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A trust as an alternative to a will? Hunter, Fiona 1988

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A TRUST AS AN ALTERNATIVE TO A WILL? By FIONA HUNTER B.A., Queen's U n i v e r s i t y , 1976 LL.B., U n i v e r s i t y of A l b e r t a , 1980 THESIS SUBMITTED IN PARTIAL FULFILLMENT THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n THE FACULTY OF GRADUATE STUDIES ( F a c u l t y of Law) We accept t h i s t h e s i s -as conforming to the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA October 1988 © Fiona Hunter, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of The University of British Columbia Vancouver, Canada Date OcAsi^v U, DE-6 (2/88) - i i -ABSTRACT The purpose of t h i s t h e s i s i s to study the f e a s i b i l i t y of u sing a t r u s t as an a l t e r n a t i v e to the w i l l i n the j u r i s d i c t i o n of B r i t i s h Columbia. The genesis of the study l i e s i n the l i b e r a l i n t e r p r e t a t i o n and a p p l i c a t i o n of the W i l l s V a r i a t i o n Act by the c o u r t s i n t h i s p r o v i n c e . Assuming that the f r e e a l i e n a t i o n of p r o p e r t y upon death i s a sound p r i n c i p l e , i t i s incumbent upon the l e g a l community to f i n d methods of a v o i d i n g the i n t e r f e r e n c e of the j u d i c i a r y i n testamentary matters. To p r o p e r l y assess the t r u s t as an a l t e r n a t i v e to the w i l l , a b r i e f overview of both i s p r o v i d e d . The h i s t o r i c a l context of the t r u s t i s examined, followed by a review of i t s use i n the United States as a w i l l s s u b s t i t u t e . The p a r t i c u l a r t r u s t popular i n the United States i s one c o n t a i n i n g a power to revoke by the s e t t l o r , a l i f e i n t e r e s t with power to encroach upon c a p i t a l i n favor of the s e t t l o r , and powers of m o d i f i c a t i o n and c o n t r o l r e t a i n e d by the s e t t l o r . I t i s h e r e i n a f t e r r e f e r r e d to as the revocable t r u s t . Whether the revocable t r u s t would be a c c e p t a b l e to the commonlaw of B r i t i s h Columbia i s examined, and the - i i i -c o n c l u s i o n r e a c h e d i s t h a t t h e r e i s n o t h i n g i n t h e o r y t o p r e v e n t i t s u s e a s a n a l t e r n a t i v e t o t h e w i l l . H o w e v e r , c a r e f u l d r a f t i n g m u s t b e u s e d a t a l l t i m e s t o p r e v e n t a t t a c k s u p o n t h e v a l i d i t y o f t h e t r u s t i t s e l f . C e r t a i n p r a c t i c a l c o n s i d e r a t i o n s i n u s i n g t h e r e v o c a b l e t r u s t a s a n a l t e r n a t i v e t o t h e w i l l a r e r e v i e w e d , i n c l u d i n g i n c o m e t a x l a w s , p r o v i n c i a l t a x l a w s , a n d p o s s i b l e c l a i m s b y b e n e f i c i a r i e s . T h e m o r e p h i l o s o p h i c a l i s s u e o f w h e t h e r t h e u s e o f a t r u s t s h o u l d b e p e r m i t t e d t o a v o i d c l a i m s b y s u r v i v i n g s p o u s e s a n d c h i l d r e n i s a l s o e x a m i n e d . C o n f l i c t i n g d o c t r i n e s i n t h e U n i t e d S t a t e s a r e r e v i e w e d i n l i g h t o f e x i s t i n g c a s e l a w i n B r i t i s h C o l u m b i a . T h e t e n t a t i v e c o n c l u s i o n i s t h a t o u r own c o u r t s w i l l p e r m i t a s e t t l o r t o a v o i d s u c c e s s i o n c l a i m s b y e m p l o y i n g t h e t r u s t . A g a i n , h o w e v e r , c a r e f u l d r a f t i n g i s c r u c i a l , a n d t h e f a c t s i n e a c h c a s e m u s t b e r e v i e w e d . T h e s t u d y e s t a b l i s h e s t h a t t h e r e v o c a b l e t r u s t c a n b e u s e d a s a n a l t e r n a t i v e t o t h e w i l l i n B r i t i s h C o l u m b i a . T h e p o p u l a r i t y o f s u c h u s e may, h o w e v e r , b e l i m i t e d b y C a n a d a ' s i n c o m e t a x l a w s a s w e l l a s p r o v i n c i a l t a x l a w s . T h e r e s i s t a n c e o f t h e l e g a l c o m m u n i t y t o new i d e a s may a l s o r e d u c e t h e p o s s i b l e u s e o f t h e r e v o c a b l e t r u s t a s a n a l t e r n a t i v e t o t h e w i l l . - i v -TABLE OF CONTENTS A b s t r a c t i i I n t r o d u c t i o n 1. The Problem 1 2. A l t e r n a t i v e s to the W i l l 8 T r u s t s G e n e r a l l y 1. The O r i g i n o f the T r u s t 14 2. D e f i n i n g Terms 23 3. The W i l l and The Revocable T r u s t : A Comparison 26 The Revocable T r u s t i n America 1. ' I n t r o d u c t i o n 32 2. A B r i e f H i s t o r y 34 3. P e r c e i v e d B e n e f i t s and Disadvantages 39 T r a n s p l a n t i n g the Revocable T r u s t to B.C. 1. I n t r o d u c t i o n 52 2. The Completely C o n s t i t u t e d T r u s t 53 3. The Testamentary Nature of the T r u s t 63 4. The E f f e c t s o f A Power to Revoke or Modify 70 5. The E f f e c t o f A L i f e I n t e r e s t 73 6. The E f f e c t of A Power to C o n t r o l 8 0 P r a c t i c a l Concerns i n Using The Revocable T r u s t 1. I n t r o d u c t i o n 102 2. What A s s e t s 103 3. Income Taxes 104 4. P r o v i n c i a l Taxes 119 5. B e n e f i c i a r i e s Claims 125 Spousal Claims 1. I n t r o d u c t i o n 133 2. Marriage Breakdown 133 - V -3. T e s t a c i e s and I n t e s t a c i e s 137 A. Current L e g i s l a t i o n 137 B. The J u s t i f i c a t i o n f o r S t a t u t o r y S u c c e s s i o n R i g h t s 138 C. Options: The L e g a l Approach 14 5 D. Options: The E q u i t a b l e C r e a t i v e Approach 153 E. C o n c l u s i o n 171 C o n c l u s i o n 179 - 1 -CHAPTER 1 INTRODUCTION 1 . THE PROBLEM The subject of t h i s study i s the i n t e r v i v o s t r u s t c o n t a i n i n g a power to revoke, and i n p a r t i c u l a r , i t s s u i t a b i l i t y as a v e h i c l e to dispose of property upon death. There i s l i t t l e doubt t h a t , i n B r i t i s h Columbia today, the vast m a j o r i t y of people who wish to c o n t r o l the d i s p o s i t i o n of both r e a l and personal property upon death do so w i t h i n the framework of a w i l l . There are, of course, many i n d i v i d u a l s who never execute a w i l l , e i t h e r because of n e g l e c t , omission, or avoidance. Upon death, t h e i r p r o p e r t y w i l l be d i s t r i b u t e d pursuant to i n t e s t a t e s u c c e s s i o n laws. A few use the more s o p h i s t i c a t e d framework of " e s t a t e p l a n n i n g " --the combination of i n t e r v i v o s g i f t s , insurance p o l i c i e s , pension plans, w i l l s , and t r u s t s , both revocable and i r r e v o c a b l e . However, i t i s the good o l d - f a s h i o n e d w i l l to which most people turn when contemplating testamentary i n t e n t i o n s . What need, then, i s there to examine the i n t e r v i v o s t r u s t with a power of r e v o c a t i o n as an a l t e r n a t i v e to the w i l l ? I n s o far as such a t r u s t can bypass the need f o r probate proceedings, i t may be very a t t r a c t i v e to those wishing to - 2 -avoid the s u b s t a n t i a l probate fees r e c e n t l y imposed by the government of B r i t i s h Columbia. However, a more fundamental concern i s the freedom to dispose of asse t s upon death. Since the e a r l y twentieth century, t h i s freedom has been under i n c r e a s i n g a t tack i n B r i t i s h Columbia by claims commenced pursuant to the W i l l s V a r i a t i o n Act.'' The p r o v i s i o n s of t h i s Act ( p a r a l l e l s of which are found i n one form or another i n every common law province of Canada) a u t h o r i z e the Court t o , as the t i t l e of the Act suggests, vary a w i l l . Of course, n e i t h e r the l e g i s l a t i o n nor the cou r t s i n the e x e r c i s e of t h e i r d i s c r e t i o n under the l e g i s l a t i o n r e f e r to the power as a power to "vary" the p r o v i s i o n s of a w i l l . 2 Rather, i n t y p i c a l l e g a l f a s h i o n , the power i s given, and e x e r c i s e d , to make " p r o v i s i o n " out of the es t a t e f o r the spouse and c h i l d r e n of the t e s t a t o r . E a r l i e r v e r s i o n s of the l e g i s l a t i o n (which has not s u b s t a n t i a l l y changed since f i r s t enacted i n 1920) were a c t u a l l y e n t i t l e d "An Act to Secure Adequate P r o v i s i o n f o r the Maintenance of the Wife and C h i l d r e n of the Testator " 3 and the " T e s t a t o r N s Family Maintenance Act". 1* Such t i t l e s were no doubt chosen to emphasis the l e g i s l a t o r s ^ concern with the is s u e of maintenance r a t h e r than v a r i a t i o n . The s a n c t i t y of a p r o p e r l y drawn and executed w i l l has, a f t e r a l l , been e s t a b l i s h e d s i n c e the seventeenth century, and e a r l i e r . 5 However, by whatever name the l e g i s l a t i o n goes, there i s l i t t l e doubt that the s a n c t i t y of the w i l l i s a hollow p r i n -- 3 -c i p l e i n B r i t i s h Columbia today. One has o n l y t o r e v i e w any number o f cases d e c i d e d under the l e g i s l a t i o n t o r e a l i z e t h a t w i l l s are b e i n g v a r i e d , and not merely t o " m a i n t a i n " the f a m i l y . The empowering s e c t i o n reads as f o l l o w s : N o t w i t h s t a n d i n g any law or s t a t u t e t o the c o n t r a r y , i f a t e s t a t o r d i e s l e a v i n g a w i l l which does n o t , i n the c o u r t ' s o p i n i o n , make adequate p r o v i s i o n f o r the proper maintenance and support o f the t e s t a t o r ' s w i f e , husband or c h i l d r e n , the c o u r t may, i n i t s d i s -c r e t i o n , i n an a c t i o n by or on b e h a l f o f the w i f e , husband or c h i l d r e n , o r d e r t h a t the p r o v i s i o n t h a t i t t h i n k s adequate, j u s t and e q u i t a b l e i n the c i r c u m -s t a n c e s be made out of the e s t a t e o f the t e s t a t o r f o r the w i f e , husband or c h i l d r e n . 6 The wording "adequate p r o v i s i o n f o r the proper maintenance and s u p p o r t " s u g g e s t s an o b j e c t i v e t e s t f o r r e l i e f , based on some l e v e l o f need. However, as e a r l y as 1931, the Supreme Court o f Canada i n Walker v. McDermott 7 s t a t e d t h a t "proper maintenance and s u p p o r t " was not l i m i t e d t o "bare n e c e s s i t i e s of e x i s t e n c e " . Rather, the c o u r t s h o u l d proceed from the p o i n t o f view o f the j u d i c i o u s f a -t h e r o f a f a m i l y s e e k i n g t o d i s c h a r g e both h i s m a r i -t a l and h i s p a r e n t a l d u t y . . . ( a n d i f ) . . . t h e c o u r t comes to the d e c i s i o n t h a t adequate p r o v i s i o n has not been made, then the c o u r t must c o n s i d e r what p r o v i -s i o n would be not o n l y adequate, but j u s t and e q u i t a -b l e a l s o . . . 8 T h i s theme o f " j u s t and e q u i t a b l e " p r o v i s i o n has been developed i n a number o f cases i n B r i t i s h Columbia,9 w i t h the r e s u l t t h a t the t e s t i s a h i g h l y s u b j e c t i v e one, based on moral - 4 -o b l i g a t i o n s of the t e s t a t o r as p e r c e i v e d by the p a r t i c u l a r judge or judges hearing the case. Such a t e s t i n v i t e s a n o m o l i t i e s , f o r no two judges w i l l have the same view of moral o b l i g a t i o n s i n any one i n s t a n c e . Moreover, the t e s t opens the door to abuse, as (E)ven unworthy claims which have a small chance of success are given enhanced "nuisance" value with the r e s u l t that executors may be under pressure to s e t t l e t hem. 1 0 F i n a l l y , the a c t u a l r e s u l t s i n i n d i v i d u a l cases can appear i r o n i c a l l y i n e q u i t a b l e , as the recent case of Morris v. M o r r i s 11 demonstrates. In that case, the B r i t i s h Columbia Court of Appeal granted r e l i e f to the a p p l i c a n t s , two a d u l t c h i l d r e n , aged t h i r t y nine and f o r t y r e s p e c t i v e l y . The younger was a lawyer employed with the M i n i s t r y of the Attorney General, earning about $39,000.00 per annum; the o l d e r was a f r e e l a n c e i n t e r i o r designer l i v i n g i n London, England i n a "comfortable l i f e s t y l e " , although with a more l i m i t e d income than her s i b l i n g . An award of $75,000.00 was granted to the l a t t e r and $50,000.00 to the former out of an e s t a t e worth ap-proximately $250,000.00. Two other c h i l d r e n who had not j o i n e d i n the a p p l i c a t i o n r e c e i v e d nothing, although they had r e c e i v e d i n t e r v i v o s g i f t s from the t e s t a t o r . Lest i t be thought that t h i s case stands on i t s own at the extreme end of the range of " j u s t and e q u i t a b l e " , i t - 5 -must be s a i d t h at other d e c i s i o n s have produced s i m i l a r r e s u l t s . 