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.

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