trust. She later resigned as trustee, replaced by her daughter. She transferred title to the residence from her name to her daughter’s name as trustee. The transfer was exempt under section 14(4) (q) as a transfer from one trustee to another without a change of beneficiaries. 

Later Ms. Dempsey’s daughter as trustee transferred the residence into Ms. Dempsey’s name as beneficiary of the trust. The decision does not set out the reasons for the transfer, but there are many good reasons why a trustee might transfer the title out of the trust to a beneficiary including perhaps to facilitate a change in the estate plan or to allow the residence to qualify for a deferral of property taxes. Whatever the reason for the transfer in this case, no funds change hands, and Ms. Dempsey continues to live in the residence that is now again in her name, but no longer in trust.

Unfortunately, and unfairly, the Government of British Columbia seized the opportunity to charge Ms. Dempsey $7300 in property transfer tax.

Ms. Dempsey through her lawyer argues that this transaction falls within an exemption, section 14(3)(b) which says:

14 (3) If a taxable transaction entitles the transferee, on compliance with the Land Title Act, to registration in a land title office, that transferee is exempt from the payment of tax if the taxable transaction is a transfer within any of the following descriptions:

(b) a transfer from a transferor who is not a trustee referred to in paragraph (c), (d) or (e), to a transferee who is a related individual, if the land transferred has been the principal residence of either the transferor for a continuous period of at least 6 months immediately before the date of transfer or of the transferee for that period;
If the section appears to you to be confusing, that is because it is.

If the trust had not been registered, and the transfer had simply been from Ms. Dempsey’s daughter to Ms. Dempsey, the transfer would have been exempt as a transfer of a principal residence to a related individual. (As an aside, be careful with these terms, as a principal residence under this statute is not the same thing as a principal residence under the Income Tax Act, Canada.)

But Ms. Dempsey was on title as a trustee, so the question was how to interpret the phrase “not a trustee referred to in paragraph (c), (d) or (e)….” Those subsections are themselves exemptions, with (c) an exemption for certain transfers of property from the trust of an estate or trust to beneficiary who is a related individual to the will maker, (d) an exemption for certain transfers of property from a trustee to a beneficiary if the beneficiary is a related individual to the settlor of the trust, and (e) another exemption for certain transfers from a trustee to a beneficiary of a trust who is a related individual of the settlor.

Section (d), for example, exempts,

(d) a transfer from a transferor who is a trustee of a trust that is settled during the lifetime of the settlor and who is registered in that capacity under the Land Title Act as the trustee of the land transferred, if
(i)     the transferee is a beneficiary of the trust,
(ii)    the transferee beneficiary is a related individual of the settlor of the trust, and
(iii)  the land transferred is a recreational residence or was the principal residence of either the settlor for a continuous period of at least 6 months immediately before the date of transfer or of the transferee beneficiary for that period;

Ms. Dempsey argued that because the transaction did not meet all of the criteria in any of the three subsections (c ), (d) or (e), her daughter was not a trustee referred to in those subsections, and accordingly, the trustee exception to the exemption did not apply. The Province argued that only words in each of those sections describing a trustee applied. For example, in (d) the words “a trustee of a trust that is settled during the lifetime of the settlor and who is registered in that capacity under the Land Title Act as the trustee of the land transferred” are to be read into the definition of trustee in 14(3)(b), but not the rest of the subsection set out in (i), (ii) and (iii).

Madam Justice Gray held that the Province of British Columbia’s interpretation is correct, and accordingly, the transaction is subject to the property transfer tax. 

She wrote at paragraph 46:

[46]         I am left with the lingering question of why this kind of transaction would be taxed, but in my view I must apply the words of the statute if they are clear and unambiguous. In my view, they are clear and unambiguous.
Ms. Dempsey was both the settlor of the trust, and the beneficiary. You might wonder why this transfer is not exempt under subsection 14(3)(d). Very simply, under the Property Transfer Tax Act, Ms. Dempsey is not related to herself.