1 2 N a t u r a l l y , there has been some c r i t i c i s m of these d e c i s i o n s from the l e g a l community.13 Gordon Bale v o i c e s a common concern i n the f o l l o w i n g passage: In B r i t i s h Columbia, testamentary freedom has been eroded to a c o n s i d e r a b l y g r e a t e r extent than i n other provinces because i t s Courts have too f r e e l y exer-c i s e d a wide d i s c r e t i o n which, i t i s submitted, i s not to be found w i t h i n the S t a t u t e . The B.C. Courts have not simply l i m i t e d testamentary freedom i n order to provide maintenance which i s c l e a r l y mandated by the s t a t u t e but a l s o to provide a f a i r d i s t r i b u t i o n of the e s t a t e which i s not mandated by the s t a t u t e . 1 ^ Notwithstanding t h i s c r i t i c i s m , the Law Reform Commission of B r i t i s h Columbia has suggested that the c l a s s of persons e n t i t l e d to apply under the W i l l s V a r i a t i o n Act be extended to i n c l u d e common law spouses, grandparents, g r a n d c h i l d r e n , parents, b r o t h e r s , s i s t e r s , h a l f b r o t h e r s and h a l f s i s t e r s , and ex-spouses who are r e c e i v i n g maintenance from the deceased. 15 i t has al s o recommended that the r i g h t to apply extend to i n t e s t a c i e s . In f a i r n e s s , i t must be s a i d that the Commission recommends that some of these persons only be e n t i t l e d to apply i f they have been dependent upon the t e s t a t o r or deceased at the time of h i s or her death.16 However, the "degree of dependency need not n e c e s s a r i l y be s u b s t a n t i a l " 1 7, as the Commission's "concern i s to ensure t h a t persons who may r e q u i r e f i n a n c i a l p r o v i s i o n which ought to have been provided by the deceased are permitted to apply to - 6 -the courts".^ 8 i f the c o u r t s apply t h e i r very l i b e r a l i n t e r p r e t a t i o n of the W i l l s V a r i a t i o n Act to t h i s new c l a s s of a p p l i c a n t s , i t i s r e a d i l y apparent that there w i l l be very l i t t l e purpose i n d e v i s i n g property by w i l l . The r a d i c a l l i m i t a t i o n of testamentary freedom as recommended by the Law Reform Commission i s not without m e r i t . The Commission p o i n t s out that there has always been some l i m i t s on testamentary freedom so as to b e n e f i t the s u r v i v i n g spouse and c h i l d r e n — f o r example, the r i g h t s of dower and of c u r t e s y . ^ 9 Today, these l i m i t s take the form of l e g i s l a t i o n such as the W i l l s V a r i a t i o n Act. As the Commission p o i n t s out: A deceased's moral o b l i g a t i o n s to provide adequately f o r h i s f a m i l y d i f f e r from i n t e r v i v o s o b l i g a t i o n s he may have owed them. P r i n c i p l e s which determine i n t e r v i v o s o b l i g a t i o n s are p r i m a r i l y founded upon concepts of maintenance and support. In some cases members of the deceased's f a m i l y have a moral c l a i m to share i n the a s s e t s of h i s e s t a t e which i s not n e c e s s a r i l y l i m i t e d to support. The b a s i s of t h i s c o n c l u s i o n i s that a deceased's death s i g n i f i c a n t l y a l t e r s h i s o b l i g a t i o n s to h i s f a m i l y and dependents, i n part because the deceased no longer r e q u i r e s h i s estate.20 With the mounting c o s t s of our modern welfare s t a t e , a s t r o n g argument can be that the f a m i l y , not the s t a t e , should bear the expense of c a r i n g f o r i t s needy and dependent. This argument has p a r t i c u l a r appeal i n l i g h t of the j u s t i f i c a t i o n mentioned by the Law Reform Commission mentioned above, that the t e s t a t o r cannot "take i t with him". Testamentary g i f t s are w i n f a l l s o f a ki n d , and i t does not seem unreasonable to more e q u a l l y share those w i n f a l l s amongst f a m i l y members. Another argument which can be made i n favour of the W i l l s V a r i a t i o n Act i s that the r i g h t to make a w i l l being s t a t u t o r y , i t should be w i t h i n the l e g i s l a t o r ' s power to a l t e r or r e s t r u c t u r e that r i g h t at any time. U n f o r t u n a t e l y , the s a n c t i t y o f the w i l l i s a strong t r a d i t i o n . The m a j o r i t y of the p u b l i c b e l i e v e that they can continue to c o n t r o l t h e i r a f f a i r s from the grave. They are s u r p r i s e d and sometimes dismayed to l e a r n that the government has intervened to prevent the f r e e d i s p o s i t i o n of asse t s (which they have acquired throughout t h e i r l i f e t i m e s with v a r y i n g degrees of e f f o r t ) to the b e n e f i c i a r i e s of t h e i r c h o i c e . I t must be pointed out that i t i s not the v i n d i c a t i v e or aggrieved t e s t a t o r wishing to punish a f a m i l y member which i s de s c r i b e d here. The average t e s t a t o r has l i t t l e or no d e s i r e to "cut out" a f a m i l y member from s h a r i n g the t e s t a t o r ' s wealth. Nevertheless, there may be other c o n s i d e r a t i o n s which would r e s u l t i n more needy r e l a t i v e s or f r i e n d s or even c h a r i t i e s r e c e i v i n g the t e s t a t o r ' s e s t a t e . It i s these d i s p o s i t i o n s which can be thwarted by the W i l l s V a r i a t i o n Act. Whatever the p h i l o s o p h i c a l underpinnings of the Act, the c u r r e n t r e a l i t y i s that a w i l l i s no longer a guaranteed v e h i c l e f o r testamentary d i s p o s i t i o n s . And yet, the freedom of - 8 -t e s t a t i o n has been a part of our l e g a l system f o r so long that i t has a r e p u t a t i o n of being almost a fundamental r i g h t . People expect t h e i r w i l l s to be enforced as d r a f t e d . I f t h i s i s no longer p o s s i b l e , i t i s time f o r the l e g a l p r o f e s s i o n to be more i n n o v a t i v e , and provide the t e s t a t o r with a l t e r n a t e methods f o r testamentary d i s p o s i t i o n s . The law, i r o n i c a l l y , o f t e n develops only because attempts to circumvent the laws are s u c c e s s f u l . There a l r e a d y e x i s t s i n our law a number of a l t e r n a t i v e s to the w i l l which can r e s u l t i n the s a t i s f a c t o r y d i s p o s i t i o n of a s s e t s i n accordance with.the t e s t a t o r ' s wishes. While the focus of t h i s t h e s i s i s upon the i n t e r v i v o s t r u s t which c o n t a i n s a power to revoke, a b r i e f examination of the other a l t e r n a t e s i s i n order. 2. ALTERNATIVES TO THE WILL The p o p u l a r i t y of the w i l l as a testamentary i n s t r u -ment i n d i c a t e s that i t has t r a d i t i o n a l l y s a t i s f i e d the needs of the m a j o r i t y of t e s t a t o r s . To determine what options other than a w i l l are open to an i n d i v i d u a l i n the d i s p o s i t i o n of property upon death, i t i s necessary to understand e x a c t l y what the w i l l o f f e r s . F i r s t , there i s the personal c o n t r o l inherent i n a w i l l , which i n c l u d e s not only the choice of b e n e f i c i a r i e s but a l s o the appointment of executors, t r u s t e e s , and guardians. The nature and timing of g i f t s i s a l s o w i t h i n the t e s t a t o r ' s - 9 -power. Second, the w i l l i s a p r i v a t e matter, one might even say s e c r e t . T h i r d , i t s contents can be changed from time to time by the t e s t a t o r as h i s or her circumstances change.21 Fourth, the w i l l has no e f f e c t u n t i l the death of the t e s t a t o r . 2 2 F i f t h , the w i l l i s a comprehensive v e h i c l e , f a c i l i t a t i n g the d i s p o s i t i o n of a l l of the deceased's w o r l d l y goods (provided, of course, that i t i s p r o p e r l y drawn). F i n a l l y , there i s a b e l i e f that the w i l l f a c i l i t a t e s an o r d e r l y and inexpensive d i s p o s i t i o n of a s s e t s upon death, and can prevent expensive and extended l e g a l proceedings. Whether t h i s f i n a l c h a r a c t e r i s t i c i s v a l i d today i s open to q u e s t i o n , p a r t i c u l a r l y i n l i g h t of the recent and dramatic i n c r e a s e s i n probate f i l i n g fees,23 not to mention the p o t e n t i a l f o r proceedings under the W i l l s V a r i a t i o n Act. However, as with any human a c t i v i t y , p received b e n e f i t s are o f t e n more important than proven b e n e f i t s . There are three t r a d i t i o n a l a l t e r n a t i v e v e h i c l e s to the w i l l f o r the d i s p o s i t i o n of property upon death g e n e r a l l y r e f e r r e d to i n the textbooks on the s u b j e c t . These are i n t e s t a c i e s , j o i n t t e n a n c i e s , and t r u s t s . A combination of two or more i s , of course, a f o u r t h o p t i o n , and d e s i g n a t i o n s under pension and insurances schemes i s a more r e c e n t , f i f t h , o p t i o n . I n t e s t a c i e s r e s u l t i n the d i s t r i b u t i o n of the - 10 -deceased's e s t a t e according to standards set by the l e g i s l a t u r e . In B r i t i s h Columbia, these standards are set out i n Part 7 of the E s t a t e A d m i n i s t r a t i o n Act.2^ The o v e r a l l scheme, based on p h i l o s o p h i c a l c o n s i d e r a t i o n s s i m i l a r to those for the W i l l s V a r i a t i o n Act, i s designed to p r o t e c t the f a m i l y . As the Law Reform Commission p o i n t s out: These p r o v i s i o n s are intended to d i s t r i b u t e the de-ceased's property i n the same manner as he would probably have d i r e c t e d had he considered making a w i l l . 2 5 Thus, the f a i l u r e to execute a w i l l s t i l l r e s u l t s i n the d i s t r i b u t i o n of the e s t a t e amongst f a m i l y members. However, there i s no c o n t r o l over that d i s t r i b u t i o n , and an i n t e s t a c y i s thus u n l i k e l y to be an a t t r a c t i v e a l t e r n a t e to the i n d i v i d u a l who wishes to guide h i s or her e s t a t e from beyond the grave. There i s a l s o the matter of expense i n an i n t e s t a c y ; both time and money are expended because of the requirement f o r court su-p e r v i s i o n i n a d m i n i s t e r i n g the p r o v i s i o n s of the E s t a t e A d m i n i s t r a t i o n Act. The second o p t i o n f o r the settlement of one's a f f a i r s i s the simple p r i n c i p l e of j o i n t tenancy with i t s r i g h t of s u r v i v o r s h i p . Provided that the t e s t a t o r wishes to leave h i s or her e n t i r e e s t a t e to one or two people, a f f a i r s can be s t r u c t u r e d such that a l l a s s e t s are held j o i n t l y by the donor and donees. This method works p a r t i c u l a r l y w e l l f o r spouses. - 11 -However, when t h i r d p a r t i e s are considered, or where there i s a marriage breakdown, complications can a r i s e . Unlike a g i f t i n a w i l l , a t r a n s f e r of property to j o i n t , tenancy r e s u l t s i n an immediate g i f t . C r e d i t o r s of the donee may take execution proceedings against the property. Moreover, there i s nothing to prevent the donee from e x e r c i s i n g h i s or her r i g h t s as a j o i n t tenant, p a r t i c u l a r l y the severing of the j o i n t tenancy with the r e s u l t i n g l o s s to the donor. E i t h e r a c t i o n may deprive the donor of the property before death instead of at death, as intended. Nor i s i t easy to a l t e r one's wishes once the j o i n t tenancy has been created. Neither j o i n t tenancies nor designations under pension or insurance schemes are a comprehensive s o l u t i o n to testamentary d i s p o s i t i o n s . Some assets do not lend themselves to ownership by j o i n t tenancies, and only the pension or insurance fund i t s e l f can pass under a d e s i g n a t i o n . The f i n a l option to be discussed, and the focus of t h i s t h e s i s , i s that of the t r u s t . Although the concept of a t r u s t i s simple enough, the l e g a l c o n f i g u r a t i o n s of a t r u s t are staggering. I t would therefore seem appropriate to provide an overview and c l a r i f y terms before embarking upon a study of the one p a r t i c u l a r type of t r u s t which i s the subject of t h i s t h e s i s . - 12 -Foo t n o t e s t o Chapter 1 1. R.S.B.C. 1979, c 435 and amendments t h e r e t o . 2. For example, see s e c t i o n 2 of the W i l l s V a r i a t i o n A c t , I b i d . , and the f o l l o w i n g c a s e s : A l l a r d i c e v. A l l a r d i c e , [1911] A.C. 730 ( P . C ) , Re Jone"s ( 1962) , S.C.R. 273, Brauer v. H i l t o n (1970), 15 B.C.L.R. 116 (B.C.C.A.). 3. S.B.C. 1920, c. 94. 4. S.B.C. 1948, c. 336. 5. The f i r s t W i l l s Act was passed i n 1540, and was enacted t o m o l l i f y E n g l i s h landowners who had l o s t t he r i g h t t o pass l a n d t o descendants as a r e s u l t o f the S t a t u t e o f Uses, 1535: S i r W i l l i a m H o l d s w o r t h , A H i s t o r y o f E n g l i s h Law, (London: Meuthuen & Co. L t d . , 1937), V o l . IV at 455. 6. Supra, f o o t n o t e 1, s. 2 as amended by S.B.C. 1985 c. 68. 7. [1931] S.C.R. 94, [1931] 1 D.L.R. 662. 8. [1931] S.C.R. 94 at 96. 9. For a b r i e f r e v i e w o f these c a s e s , see The Law Reform Commission, Report on S t a t u t o r y S u c c e s s i o n R i g h t s , L.R.C. 70, December 1983, at 53-55; see a l s o S o l j d a v. De Noni, (1987), Vancouver R e g i s t r y No A870573, an u n r e p o r t e d d e c i s i o n o f Madame J u s t i c e S o u t h i n , and R i c c i , e t . a l . v. F u r l a n , e t . a l . , (1987), Vancouver R e g i s t r y No. A852049, an u n r e p o r t e d d e c i s i o n o f the Honourable Judge Wong. 10. I b i d . , at 153. 11. (1983), 41 B.C.L.R. 239, (1983) 14 E.T.R. 35. 12. See, f o r example, Re Osland (1977), 1 E.T.R. 128, Re  M i c h a l s o n , [1973] 1 W.W.R. 560, Re Parks (1968), 64 W.W.R. 586, t o name a few. 13. See, f o r example, Gordon B a l e , " A n n o t a t i o n " (1977), 1 E.T.R. 128; A r t h u r L. C l o s e , " r e s e r v a t o n " , supra f o o t n o t e 9. 14. A n n o t a t i o n (1983), 14 E.T.R. 36 at 42. - 13 -15. Supra, f o o t n o t e 9, at 88-89-16. I b i d . , at 83-84. ' 17. I b i d . , at 84. 18. I b i d . , at 78. 19. I b i d . , at 46. 20. I b i d . , at 75. 21 . W i l l s W i l l s , A c t , R.S.B.C. 1979, c. 434, s. 13th ed., (London: Stevens & Sons, 22. I b i d . , W i l l s A c t , s. 20, 2 1 ( 2 ) . 23. Schedule 1, #12, Appendix 1 t o the Supreme Court Rules as amended. 24. Supra, f o o t n o t e 23. 25. Supra, f o o t n o t e 9 at 5. 15; Theobald on 197D , at 5. Columbi a - 14 -CHAPTER 2 TRUSTS GENERALLY 1 . THE ORIGIN OF THE TRUST The concept of the t r u s t i s one which has e x i s t e d f o r c e n t u r i e s . I t d e s c r i b e s , a t i t s most b a s i c , a r e l a t i o n s h i p be-tween a t l e a s t two p a r t i e s , one of whom holds property f o r the b e n e f i t of the o t h e r s . The e a r l i e s t example of t h i s kind of r e l a t i o n s h i p i s found i n Anglo - Saxon England, and i n p a r t i c u -l a r i n the custom of the Roman C a t h o l i c Church known as the g i v i n g of alms. These g i f t s to the Church during one's l i f e -time were recommended to a s s i s t i n the s a l v a t i o n s of one's s o u l . The l a r g e r the g i f t , p a r t i c u l a r l y while the donor was i n good h e a l t h , the g r e a t e r the p r o b a b i l i t y of s a l v a t i o n . However, a l a r g e g i f t meant c o n s i d e r a b l e s a c r i f i c e by the donor, and a p r a c t i c e developed as e a r l y as the seventh century whereby the property was given during l i f e to the Church, but the donor r e t a i n e d i t s use u n t i l death.'' The Church held the p r o p e r t y , at l e a s t i m p l i c i t l y , i n t r u s t f o r the donor during h i s l i f e t i m e . The L a t i n phrase "ad opus" was used to d e s c r i b e the r e l a t i o n s h i p between donor and donee i n these bequests, and - 1 5 -e v e n t u a l l y t h i s customary r e l a t i o n s h i p developed i n t o the l e g a l i n s t i t u t i o n known as "the use". The "ad opus" r e l a t i o n s h i p grew i n p o p u l a r i t y i n England from the tenth century on. 2 The F r a n s c i s c a n f r i a r s , who were bound by vows of poverty, were able to enjoy the income and use of land held by others on t h e i r b e h a l f . Landholders t a k i n g part i n the Crusades or other hazardous j o u r n i e s conveyed t h e i r lands to f r i e n d s f o r the use of t h e i r wives or i n f a n t c h i l d r e n , u n t i l t h e i r r e t u r n . Land-holders a l s o avoided c e r t a i n f e u d a l o b l i g a t i o n s by employing the use. Under fe u d a l " i n c i d e n t s of tenure", the death of a landholder b e n e f i t t e d h i s f e u d a l s u p e r i o r i n s e v e r a l ways. The l o r d was e n t i t l e d to a r e l i e f (the payment of monies) i f the succeeding h e i r was of age, or to act as guardian and take the p r o f i t s and r e n t s of the land i f the h e i r was under age; the marriage of the h e i r could be s o l d by the l o r d ; and i f there was no h e i r at a l l , the land escheated to the l o r d . The l a n d -h o l d e r , by t r a n s f e r r i n g land to s e v e r a l others i n j o i n t tenancy, to the use of h i m s e l f , ensured that there would be no death which could t r i g g e r these i n c i d e n t s of tenure. By i n c l u d i n g h e i r s of h i s choice as b e n e f i c i a r i e s of the use, the landholder was a l s o able to devise property otherwise i n d e v i s a b l e under e x i s t i n g laws. P r o f e s s o r Holmes suggested that t h i s was, i n f a c t , the most common reason f o r a use i n i t s e a r l i e r development.3 L a t e r , the use was employed u n s u c c e s s f u l l y by p o l i t i c a l l y a c t i v e l a n d h o l d e r s who wished to - 1 6 -p r o t e c t t h e i r lands from f o r f e i t u r e when opposing t h e i r King.4 I t i s impossible to know j u s t how widespread the em-ployment of t h i s "use" was i n England under e a r l y Norman r u l e . C e r t a i n l y , the use was a convenient and f l e x i b l e t o o l , f o r i t gave the b e n e f i c i a r y a l l the advantages of property while a v o i d i n g the many l e g a l l i a b i l i t i e s that flowed from i t . However, i t must be remembered that as l a t e as the f i f t e e n cen-t u r y the use was s t i l l simply a device employed by l a n d h o l d e r s f o r a v a r i e t y of purposes, and not a l e g a l l y sanctioned i n s t i t u t i o n . In f a c t , the common law c o u r t s refused to recog-n i z e the use at a l l ; as f a r as i t was concerned, the l e g a l owner was the s o l e owner, and had a l l the r i g h t s and d u t i e s which flowed from such l e g a l ownership. I t was not u n t i l those a f f e c t e d by the abuses of the use sought p r o t e c t i o n from the e q u i t a b l e a u t h o r i t y of the King's C h a n c e l l o r , who l a t e r became the Court of Chancery, that the use began to gain l e g i t i m a c y as a l e g a l tool.5 In a p e r i o d of approximately one hundred years, the Court of Chancery enunciated l e g a l r i g h t s and d u t i e s of the p a r t i e s to the use, and e f f e c t i v e l y created the l e g a l i n s t i t u -t i o n of the use. As a r e s u l t , the use gained widespread popu-l a r i t y . ^  Unincorporated o r g a n i z a t i o n s such as p a r i s h e s , - 1 7 -l a w y e r s ' i n n s , c h a r i t a b l e g r o u p s a n d f o r a t i m e , g u i l d s a n d f r a t e r n i t i e s , w e r e a b l e t o . en j o y t h e b e n e f i t s o f l a n d h o l d i n g n o t w i t h s t a n d i n g t h e i r i n a b i l i t y a t common l a w t o b e l e g a l o w n e r s . B u t p e r h a p s t h e m o s t p o p u l a r a p p l i c a t i o n w a s t h e f a m i l y s e t t l e m e n t , w h i c h p e r m i t t e d l a n d h o l d e r s t o p r o v i d e i n a n i n n o v a t i v e f a s h i o n f o r w i v e s , c h i l d r e n , r e l a t i v e s a n d f r i e n d s , i n t h e e v e n t o f m a r r i a g e o r d e a t h . I t i s n o t s u r p r i s i n g t h a t t h e u s e b e c a m e p o p u l a r , f o r t h e common l a w p e r m i t t e d o n l y l i m i t e d i n t e r e s t s i n l a n d : t h e e s t a t e i n f e e s i m p l e , l i f e i n -t e r e s t s a n d f e e t a i l s w i t h r e v e r s i o n o r r e m a i n d e r i n t e r e s t s . T h e v a r i e t y o f " f u t u r e " i n t e r e s t s w h i c h c o u l d b e b e s t o w e d b y a u s e w e r e p r a c t i c a l l y l i m i t l e s s ; " s p r i n g i n g " a n d " s h i f t i n g " u s e s b e c a m e common. T h e s e f a c i l i t a t e d t h e u s e o f l a n d b y o n e o r m o r e b e n e f i c i a r i e s f o r a p e r i o d o f t i m e o r u n t i l t h e h a p p e n i n g o f a c e r t a i n e v e n t , a n d t h e u s e w o u l d t h e n p a s s t o a n o t h e r b e n e f i c i a r y , a g a i n f o r a p e r i o d o f t i m e o r u n t i l t h e h a p p e n i n g o f a c e r t a i n e v e n t , a n d s o o n t h e o r i t i c a l l y i n p e r p e t u i t y . T h e C o u r t o f C h a n c e r y ' s d e c i s i o n s e f f e c t i v e l y s e p a r a t e d a n d c r e a t e d t h e e q u i t a b l e i n t e r e s t i n l a n d f r o m t h e l e g a l i n t e r e s t . I t g r a n t e d c e r t a i n r i g h t s a n d p o w e r s t o t h e b e n e f i c i a r y , k n o w n as t h e " c e s t u i q u e u s e " a n d i m p o s e d c o r r e -s p o n d i n g l i a b i l i t i e s a n d o b l i g a t i o n s o n t h e p e r s o n h o l d i n g l e -g a l t i t l e , k n o w n as t h e " f e o f e e t o u s e s " . B y t h e t u r n o f t h e s i x t e e n t h c e n t u r y , u s e s w e r e s o w i d e s p r e a d t h a t t h e C r o w n - 18 -introduced l e g i s l a t i o n to stem the t i d e . 7 Henry VIII ' s main concern and opposit ion to the use stemmed from the loss of the Crown's revenue from incidents of tenure and r ight of f o r f e i t u r e . 8 Henry desperately required revenue for his royal co f f er s , and his campaign against uses was large ly prompted by an attempt to revive the incidents of tenure which had been severly undermined by the use. His so lu t ion , after unsuccessful attempts in 1529, 1532, was the Statute of Uses in 1535.9 The key provis ion in the Act was simple: i t vested the l ega l in teres t of the estate in the cestui que use, thus reuni t ing the l ega l in teres t of the estate in land with the eq-u i tab le in teres t which the Court of Chancery had created. This process was ca l l ed "executing the use". The Statute s a t i s f i e d the needs of the Crown, whose purpose was to revive the revenue-producing "incidents of ten-ure". By "executing" the use, the statute ensured that the death of the cestui que use would tr igger the prof i tab le i n c i -dents of tenure for the Crown. Conversely, i t tr iggered l i a b i l i t i e s for the landholder who had r e l i e d upon the use. As a r e s u l t , there was a reduction in the frequency with which uses were employed for a time, u n t i l lawyers and the Court of Chancery were able to f ind methods of in terpre ta t ion and a l t e r -nate means to effect the same resul t which the use had produced. This was achieved within one hundred years by the o - 19 -c r e a t i o n of a "double" use. Lawyers d r a f t e d a "use upon a use", and e v e n t u a l l y the Court of Chancery enforced i t . The methodology was simple. As the phrase suggests, two uses were c r e a t e d , and only the f i r s t was considered by the Court of Chancery to be executed by the Statute of Uses. The enforcement of t h i s "use upon a use" opened the door to the Court to once again a c t i v e l y enforce the t r u s t r e l a t i o n s h i p , and to develop what i s today the modern law of t r u s t s . In f a c t , the "use upon a use" soon became known as a t r u s t . L i k e the mediaeval use, t r u s t s soon became very popular with l a n d h o l d e r s . Although there were no longer i n c i d e n t s of tenure to avoid, l a n d h o l d e r s s t i l l d e s i r e d to arrange and c o n t r o l the f a m i l y e s t a t e . The r e s t r i c t e d r i g h t s of s u c c e s s i o n as provided by the law of promigenture (or, i f no male h e i r s , by the law of coparceny) were not a b o l i s h e d u n t i l 1926. I f the landholder f a i l e d to make proper testamentary arrangements, wives, younger sons, daughters with b r o t h e r s , and i l l e g i t i m a t e c h i l d r e n could be l e f t with nothing at h i s death. The l e g a l requirements of dower a l l e v i a t e d the hardship of the wife to some degree, and g e n e r a l l y speaking, the e x e r c i s e of the freedom of testamentary d i s p o s i t i o n avoided the o p e r a t i o n of primogenture. However, lan d h o l d e r s wanted to do more than t r a n s f e r the f a m i l y e s t a t e upon death. They wanted to ensure that the e s t a t e would remain i n the f a m i l y , f o r land meant po-- 20 -l i t i c a l , e c o n o m i c a n d s o c i a l p o w e r u n t i l w e l l i n t o t h e n i n e -t e e n t h c e n t u r y . A t t h e same t i m e , t h e y w i s h e d t o p r o v i d e f o r e a c h member o f t h e f a m i l y . I n o r d e r t o p r o t e c t b o t h f a m i l y m e m b e r s a n d t h e f a m i l y e s t a t e , l a n d h o l d e r s ( o r p e r h a p s , m o r e a c c u r a t e l y , t h e i r l a w y e r s ) c r e a t e d t h e " s t r i c t s e t t l e m e n t " . ^ T h e s e s t r i c t s e t t l e m e n t w e r e f i r m l y e s t a b l i s h e d b y t h e e n d o f t h e s e v e n t e e n t h c e n t u r y . 1 1 Some w e r e s t r u c t u r e d w i t h o u t t h e b e n e f i t o f a t r u s t , s o t h a t t h e e l d e s t s o n b e c a m e a l i f e t e n a n t o f t h e p r o p e r t y , w i t h l i m i t e d r e m a i n d e r s t o e a c h o f h i s c h i l d r e n i n s u c c e s s i o n . ^ When a t r u s t was u t i l i z e d , i t wa s o f t e n t o p r e s e r v e r e m a i n d e r s a n d p r o v i d e a n n u i t i e s t o t h e w i d o w a n d y o u n g e r c h i l d r e n . 1 3 i n e i t h e r e v e n t , i t was n e c e s s a r y t o r e - s e t t l e i n e a c h s u b s e q u e n t g e n e r a t i o n . . D u r i n g t h e s e v e n t e e n t h a n d e i g h t e e n t h c e n t u r i e s , t h e s t r i c t s e t t l e m e n t s a t i s f i e d t h e n e e d s o f m o s t a f f l u e n t l a n d h o l d e r s c o n c e r n e d w i t h m a i n t a i n i n g t h e i r p o w e r a n d f a m i l y e s t a t e s . H o w e v e r , b y t h e n i n e t e e n t h c e n t u r y , c h a n g i n g e c o n o m i c a n d s o c i a l f a c t o r s r e s u l t e d i n new n e e d s a n d c o n c e r n s w h i c h t h e o l d e r s e t t l e m e n t s c o u l d n o t s a t i s f y . T h e i n d u s t r i a l r e v o l u t i o n c h a n g e d E n g l a n d f r o m a n a g r i c u l t u r a l n a t i o n t o a t r a d i n g n a t i o n ; l a n d b e c a m e a s o u r c e o f m i n e r a l s a n d f a c t o r y s i t e s r a t h e r t h a n o f s i m p l e f o o d a n d c l o t h i n g . 1 2 * M o r e o v e r , t h e g r o w t h o f s t o c k s a n d b o n d s a s p r o f i t a b l e i n v e s t m e n t e c l i p s e d - 21 -the importance of land as an investment. Land became l e s s v a l u a b l e i n i t s own r i g h t and more v a l u a b l e i n terms of what could be done with i t : s e l l i n g i t , l e a s i n g i t , or otherwise us-ing i t i n an advantageous and p r o f i t a b l e manner. However, the o l d s t r i c t settlement d i d not g e n e r a l l y permit a l i f e i n t e r e s t holder to e i t h e r s e l l or l e a s e l a n d s . Even r a i s i n g the funds to improve the e x i s t i n g e s t a t e could be d i f f i c u l t . Sometimes, too, the burden of a n n u i t i e s to other b e n e f i c i a r i e s produced g r e a t e r debts than the e s t a t e could manage.15 There were s e v e r a l methods developed i n the ni n e t e e n t h century to remedy these d e f e c t s which developed i n s t r i c t s e t t l e m e n t s . F i r s t , when a new settlement was c r e a t e d , lawyers i n s e r t e d a wide range of powers i n t o the new instrument. They were c a l l e d "powers of a d m i n i s t r a t i o n " , and inc l u d e d the power to l e a s e f o r long p e r i o d s , and the power to s e l l lands with the consent of the trustee.16 Secondly, i f no r e - s e t t l e m e n t was forthcoming or the d r a f t e r of the new s e t -tlement had not adequately provided f o r these powers, i t was p o s s i b l e to o b t a i n a p r i v a t e act of Parliament to permit " v a r i a t i o n " of the settlement.17 E v e n t u a l l y , Parliament took p o s i t i v e a c t i o n i n a s e r i e s of l e g i s l a t i o n designed to reform land law g e n e r a l l y . The most important of t h i s l e g i s l a t i o n was the S e t t l e d Land Act of 1882 - 90.18 i t granted the necessary powers to the l i f e tenant to e x p l o i t the la n d , but - 22 -d i d not otherwise i n t e r f e r e with the s t r u c t u r e of the settl e m e n t . However, the complex i n t e r e s t s c r e a t e d by the settlement became l e s s popular with the advent of the t r u s t f o r s a l e . T h i s t r u s t l e f t p r operty, and the power to s e l l i t , i n the hands of a t r u s t e e r a t h e r than the l i f e tenant. While lawyers and lan d h o l d e r s were u t i l i z i n g the t r u s t i n the f a m i l y settlement and the t r u s t f o r s a l e , the Court of Chancery was a l s o a p p l y i n g the concept of the t r u s t i n other c r e a t i v e ways. Thus, between the l a t e s i x t e e n century and the l a t e n ineteenth century, the court g r e a t l y enhanced and expanded the r i g h t s of married women with the help of the t r u s t d evice. ^ 9 i n our own times, the Canadian c o u r t s have developed the t r u s t i n a s i m i l a r d i r e c t i o n , i n the enforcement of the c o n s t r u c t i v e t r u s t . 2 0 Although a p p l i e d i n i t i a l l y to the p r o t e c t i o n of common law spouses, the concept of the c o n s t r u c t i v e t r u s t has been extended to become a general p r i n c i p a l of Canadian law. Thi s b r i e f h i s t o r y of the t r u s t demonstrates the ver -s a t i l i t y and f l e x i b i l i t y of the i n s t i t u t i o n . L e g i s l a t i o n has been u n s u c c e s s f u l i n i t s e f f o r t s to c o n f i n e the t r u s t , and i n f a c t , such l e g i s l a t i o n has o f t e n had the e f f e c t of expanding t r u s t law. The t r u s t would t h e r e f o r e appear to be eminently s u i t a b l e , i n theory at l e a s t , as a replacement f o r the w i l l . - 23 -2. DEFINING TERMS In examining th i s question, i t i s important to under-stand the essential character of the t r u s t . It creates a fiduciary or "trusting" relationship which the courts w i l l en-force notwithstanding laws to the contrary. Although the legal ownership of the property may be in the hands of the trustee, the courts recognize the special relationship between the trustee and the beneficiary, and protect the l a t t e r ' s rights in that rel a t i o n s h i p . Perhaps because the trust has such a long history, "no d e f i n i t i o n of a trust appears to have been accepted as both comprehensive and exact"21. Sir Arthur Underhill's d e f i n i -tion seems to be the most popularly quoted: A trust i s an equitable obligation binding a person (who i s called a trustee) to deal with property over which he has control (which i s called the trust prop-erty) , for the benefit of persons (who are called the beneficiaries or cestuis que t r u s t ) , of whom he may himself be one, and anyone of whom may enforce the obligation.22 The c l a s s i f i c a t i o n of trusts i s another matter again. There are express t r u s t s , resulting t r u s t s , constructive trust s , p r i -- 24 -v a t e a n d p u b l i c t r u s t s , s p r i n k l i n g t r u s t s , d e s c r e t i o n a r y t r u s t s , t e s t a m e n t a r y t r u s t s , b u s i n e s s t r u s t s , a n d s o o n . F o r t h e p u r p o s e s o f t h i s t h e s i s , i t i s u n n e c e s s a r y t o e x a m i n e i n d e t a i l t h e v a r i o u s c l a s s i f i c a t i o n s ; m o r e o v e r , i t h a s b e e n d o n e w i t h g r e a t d i l i g e n c e e l s e w h e r e . 2 3 T h e f o c u s h e r e w i l l b e o n t h e i n t e r v i v o s t r u s t c o n t a i n i n g a p o w e r o f r e v o c a t i o n . I n s o f a r a s t h e t e r m " i n t e r v i v o s " m e a n s s i m p l y " b e t w e e n t h e l i v i n g " , a l m o s t a n y t r u s t c r e a t e d e x p r e s s l y b y d e e d o r v e r b a l l y , a n d t a k i n g e f f e c t d u r i n g t h e d o n o r ' s l i f e t i m e , c a n b e v i e w e d as a n " i n t e r v i v o s " t r u s t s . T h e o n l y e x p r e s s t r u s t w h i c h c o u l d n o t be s o l a b e l l e d i s t h e t r u s t c r e a t e d w i t h i n t h e t e r m s o f a w i l l — t h a t i s , a t e s t a m e n t a r y t r u s t , f o r i t t a k e s e f f e c t o n l y u p o n d e a t h . T h e A m e r i c a n s o f t e n d e s c r i b e t h e i n t e r v i v o s t r u s t as a " l i v i n g t r u s t " t o d i s t i n g u i s h i t f r o m t e s t a m e n t a r y t r u s t s . I n s o f a r a s o n l y a l i v i n g p e r s o n c a n c r e a t e a t r u s t , t h e t e r m " i n t e r v i v o s " i s s o m e w h a t t a u t o l o g i c a l . H o w e v e r , t h e d e s c r i p t i o n o f a t r u s t a s i n t e r v i v o s g e n e r a l l y d e n o t e s t h a t t h e t r u s t i s c r e a t e d " t o t a k e e f f e c t i n t h e l i f e t i m e o f t h e c r e a t o r " . 2 4 S u c h t r u s t s a r e common i n e s t a t e p l a n n i n g , a l t h o u g h t h e y c a n a l s o be f o u n d i n t h e b u s i n e s s a n d c o m m e r c e f i e l d ( a s a l t e r n a t e s t o t h e c o r p o r a t e s t r u c t u r e o r .to f a c i l i -t a t e i n v e s t m e n t s ) , i n t h e p o l i t i c a l s p h e r e ( t h e " b l i n d " t r u s t ) , a n d i n c h a r i t a b l e a f f a i r s . - 25 -There are two types of i n t e r v i v o s t r u s t s used i n es-t a t e planning today, d i s t i n g u i s h a b l e by the mere i n c l u s i o n , or not, of a c l a u s e a l l o w i n g the t r u s t to be revoked. The i n t e r v i v o s t r u s t which c o n t a i n s no power of r e v o c a t i o n i s by f a r the most popular i n Canada, f o r i t a t t r a c t s c e r t a i n tax advantages u n a v a i l a b l e through other testamentary instruments. In d e s c r i b i n g i t as "popular", i t must be understood t h a t i t s use i s not n e c e s s a r i l y widespread, f o r i t i s a h i g h l y d e t a i l e d and goal o r i e n t e d instrument, designed to take the most advantage of p a r t i c u l a r p r o v i s i o n s of the Income Tax Act. I m p l i c i t i n such tax c o n s i d e r a t i o n s i s the enjoyment of s u f f i c e n t income to generate a need f o r tax "breaks", and i r r e v o c a b l e i n t e r v ivos t r u s t s are thus g e n e r a l l y used only by the more wealthy s t r a t a of Canadian s o c i e t y . Moreover, because the t r u s t must be i r r e v o c a b l e to a t t r a c t these tax b e n e f i t s , ^ 5 i t s use i s j u d i c i o u s . T h i s i r r e v o c a b i l i t y makes such a t r u s t a poor s u b s t i t u t e f o r a w i l l , f o r i t w i l l be r e c a l l e d t h at part of a w i l l ' s a t t r a c t i o n l i e s i n i t s c h a n g e a b i l i t y . In f a c t , the i r r e v o c a b l e i n t e r v i v o s t r u s t i s g e n e r a l l y accompanied by a w i l l to comprehensively deal with testamentary wishes. Although the i n s e r t i o n of a power to revoke i n an i n t e r v i v o s t r u s t o f f e r s the f l e x i b i l i t y found i n a w i l l , i t has been l a r g e l y n e g l ected as a testamentary t o o l i n B r i t i s h - 26 -Columbia. Indeed, not only does i t have many of the c h a r a c t e r i s t i c s of a w i l l , but a l so some a d d i t i o n a l a t t r i b u t e s . I t must be emphasized, however, that a t r u s t i s a fundamentally d i f f e r e n t l e g a l e n t i t y than a w i l l , and these d i f f e r ences w i l l be explored i n greater d e t a i l i n the pages which f o l l o w . For convenience, the i n t e r v i v o s t r u s t wi th a power to revoke w i l l be r e fe r r ed to s imply as a revocable t r u s t . 3. THE WILL AND THE REVOCABLE TRUST: A COMPARISON The advantages of the w i l l as a testamentary i n s t r u -ment have a l ready been mentioned. The advantages of a r evoca -b le t r u s t w i l l be d iscussed i n due course . However, d e s c r i b i n g what a p a r t i c u l a r l e g a l instrument o f f e r s , and understanding the l e g a l p r i n c i p l e s and how the instrument opera tes , are very d i f f e r e n t mat te r s . Only by a comparison of the l e g a l charac-t e r i s t i c s of w i l l s and t r u s t s can one begin to assess whether the two are in t e rchangeab le . I t i s unnecessary and i n a p p r o p r i -ate to dwe l l on every nuance of the r e spec t i ve l e g a l c h a r a c t e r i s t i c s , as any such exe rc i s e would be only a poor i m i t a t i o n o f the standard textbooks on w i l l s and t r u s t s respec-t i v e l y . Never the less , a b r i e f review of the germaine features of each i s e s s e n t i a l for the purposes of t h i s s tudy. - 27 -Although mediaeval w i l l s i n England had str o n g r e l i -gious r o o t s , and were s t r u c t u r e d i n c o n t r a c t u a l terms,26 the w i l l as we know i t today i s a c r e a t u r e of s t a t u t e . The r i g h t to bequeath property by w i l l was f i r s t granted i n England i n 1540, and today i n B r i t i s h Columbia that r i g h t continues under the W i l l s A c t . 2 7 The Act se t s f o r t h the requirements of a v a l i d w i l l : l e g a l c a p a c i t y of the t e s t a t o r , i n w r i t t e n form, p r o p e r l y executed by witnesses a l s o with l e g a l c a p a c i t y . The Act l i m i t s the mode of a l t e r i n g a w i l l , of r e v o c a t i o n and r e v i v a l . In a d d i t i o n to these matters of form, the Act a l s o i n c o r p o r a t e s c e r t a i n r u l e s to be used i n the i n t e r p r e t a t i o n of w i l l s . What the W i l l s Act does not do i s to provide a d e f i n i t i o n o f the w i l l i t s e l f . S e c t i o n 1 s t a t e s only that a w i l l " i n c l u d e s " a "testament, a c o d i c i l , an appointment by w i l l or by w r i t i n g i n the nature of a w i l l i n e x e r c i s e of a power and any other testamentary d i s p o s i t i o n " . 2 8 Jarman on W i l l s i s more s p e c i f i c , s t a t i n g that a w i l l " i s the aggregate of a man's testamentary i n t e n t i o n s so f a r as they are manifested i n w r i t i n g , duly executed according to the statu t e " . 2 9 "Testamentary i n t e n t i o n s " i n c l u d e : the appointment of an executor, a guardian, or a t r u s t e e ; the d i s p o s i t i o n of property; and d i r e c t i o n s f o r b u r i a l . I t i s not necessary that a l l such i n t e n t i o n s be manifest i n a document i n - 28 -o r d e r t h a t i t b e a w i l l . T h e e s s e n t i a l c h a r a c t e r i s t i c ( a s s u m i n g t h a t a l l f o r m a l i t i e s a r e s a t i s f i e d p u r s u a n t t o t h e W i l l s A c t ) i s t h a t t h e i n t e n t i o n s a r e t o t a k e e f f e c t o n l y a f t e r d e a t h . 3 0 T h e w i l l i s t h u s " i n i t s own n a t u r e a m b u l a t o r y a n d r e v o c a b l e " 3 1 d u r i n g l i f e . T h e t r u s t , o n t h e o t h e r h a n d , i s n o t a c r e a t u r e o f s t a t u t e b u t r a t h e r a c o n c e p t d e v e l o p e d o v e r many y e a r s b y n u m e r o u s j u d g e s e x e r c i s i n g t h e c o u r t s ' e q u i t a b l e j u r i s d i c t i o n . T h a t i s n o t t o s a y t h a t i t i s n o t r e g u l a t e d b y s t a t u t e t o d a y ; t h e r e i s l e g i s l a t i o n w h i c h d e a l s w i t h v a r i o u s a s p e c t s o f t h e t r u s t , s u c h a s t h e d u t i e s o f t r u s t e e s . N e v e r t h e l e s s , t h e e s s e n t i a l c h a r a c t e r i s t i c s a n d f o r m a l i t i e s o f t h e t r u s t a r e f o u n d i n t h e d i s t i l l a t i o n o f j u d g e m e n t s r e n d e r e d o v e r h u n d r e d s o f y e a r s . L i k e a w i l l , t h e c r e a t o r o f t h e t r u s t m u s t h a v e l e g a l c a p a c i t y , a s m u s t t h e t r u s t e e i f o n e i s a p p o i n t e d . A l s o l i k e a w i l l , t h e t r u s t w i l l d e s i g n a t e b e n e f i c i a r i e s a n d i d e n t i f y p r o p e r t y . H o w e v e r , i n s o f a r a s t h e c o n t e n t s o f t h e t r u s t a r e c o n c e r n e d t h e r e q u i r e m e n t s a r e m o r e s t r i n g e n t t h a n i n a w i l l . A n y t r u s t , w h e t h e r r e v o c a b l e o r n o t , m u s t c o n t a i n t h e " t h r e e c e r t a i n t i e s " ; t h a t i s , a n i n t e n t i o n t o c r e a t e a t r u s t , t r u s t p r o p e r t y , a n d b e n e f i c i a r i e s . 3 2 T h e s e c e r t a i n t i e s n e e d n o t be r e d u c e d t o w r i t i n g , a l t h o u g h c l e a r l y , a t r u s t i n w r i t i n g i s - 29 -e a s i e r to prove than an o r a l d e c l a r a t i o n . In a d d i t i o n , the t r u s t p r o p e r t y must vest i n a t r u s t e e i n order to c r e a t e a v a l i d t r u s t ; i n other words, the s e t t l o r must have done e v e r y t h i n g which according to the nature of the pro p e r t y comprised i n the settlement was necessary to be done i n order to ren-der the settlement b i n d i n g upon him.33 The i m p l i c a t i o n s of t h i s r u l e w i l l be d i s c u s s e d i n gre a t e r depth l a t e r . For now, the important p o i n t i s that the t r u s t takes e f f e c t upon the c r e a t i o n of the t r u s t , and not, as with a w i l l , upon death. Of course, the terms of a t r u s t "may postpone the possession or enjoyment, or even the v e s t i n g , (of the property) u n t i l the death of the d i s p o s i n g party".3 4 But such postponement i s caused by the i n t e n t i o n of s e t t l o r i n a t r u s t , and i s not a component of the very nature of the instrument, as i t i s i n the w i l l . T h i s d i s t i n c t i o n may seem academic, given that the same r e s u l t may ensue — t h a t i s , the b e n e f i c i a r i e s r e c e i v e p r o p e r t y only upon the death of the t e s t a t o r or s e t t l o r . However, the i n t e r v i v o s c r e a t i o n of the t r u s t d i s t i n g u i s h e s i t from the w i l l i n a fundamental f a s h i o n , and has undeniable e f f e c t s i n the use of the revocable t r u s t as a testamentary instrument. That these e f f e c t s have not prevented the use of revocable t r u s t s as s u b s t i t u t e s f o r w i l l s i s apparent from the American experience to be di s c u s s e d i n the next chapter. - 30 -Footnotes to Chapter 2 1. Michael M. Sheehan, The W i l l in Mediaevel England, (Toronto: P o n t i f i c a l Ins t i tute of Mediaeval Studies , 1963), at 16; see also Frederic Wil l iam Mait land, Doomsday  Book & Beyond, (Cambridge Univers i ty Press, 1897) at 300. 2. See, for example, S ir Frederick Pollock & Freder ic Wil l iam Mait land, The History of Engl ish Law, (Cambridge Univers i ty Press, 1923Tj V o l . II at 233-237; Dorothy Whitelock, Anglo Saxon Wi l l s (Cambridge Univers i ty Press, 1930); A . J . Robertson, Anglo Saxon Charters , (Cambridge Univers i ty Press, 1956). 3. Ol iver Wendell Holmes, J r . , "Early Engl i sh Equity" in Select Essays in Anglo American Legal His tory , V o l . II (Boston: L i t t l e , Brown & Company^ 1907-09). 4. Austin Wakeman Scott , The Law of Trusts , (Boston: L i t t l e , Brown & Company, 1956), V o l . I at 17. 5. S ir Wil l iam Holdsworth, A History of Engl i sh Law, (London: Meuthuen & Co. L t d . , 1937), V o l . V at 218. 6. Margaret E . Avery, "An Evaluation of the Effect iveness of the Court of Chancery Under the Lancastrian Kings", (1970) L . R . Q . 86. 7. Supra, footnote 4, V o l . IV at 13-8. Supra, footnote 5, V o l . IV at 455. 9. For a complete version of s tatute , see Edmund Lincoln Bay l i e s , A Co l l ec t ion of Important Engl i sh Statutes , 3rd e d . , (London: Waterman & Amee, 1978) . 10. Supra, footnote 5, V o l . VII at 376. 11. Ibid . 12. G.W. Keeton & L . A . Sheridan, The Law of Trus t s , 10th e d . , (London: Profess ional Book Limi ted , 1974)), at 42. 13. J . H . Baker, An Introduction to Engl i sh Legal His tory , 2nd E d . , (London: Butterworth's , 1979), at 159. 14. Brian W. Harvey, Settlements of Land, (London: Sweet & - 31 -Maxwell, 1973), at 3-15. I b i d . , at 27. 16. Supra, footnote 12, at 41. 17. Supra, footnote 14, at 28. 18. Supra, footnote 12, at 41. 19. Supra, footnote 5, V o l . V, at 310-33. 20. Pettkus v. Becker (1980), 117 D . L . R . (3d) 257. 21. Lewin on Trus t s , 16th e d . , (London: Sweet & Maxwell, 1964), at 3. 22. H . C . U n d e r h i l l , The Law of W i l l s , (Chicago: T . H . Flood & Co. 1970), at 3. The contro l exercised by the trustee is almost always such as to make him or her the l ega l owner of the property. 23. See, for example Donovan M. Waters, Law of Trusts in  Canada, 2nd e d . , (Toronto: Carswell Company Limited , 1984) . 24. Ib id . , at 431. 25. See Chapter 5 herein , Section 2, Income Taxes. 26. Supra, footnote 1, for a deta i led analys is of the mediaeval w i l l . 27. R . S . B . C . 1979 c. 434. 28. I b i d . 29. Jarman's Treat ise on W i l l s , 6th e d . , Canadian Cases, (Toronto: Carswell Company Limi ted , 1913), at 8. 30. Supra, footnote 22 at 8, note 3. 31. Supra, footnote 29 at 8, note 4. 32. Supra, footnote 23 at 107. 33- Mi lroy v. Lord (1862), 4 De.G.F.& J . 264, at 274. 34. Supra, footnote 29 at 8. - 32 -CHAPTER 3 THE REVOCABLE TRUST IN AMERICA 1 . INTRODUCTION The i n t e r v i v o s t r u s t , sometimes r e f e r r e d to as the l i v i n g t r u s t , enjoys c o n s i d e r a b l e p o p u l a r i t y i n many j u r i s d i c t i o n s of the United States of America. I t i s used i n both i t s revocable and i r r e v o c a b l e forms to a s s i s t i n e s t a t e p l a n n i n g . L i k e i t s Canadian c o u n t e r p a r t , American f e d e r a l tax law favours the use of the i r r e v o c a b l e t r u s t , f o r the revocable t r u s t "has almost no tax consequences, and i s g e n e r a l l y n e u t r a l as to t a x e s " . 1 Nevertheless, there i s c o n s i d e r a b l e l i t e r a -t u r e f o c u s i n g on the revocable t r u s t , e x h o r t i n g i t s a p p l i c a t i o n and o f f e r i n g p r a c t i c a l advice on d r a f t i n g s u i t a b l e p r o v i s i o n s f o r e s t a t e p l a n n i n g purposes. I t has been d e s c r i b e d i n the f o l l o w i n g terms: A revocable t r u s t i s a l e g a l l y recognized r e l a t i o n -s h i p where one person (the grantor) t r a n s f e r s money, s e c u r i t i e s , or other a s s e t s to one or more persons (the t r u s t e e or t r u s t e e s ) to be held i n t r u s t under the terms of a t r u s t agreement. The t r u s t agreement t y p i c a l l y p r o v i d e s t h a t : ( 1 ) the t r u s t income i s to be paid to the grantor during l i f e t i m e ; (2) the t r u s t e e or t r u s t e e s are a u t h o r i z e d to pay t r u s t p r i n -c i p a l to the t r u s t o r or to use i t f o r h i s b e n e f i t , i f necessary; (3) the grantor r e t a i n s the power to change a l l or any of the terms of the t r u s t agreement durin g l i f e t i m e ; (4) the grantor keeps the r i g h t to end the t r u s t at any time, and to r e c e i v e back whatever i s then i n the t r u s t ; and (5) at the grantor's death the t r u s t property i s e i t h e r paid out t o , or kept i n f u r t h e r t r u s t f o r , b e n e f i c i a r i e s - 33 -previously selected by the grantor. 2 Although the revocable trust in estate planning has been used since at least the 192CPs,3 i t i s d i f f i c u l t to determine with any degree of accuracy when i t s s p e c i f i c use as a substitute for the w i l l became acceptable or popular. This i s partly due to the nature of the American states. Like our own provinces, each state has exclusive j u r i s d i c t i o n over property and estate matters, with the result that statutes, caselaw, and customs have not developed uniformly. Moreover, even within each state, the courts have not always been consistent in their approach to the enfo r c e a b i l i t y of the revocable trust as a substitute for a testamentary device.^ Nevertheless, i t i s clear from a review of the a r t i c l e s and texts on the revocable trust which have originated from many di f f e r e n t states that the revocable trust as a w i l l s substitute has found general acceptance, at least in p r i n c i p a l , p a r t i c u l a r l y in the past twenty years. This was not always so; the j u d i c i a l rulings of some states in the f i r s t half of the twentieth century found that revocable trusts were i n v a l i d , while others found them enforceable.5 The particular findings in these cases w i l l be examined in subsequent chapters, when the problem of enforcing the revocable trust in B r i t i s h Columbia i s examined. For the present, the focus w i l l remain on a general overview of the American law. - 34 -2. A BRIEF HISTORY The problem facing the American j u d i c i a r y in accepting the revocable trust as a subst i tute for the w i l l was i t s apparent testamentary nature. The early cases emphasized the degree of control which the s e t t l o r maintained over the trustee and the trus t property and refused to uphold the t r u s t , dec lar ing the re la t ionsh ip a mere agency and the d i spos i t i on testamentary. The 1935 Restatement of the Law of Trusts by the American Law Inst i tute summarized the state of the law as f ol lows: Where the s e t t l or transfers property in t rus t and r e -serves not only a b e n e f i c i a l l i f e estate and a power to revoke and modify the t rus t but also such power to contro l the trustee as to de t a i l s of the adminis tra-t ion of the trust that the trustee i s the agent of the s e t t l o r , the d i spos i t i on so far as i t i s intended to take effect after his death i s testamentary and i s i n v a l i d unless the requirements of the statutes r e l a t i n g to w i l l s are complied with.6 Under th i s doctr ine , the revocable t rus t was found not to be a trust at a l l . As one commentator noted in 1946, some courts simply w i l l not to lerate a s i tuat ion in which the purported trustee i s no more than a feofee to uses in the ancient sense . 7 f i r s t This intolerance seemed to have been the norm in the ha l f of the twentieth century in most American s tates , - 35 although i t was by no means u n i v e r s a l . A p a r t i c u l a r l y notable exception was the so -ca l l ed "tentative t rus t" , also known as the Totten t r u s t , after the case which f i r s t permitted i t . 8 Courts were prepared to enforce a trus t where money was deposited in a savings account by an i n d i v i d u a l in his own name as trustee for another, notwithstanding that the depositor could withdraw a portion or a l l of the deposit during his l i f e . The t rus t was "tentative" and revocable u n t i l death, .at which time "an absolute trus t was created as to the balance on hand at the death of the depos i tor" .9 The irony of the Totten t rus t i s that i t was f i r s t enforced, and is s t i l l enforced, in one of the few states , namely New York, in which there today remains some question as to the en forceab i l i t y of the revocable trus t as a subst i tute for the w i l l . ^ u The problem with the law as stated by the American Law Ins t i tute in 1935 was that i t focused e n t i r e l y upon the resu l t s of the revocable t r u s t . Because the s e t t l o r maintained a large degree of control and property was not disposed of u n t i l death, the trus t was found not to be a trus t at a l l . Such a focus ignores the basic elements of t rus t law. As Professor Scott has pointed out, It f a i l s to take into consideration the formal i ty or lack of formal i ty evidencing the d i spos i t ion of the property.11 - 36 -In time, the focus did sh i f t to the formal i t i e s of the t rus t i t s e l f , p a r t i c u l a r l y after 1944, when the Supreme J u d i c i a l Court of Massachusetts handed down i t s judgement in National Shawmut Bank v. J o y . 1 2 The court thoroughly examined the case law on w i l l s and revocable t rus t s in the State of Massachusetts and other j u r i s d i c t i o n s , and made the fol lowing assessments: The d i s t ingu i sh ing feature of a testamentary d i s p o s i -t ion is that i t remains ambulatory u n t i l the death of the one who makes i t . U n t i l he dies , h is t i t l e r e -mains unimpaired and unaffected. A testamentary d i s -pos i t ion becomes operative only upon and by reason of the death of the owner who makes i t . It operates only upon what he leaves at his death. I f the interes t in question passes from the owner present ly , while he remains a l i v e , the transfer i s in ter vivos and not testamentary. The reservation by the s e t t l o r , in addit ion to an i n -terest for l i f e , of a power to revoke the t r u s t , did not make incomplete or testamentary the g i f t . . . ( T ) h e same i s true , a f o r t i o r i , of a reservat ion of the lesser powers to a l t er or amend the t r u s t , or to withdraw p r i n c i p a l from i t e i ther with or without the consent of the trustee . A reservat ion by a s e t t l o r of the power to control investments does not impair the v a l i d i t y of a t r u s t . 13 Although the decis ion did not expressly c r i t i c i z e the "agency" reasoning of the 1935 Restatement, i t did expressly overrule the widely accepted case which had advanced the agency proposi t ion in Massachusetts pr ior to 1944.^ Nevertheless, National Shawmut Bank v. Joy was greeted with praise by the l ega l community, and has been credited as the main source for the rev i s ion in the Second Restatement of the Law of Trusts - 37 -deal ing with revocable trus ts .15 That r e v i s i o n , published in 1958, s tated: Where a n in teres t in the trus t property i s created in a benef ic iary other than the s e t t l o r , the d i spos i t ion is not testamentary and i n v a l i d for f a i l u r e to comply with the requirements of the Statute of Wi l l s merely because the s e t t l or reserves a b e n e f i c i a l l i f e interes t or because he reserves in addit ion a power to revoke the trust in whole or in part , and a power to modify the t r u s t , and a power to contro l the trustee as to the administrat ion of the t r u s t . 16 Following th i s Second Restatement, the use of the revocable trus t as a n a l t ernat ive to the w i l l gained legit imacy in the courts and statutes of many American states.17 By 1965, the American Bar Associat ion found the revocable trust of s u f f i c i e n t importance to produce a movie on the subject , e n t i t l e d "The Revocable Trust - An Essent ia l Tool for the P r a c t i c i n g Lawyer".18 According to one source, i t was viewed by over t h i r t y thousand people—lawyers, students, and others, in i t s f i r s t four years of d i s t r i b u t i o n . 1 9 It i s not unrea-sonable to conclude that such exposure resulted in the more widespread use of the revocable t r u s t . The form of revocable trus t t r a d i t i o n a l l y used by lawyers and trus t i n s t i t u t i o n s in the States at th i s time was the so ca l l ed "two party trust".20 The "two part ies" does not refer to the number of persons involved in the t r u s t , but rather to the fact that the s e t t l or (the f i r s t party) appoints as trustee another i n d i v i d u a l or i n s t i t u t i o n (the second - 38 -p a r t y ) . However, i n the same year that the American Bar A s s o c i a t i o n produced i t s movie, a non-lawyer named Norman F. Dacey.wrote a book on t r u s t s and w i l l s , e n t i t l e d "How to Avoid Probate".21 Much to the l e g a l p r o f e s s i o n ' s s u r p r i s e and cha-g r i n , the book became a best s e l l e r . Dacey was s t r o n g l y op-posed to the t r a d i t i o n a l probate system, which he considered to be c o r r u p t and expensive. He advocated the use of a t r u s t f o r -mat which became known as the "one p a r t y " , or sometimes the "Dacey", t r u s t . 2 2 E s s e n t i a l l y , t h i s i s the p ersonal d e c l a r a t i o n of t r u s t , where the s e t t l o r h i m s e l f i s the t r u s t e e . While the p ersonal d e c l a r a t i o n of t r u s t i s by no means r e v o l u t i o n a r y , i t touched what one w r i t e r c a l l e d a " s e n s i t i v e nerve" i n the p u b l i c d i s s a t i s f i e d with the t r a d i t i o n a l probate system.23 The Dacey t r u s t had the advantage of s i m p l i c i t y . The s e t t l o r was not r e q u i r e d to t r a n s f e r a s s e t s to a t h i r d par-t y , and a t l e a s t p s y c h o l o g i c a l l y , maintained c o n t r o l over h i s a s s e t s . Although Dacey's book has been d e s c r i b e d as "an amal-gam of s i m p l i s t i c t e a r out t r u s t and w i l l forms and d i a t r i b e s a g a i n s t the l e g a l p r o f e s s i o n " , 2 4 i t has been c r e d i t e d with c r e a t i n g a heightened p u b l i c awareness of the revocable t r u s t g e n e r a l l y , and more p a r t i c u l a r l y , of the a p p l i c a t i o n of the r e v o c a b l e t r u s t as a w i l l s s u b s t i t u t e . 2 5 - 39 -3. PERCEIVED BENEFITS AND DISADVANTAGES Today, there are l e g a l proponents of the revocable t r u s t i n the American l i t e r a t u r e who f i n d i t s u p e r i o r i n every way to the w i l l , and urge i t s use as the main v e h i c l e f o r testamentary d i s p o s i t i o n s . 2 6 Even those who recommend the revocable t r u s t be combined with a w i l l agree that the use of the t r u s t has many advantages and b e n e f i t s . Indeed, as e a r l y as 1926, G i l b e r t Thomas Stephenson publ i s h e d a book intended as a p r a c t i c a l guide f o r the man who i s "undecided whether or not a l i v i n g t r u s t w i l l best serve h i s purposes".27 Stephenson was an expert i n the f i e l d of e s t a t e p l a n n i n g , and needless to say, he responded to t h i s i s s u e i n the a f f i r m a t i v e . He d e s c r i b e s three general purposes f o r the l i v i n g t r u s t : as a v e h i c l e to c r e a t e or b u i l d up one's e s t a t e ; to conserve and care f o r that e s t a t e once c r e a t e d ; and to administer i t during l i f e and upon death.28 j n t h i s l a s t category, which i s of key i n t e r e s t here, Stephenson viewed the t r u s t as a supplement and enhancement to the w i l l . In p a r t i c u l a r , he suggested the l i v i n g t r u s t enables the s e t t l o r or t e s t a t o r to "see h i s w i l l i n o p e r a t i o n " . 29 i t o f f e r s the o p p o r t u n i t y to study and evaluate not only the terms of the t r u s t i n a c t i o n , but a l s o to observe the t r u s t e e ' s a b i l i t y to e f f e c t i v e l y c a r r y out those terms. Moreover, i f d i f f i c u l t i e s a r i s e , the t r u s t e e has the o p p o r t u n i t y to review the s e t t l o r ' s i n t e n t i o n s with the s e t t l o r , and i f necessary, the t r u s t can be amended to more - 40 -a c c u r a t e l y r e f l e c t t h o s e i n t e n t i o n s , o r t o r e p l a c e t h e t r u s t e e . M o d e r n A m e r i c a n c o m m e n t a t o r s c i t e t h i s o p p o r t u n i t y t o v i e w o n e ' s w i l l i n o p e r a t i o n i s o n l y o n e o f t h e many b e n e f i t s o f t h e r e v o c a b l e t r u s t . B y e m p l o y i n g s u c h a t r u s t , an i n d i v i d u a l c a n i n s u r e a g a i n s t t h e d i s r u p t i v e r e s u l t s o f a f u t u r e m e n t a l o r p h y s i c a l i n f i r m i t y . 3 0 W h i l e t h e s e t t l o r i s c a p a b l e , h e o r s h e c a n b e i n v o l v e d i n t h e a d m i n i s t r a t i o n o f t h e e s t a t e , a s e i t h e r a t r u s t e e o r b y r e t a i n i n g m a n a g e r i a l p o w e r s . I f , h o w e v e r , a p h y s i c a l o r m e n t a l i n f i r m i t y i n t e r v e n e s , t h e t r u s t c a n p r o v i d e t h a t o t h e r t r u s t e e s a s s u m e t h e s e r e s p o n s i b l i t i e s . T h i s p r o v i s i o n n o t o n l y p e r m i t s " u n i n t e r r u p t e d m a n a g e m e n t " 3 1 o f t h e e s t a t e , b u t a l s o a v o i d s t h e e x p e n s e , t i m e , a n d p u b l i c i t y o f a n a p p l i c a t i o n t o t h e c o u r t f o r t h e a p p o i n t m e n t o f a g u a r d i a n o r c o n s e r v a t o r . I n a d d i t i o n , a s o n e s o u r c e n o t e s , t h e s e t t l o r r e t a i n s t h e c h o i c e a n d c o n t r o l o v e r whom w i l l b e a p p o i n t e d a s g u a r d i a n o r c o n s e r v a t o r . 3 2 W h i l e a n e n d u r i n g p o w e r o f a t t o r n e y m i g h t a p p e a r a s i m p l i e r a l t e r n a t i v e i n B r i t i s h C o l u m b i a , i t m u s t b e r e m e m b e r e d t h a t s u c h a p o w e r t e r m i n a t e s w i t h t h e d e a t h o f t h e d o n o r . W i t h t h e r e v o c a b l e t r u s t , u n i n t e r r u p t e d m a n a g e m e n t c o n t i n u e s a f t e r t h e d e a t h o f t h e s e t t l o r . T h e A m e r i c a n p r o p o n e n t s o f t h e r e v o c a b l e t r u s t p a r t i c u l a r l y e m p h a s i z e t h i s b e n e f i t when a d v a n c i n g t h e t r u s t a s a n a l t e r n a t i v e t o t h e w i l l , f o r i t a v o i d s t h e d i s r u p t i v e e f f e c t s o f p r o b a t e p r o c e e d i n g s . A s o n e - 4 1 -w r i t e r s t a t e s , t h e r e v o c a b l e t r u s t i s : a t r u s t t h a t i s f a r b e t t e r t h a n a w i l l a s a way t o t r a n s f e r p r o p e r t y t o o t h e r s i n t h a t i t a v o i d s t h e p u b l i c i t y , d e l a y a n d e x p e n s e o f p r o b a t e c o u r t p r o c e e d i n g s t h a t m i g h t be u n d e r t a k e n when p r o p e r t y i s t r a n s f e r r e d t h r o u g h a w i l l . 3 3 T h e t h r e e d i s a d v a n t a g e s o f p r o b a t e m e n t i o n e d , n a m e l y p u b l i c i t y , d e l a y , a n d e x p e n s e , a r e t h e c l a s s i c p r o b l e m s c i t e d b y m o s t A m e r i c a n c o m m e n t a t o r s who a d v o c a t e t h e r e p l a c e m e n t o f t h e w i l l w i t h t h e r e v o c a b l e t r u s t . 3 ^ W i t h r e s p e c t t o t h e f i r s t , p u b l i c i t y , a n y o n e c a n u p o n d e m a n d g a i n a c c e s s t o t h e e n t i r e f i n a n c i a l i n f o r m a t i o n o f t h e d e c e a s e d ' s e s t a t e a s s e t o u t i n t h e r e q u i r e d d i s c l o s u r e s t a t e m e n t s f o u n d i n t h e p r o b a t e d o c u m e n t s . B y e m p l o y i n g t h e r e v o c a b l e t r u s t , s u c h i n f o r m a t i o n i s l a r g e l y , i f n o t t o t a l l y , k e p t f r o m t h e p u b l i c e y e . T h e p r o b a t e s y s t e m i n m o s t A m e r i c a n s t a t e s i s a l s o a p p a r e n t l y v e r y c o m p l i c a t e d , r e q u i r i n g c o n s i d e r a b l e s u p e r v i s i o n o f e a c h s t e p i n t h e p r o c e e d i n g . F o r e x a m p l e , c o u r t a p p r o v a l i s r e q u i r e d i n many s t a t e s f o r p u r c h a s e s a n d s a l e s o f e s t a t e a s s e t s , a s w e l l a s t h e p a s s i n g o f e x e c u t o r ' s a c c o u n t s . 3 5 T h e t i m e f o r s e t t l i n g a n e s t a t e i s e s t i m a t e d b y o n e C a l i f o r n i a n p r a c t i t i o n e r t o be a t l e a s t o n e a n d o n e h a l f t o t w o y e a r s , w i t h t h r e e t o f o u r y e a r s " n o t u n r e a s o n a b l e " . 36 A c c o r d i n g t o t h i s s a m e p r a c t i t i o n e r , s u c h d e l a y s h a v e a d i r e c t c o r r e l a t i o n n o t o n l y t o t h e a n x i e t y a n d s t r e s s e x p e r i e n c e d b y t h e t e s t a t o r ' s f a m i l y , b u t a l s o t h e l i k e l i h o o d o f c h a l l e n g e s t o t h e w i l l i t -- 42 -s e l f . 3 7 The avoidance of such c o n f l i c t and challenges by using the revocable trust i s c l e a r l y an advantage. The delay inherent in probate proceedings i s also said to i n h i b i t the d i s t r i b u t i o n of assets, both to creditors and to the bene f i c i a r i e s of the estate, for u n t i l a grant of probate i s obtained, probate assets are in a "suspended state".38 Although the practice varies from state to state, generally speaking there i s personal l i a b i l i t y on the part of the executor i f he or she dist r i b u t e s estate assets to the det-riment of creditors or tax authorities.39 On the other hand, the trustee of a revocable t r u s t , while responsible for certain death taxes, T does not apparently incur personal l i a b i l i t y when, after the death of the s e t t l o r and in accordance with the terms of the tr u s t , he makes di s t r i b u t i o n s before the creditor has taken appropriate steps to reach the trust assets.^ u The generally accepted conclusion i s therefore that "property in a revocable l i v i n g trust may be more readily available to benef i c i a r i e s than probate assets".^1 It should be noted that the use of the revocable trust to avoid of the expense of probate i s not universally ac-cepted by the American commentators. Those advancing the argu-ment point to the cost of executors' commissions and attorneys' fees in probating an estate. One author, using Estate Tax Sta-- 43 -t i s t i c s from the Internal Revenue Service concludes that these commissions and fees amount to approximately seven per cent of the gross value of an estate. 1* 2 Another estimates the percentage in a range from 3.9 to 12.8 per cent. 1^ Although the s t a t i s t i c s r e l i e d upon to determine these figures were somewhat dated in both instances, there i s no reason to believe that they are not accurate, and in fact, i t i s more l i k e l y that the figures have risen in recent years. However, the opponents of the argument point out that federal estate taxes and state inheritance or estate taxes must s t i l l be determined and paid whether a w i l l or a revocable trust i s employed.^ In addition, i t i s open to debate whether the percentages quoted above represent a substantial cost to the estate; i t would de-pend largely upon the size and complexity of the estate. Those commentators who question the cost factor of using the revocable trust as a substitute for the w i l l also point out that there are no s t a t i s t i c s available as to the cost of setting up and administering a revocable t r u s t . These costs would vary quite substantially depending upon the length of time in which the trust w i l l operate. Obviously, the t o t a l trustees fees would be much higher in a trust which operated for twenty years versus one which operated for only one or two. While the use of a "one party t r u s t " would eliminate such fees, a r e a l i s t i c comparison of the costs of the revocable trust and a probate proceeding i s c l e a r l y d i f f i c u l t . - 44 -In l i g h t of the d i f f i c u l t y in accurately assessing the comparative costs , some doubt can be and has been raised as to the e f f icacy of using a revocable t r u s t , i f i t s only pur-pose i s to avoid the expense of probate. However, according to most American commentators, the benefits of the revocable t rus t are much more extensive than merely avoiding probate. Some of these have already been mentioned. In add i t ion , i t i s said that the less stringent l ega l formal i t i e s of the t rus t i n s t r u -ment protect i t from the fate of the w i l l , which i s automatical ly revoked by a subsequent marriage or divorce.45 For the same reason, i t i s less onerous to prove the f o r m a l i -t i e s of a trus t .46 Moreover, i t i s less l i k e l y than a w i l l to be attacked on the grounds of mental incompetence or undue inf luence , as such grounds are d i f f i c u l t to prove when "a trus t has been created, funded and in operation under the donor's surve i l lance during his l i fe t ime".47 One writer even sug-gests that he found i t easier to convince c l i e n t s to execute a revocable t rus t than a w i l l , for (W)i l l s denoted death. A trus t inter vivos symbol-ized l i f e . 4 8 Advocates also note that the trus t instrument permits the choice of j u r i s d i c t i o n a l matters, by the inc lus ion of a clause deal ing with v e n u e . 4 9 While such choice must bear some connection with the trus t part ies or property, i t i s noted - 45 -t h a t t h e w i l l d o e s n o t o f f e r s u c h a c h o i c e a t a l l . S i m i l a r l y , t h e u s e o f a t r u s t a v o i d s a n c i l l a r y p r o b a t e p r o c e e d i n g s i n o t h -e r j u r i s d i c t i o n s i f a s s e t s a r e l o c a t e d i n m o r e t h a n o n e j u r i s -d i c t i o n . ^ u I t a l s o p e r m i t s t h e c i r c u m v e n t i o n o f t h e a p p l i c a t i o n o f m o r t m a i n s t a t u t e s i n c e r t a i n s t a t e s . Some A m e r i c a c o m m e n t a t o r s h a v e a l s o p o i n t e d t o t h e p o s s i b l e c o n t r o l 52 o f m a r i t a l p r o p e r t y t h r o u g h t h e u s e o f t h e r e v o c a b l e t r u s t . T h e A m e r i c a n s o u r c e s do n o t , o f c o u r s e , p r e s e n t t h e r e v o c a b l e t r u s t a s a p e r f e c t s o l u t i o n f o r a l l e s t a t e p l a n n i n g n e e d s . L i k e a n y l e g a l t o o l , t h e r e a r e d i s a d v a n t a g e s a t t a c h e d t o t h e u s e o f t h e r e v o c a b l e t r u s t , a n d t h e s e a r e a c k n o w l e d g e d b y t h e w r i t e r s . W h e t h e r a t w o p a r t y o r o n e p a r t y t r u s t i s em-p l o y e d , t h e r e i s some l o s s o f c o n t r o l a n d d i s c r e t i o n i n t h e u s e o f t h e s e t t l o r ' s p r o p e r t y . N o t w i t h s t a n d i n g a n y s a v i n g s i n p r o -b a t e p r o c e e d i n g s , t h e r e a r e c o s t s i n c u r r e d i n s e t t i n g u p t h e 5 3 t r u s t — l a w y e r ' s f e e s , t r a n s f e r f e e s , a n d t r u s t e e f e e s . ( T h e s e w o u l d , o f c o u r s e , n o t a p p l y t o a D a c e y f o r m t r u s t . ) T h e r e i s a l s o t h e t i m e a n d e x p e n s e o f k e e p i n g s e p a r a t e a n d a c c u r a t e b o o k s f o r t h e t r u s t . 5 4 I n a d d i t i o n , w h i l e a w i l l i s e a s i l y a m e n d e d , a m e n d m e n t s t o a t r u s t a g r e e m e n t d o n o t " e r a s e t h e r e c o r d " . 5 5 T h i s c a n b e p a r t i c u l a r l y e m b a r a s s i n g a n d p o t e n t i a l l y l i t i g i o u s i f b e n e f i c i a r i e s a r e c h a n g e d . A l t h o u g h a r e v o c a b l e t r u s t c a n be r e v o k e d i n i t s e n t i r e t y , t h i s i s a m o r e c o m p l i c a t e d p r o c e d u r e t h a n r e v o k i n g a w i l l . A g a i n , t h e u s e o f a D a c e y t r u s t w o u l d a l l e v i a t e t h i s p r o b l e m s o m e w h a t . H o w e v e r , - 46 -t h e u s e o f s u c h a t r u s t h a s i t s own d i f f i c u l t i e s , p a r t i c u l a r l y w i t h r e s p e c t t o t h e s u c c e e d i n g t r u s t e e s . I f t h e r e h a v e b e e n b r e a c h e s o f t h e f i d u c i a r y d u t i e s b y t h e s e t t l o r / t r u s t e e , t h e s u c c e e d i n g t r u s t e e may be l i a b l e f o r s u c h b r e a c h e s , a n d a t t h e v e r y l e a s t , w i l l b e u n d e r a d u t y t o r e v i e w t h e a c t s o f t h e p r e d e c e s s o r . ^ A n o t h e r d r a w b a c k t o t h e r e v o c a b l e t r u s t c i t e d i s i t s u n s u i t a b i l i t y f o r some a s s e t s . 5 7 S o m e a s s e t s a r e m o r e d i f f i c u l t t o h o l d " i n t r u s t " t h a n o t h e r s , a n d " a t r u s t i s a f u l l y e f f e c t i v e t e s t a m e n t a r y s u b s t i t u t e o n l y i f t h e s e t t l o r t r a n s f e r s a l l h i s p r o p e r t y t o t h e t r u s t p r i o r t o h i s own d e a t h " . 5 ^ H o w e v e r , t h e u s e o f a " p o u r o v e r w i l l " i s g e n e r a l l y a d v i s e d b y t h e A m e r i c a n s o u r c e s , t o b e u s e d i n c o n -j u n c t i o n w i t h t h e r e v o c a b l e t r u s t . A s s e t s n o t t r a n s f e r r e d t o t h e t r u s t " d u e t o n e g l e c t , i n t e n t , o r d e s i g n " 5 9 c a n b e c a u g h t b y a w i l l c o n t a i n i n g p r o v i s i o n s t o t r a n s f e r s u c h a s s e t s t o t h e e x i s t i n g r e v o c a b l e t r u s t . A w i l l i s a l s o n e c e s s a r y f o r t h e a p p o i n t m e n t o f g u a r d i a n s w h e r e t h e r e a r e m i n o r c h i l d r e n i n v o l v e d . T h e A m e r i c a n s o u r c e s a l s o n o t e t h a t t h e r e a r e , i n e v i -6 0 t a b l y , some t a x p r o b l e m s i n u s i n g t h e r e v o c a b l e t r u s t . F o r e x a m p l e , a t a x i d e n t i f i c a t i o n n u m b e r i s r e q u i r e d f o r a l l t r u s t s , n o t w i t h s t a n d i n g t h a t t h e i n c o m e o f a r e v o c a b l e t r u s t i s t a x e d i n t h e h a n d s o f t h e s e t t l o r . I n a d d i t i o n , i f a s s e t s a r e - 47 -held in more than one j u r i s d i c t i o n , double taxing may r e s u l t . There are also the l o c a l taxes for transferring property to the t r u s t . But perhaps one of the greatest overa l l disadvantages in using a revocable trust as opposed to a w i l l i s the fact that there i s no "long standing body of law" 6 1 t o r e l y u P o n in considering the use of the revocable trust for th i s purpose. Drafting must be c a r e f u l l y reviewed, and formalities s a t i s f i e d . Notwithstanding such concerns, i t i s clear that the revocable trust i s accepted and employed as an alternative to the w i l l in many American j u r i s d i c t i o n s today. Whether i t can be transplanted to the locale of B r i t i s h Columbia to a s s i s t in the circumventing of the application of the Wills Variation Act remains to be seen. However, i t i s interesting to note the comments of one American expert in th i s topic: Various r e s t r i c t i o n s may be imposed by state law on 0 ' s freedom to decide who w i l l be the beneficiaries of his bounty when he dies and in what manner the benefits w i l l be conferred on his b e n e f i c i a r i e s . To the extent that these r e s t r i c t i o n s are applicable on-ly to probate assets, they can be avoided by avoiding probate. To the extent that they are not limited to probate, they may be avoided by placing the property under the more favourable law of another state. - 48 -Footnotes To Chapter 3 1. Report of the Committee on Estate and Tax Planning, "The Revocable L i v i n g Trust As An Estate Planning Tool" , 7 Real Property, Probate & Trust Journal 223. 2. Edward S. Schles inger, "Seven Case His tor i e s of Revocable Trusts", (1971) 5 U. of M. Inst . E s t . P lan. 71-16, at ph. 71-1600.1 3- See, for example, G i lber t Thomas Stephensen, L iv ing  Trus t s , (New York: F . S . Crofts & C o . , 1928); Paul B. Sargent, "Facts and F a l l a c i e s of L i v i n g Trusts", (1971), 2 U. of M. Inst . E s t . Plan. 71-2, at ph. 71.201 4. Edward C. King, "A Reappraisal of the Revocable Trust" , (December 1946), 19 R . M . L . R . 1 at 2. 5. I b i d . 6. American Law I n s t i t u t e , Restatement of the Law: Trusts , (1935), at ph. 57. 7. Supra, footnote 4, at 18. 8. Matter of Totten, 179 N.Y. 112, 71 N . E . 748 (1904). 9. Austin Wakeman Scott , The Law of Trus t s , (Boston: L i t t l e , Brown & C o . , 1956), V o l . I , at ph 58.2. 10. See the discussion of Newman v. Pore at 154-157 here in . 11. Supra, footnote 9, at 485. 12. 315 Mass 457, 53 N . E . 2d 113. 13- I b i d . , at 122. 14. McEvoy v. Boston Five Cents Savings Bank, 201 Mass 50, 87 N . E . 465. 15. James C. Roth, "Estate Planning in F l o r i d a : The Revocable Inter Vivos Trust" , ( 1963) 16 U. of F l o r i d a L . R . 34, at 48. 16. American Law I n s t i t u t e , Restatement of Law: Trus t s , (1958), at ph. 57. 17. Supra, footnote 2, at ph. 71.1600.3-18. "The Revocable Trus t , An Essent ia l Tool for the Prac t i c ing - 49 -Lawyer", a f i lm produced by the American Bar Assoc ia t ion , as discussed in Stanley M. Johanson, "Revocable Trus t s , Widows" E l e c t i o n , W i l l s and Community Property: The Tax Problems", (1969) 47 Texas L . R . 537 and 1247. 19. I b i d . , at 537. 20. Austin Fleming, "One Party Trustees", ( 1968) 2 U. of M. Inst . E s t . P l a n . , at 68-300; see also Johanson, supra, footnote 18 at 541 and Scott , supra, footnote 9 at ph. 57.1. ~ 21. Supra, footnote 18, at 538. 22. Herbert E . Marks, "The Revocable Declaration of Trust" , (1966) 105 Trusts & Estates 1141, at 1141. 23. Mil ton R. Meyer, "Revocable Trust as a W i l l Substitute—A Coming of Age", (1967) 39 Colorada L . R . 180, at 191. 24. Supra, footnote 18, at 538. 25. I b i d . 26. See, for example: Wil l iam E . Carr , Revocable Trusts , (Englewood C l i f f s , N . J . : P r e n t i c e - H a l l I n c . , 1980); George M. Turner, Revocable Trusts , (Colorado Springs: Shepard"s/McGraw-Hill I n c . , 1980). 27. Stephensen, supra, footnote 3, at v i i i . 28. Ibid . , at 27. 29. I b i d . , at 47. 30. W. Schwartz, Future Interests and Estate Planning, (1965), at ph 4 .8 . ; Milton E . Meyer, "Non Taxable Advantages of the Revocable Trust (With Emphasis on Use As A W i l l Subst i tute)", (1960) 37 Dicta 333, at 334; Turner, supra, footnote 26, at 43. 31. Carr , supra, footnote 26, at 48. 32. Supra, footnote 1, at 224. 33. C a r r , supra, footnote 26., at 5. 34. I b i d . , at 38-50; see also Turner, supra, footnote 26, chapter 2, and Schwartz, supra, footnote 30, at ph. 4.8. 35. Supra, footnote 1, at 226. 36. Turner, supra, footnote 26, at 16-17. - 50 -37. I b i d . , at 5. 38. Supra, footnote 18, at 110. 39. I b i d . , at 120. 40. I b i d . , at 121. 41. Supra, footnote 1, at 226. 42. Carr, supra, footnote 26, at 48. 43. Turner, supra, footnote 26, at 14. 44. Supra, footnote 1, at 225. 45. Supra, footnote 3, at ph. 71 .203. 46. Edward C. King, " T r u s t s As S u b s t i t u t e s f o r W i l l s " (Dec. 1941), 14 Rocky Mtn. L.R. 1, at 4. 47. Supra, footnote 1, at 227. 48. Supra, footnote 3, at ph. 71.201. 49. James A. Casner, " E s t a t e P l a n n i n g — A v o i d a n c e of Probate" (1960), 60 Columbia L.R. 108, at 125. 50. I b i d . , at 134. 51. Richard W. Bartke, "Community Property Law Reform i n the United States and i n Canada--A Comparison and C r i t i q u e " (1976), 50 Tulane L.R. 213, at 139-52. ' I b i d . ; see a l s o supra, footnote 26, at 36. 53- Supra, footnote 1, at 227. 54. I b i d . , at 228; see al s o John Cohen and Gera l d i n e S. Hemmerling, I n t e r Vivos T r u s t s : Planning, D r a f t i n g and  Taxati o n , (McGraw H i l l Book Company/Shepards, 1975) , at" 35. 55. Supra, footnote 3, at ph. 71 .203. 56. John H. Martin and John W. Nich o l s o n , "The New Phenomenon: S e t t l o r as Trustee of a Funded L i v i n g T r u s t " (1971), 110 T r u s t s & E s t a t e s 164, 354, and 458, at 459. 57. Supra, footnote 1, at 232. 58. Supra, footnote 56, at 354. - 51 -59. Supra, footnote 226, at 63. 60. Supra, footnote 3, at ph. 71.203. 61. Supra, footnote 49, at 124. 62. James A. Casnor, Estate Planning, . (Boston: L i t t l e , Brown and Company, 1980), 4th e d . , V o l . I , at 331-- 52 -CHAPTER 4 TRANSPLANTING THE REVOCABLE TRUST TO B. C. 1. INTRODUCTION While the revocable trust may be established as an alternate to a w i l l in the United States, the same cannot be said in Canada. It i s ce r t a i n l y recognized as a useful tool in estate planning,1 but i t i s most often employed in retirement savings plans, blind trusts for p o l i t i c i a n s , and employee benefit plans. Tax laws are p a r t i a l l y to blame for the underuse of the revocable trust as a testamentary vehicle. The at t r i b u t i o n rules in the Income Tax A c t 2 have the effect of taxing income in the hands of the s e t t l o r , an often undesirable result in estate planning. However, i t i s undoubtedly true that the lack of popularity of the revocable trust as an alternative to the w i l l i s also due to i n s u f f i c i e n t analysis of, and exposure to, the revocable trust generally. In fact, a s u p e r f i c i a l examination of the limited caselaw and commentary available in Canada might lead one to the conclusion that only an irrevocable trust i s enforceable.3 While such a conclusion i s obviously wrong (witness the well established uses of the revocable trust mentioned above), the state of Canadian law i s - 53 -by no means c l e a r when i t addresses such t r u s t s . To understand why t h i s i s so, and to erase any misapprehension that a revocable t r u s t i s a l e g a l l y e n f o r c e a b l e instrument, i t i s necessary to re-examine some b a s i c p r i n c i p l e s of t r u s t law. 2. THE COMPLETELY CONSTITUTED TRUST It w i l l be r e c a l l e d t h a t a t r u s t must c o n t a i n "the three c e r t a i n t i e s " - the i n t e n t i o n to c r e a t e a t r u s t , t r u s t p r o p e r t y , and t r u s t o b j e c t s . However, i n order f o r the t r u s t to be l e g a l l y e n f o r c e a b l e , the " t r u s t property must be vested i n the t r u s t e e " . 1 * Whether t h i s i s done by a t r a n s f e r to a t r u s t e e or by an e f f e c t i v e d e c l a r a t i o n of t r u s t , only when i t i s done i s there what i s c a l l e d a "completely c o n s t i t u t e d t r u s t " . I f there i s no s a t i s f a c t o r y t r a n s f e r of the t r u s t p r operty, the t r u s t w i l l not be enforced by the c o u r t s . T h i s question of what completely c o n s t i t u t e s a t r u s t was s e t t l e d i n M i l r o y v. Lord,5 a d e c i s i o n of the Lord J u s t i c e s i n 1862. In that case, the deceased had, during h i s l i f e t i m e , executed a t r u s t document wherein he purported to as s i g n c e r t a i n bank shares to the Defendant, to be held i n t r u s t f o r the deceased's n i e c e . The Defendant a l s o held powers of a t t o r n e y to t r a n s f e r these shares and r e c e i v e d i v i d e n d s from them. The shares, however, were never a c t u a l l y t r a n s f e r r e d to - 54 -t h e D e f e n d a n t a s t r u s t e e . L o r d J u s t i c e T u r n e r c o n c l u d e d t h a t "no p e r f e c t t r u s t w a s e v e r c r e a t e d " b e c a u s e t h e s h a r e s " n e v e r l e g a l l y v e s t e d i n h i m " . ^ T h e p r i n c i p l e o f c o m p l e t e l y c o n s t i t u t i n g a t r u s t i s s e t o u t i n t h e f o l l o w i n g p a s s a g e : I t a k e t h e l a w o f t h i s C o u r t t o b e w e l l s e t t l e d , t h a t , i n o r d e r t o r e n d e r a v o l u n t a r y s e t t l e m e n t v a l i d a n d e f f e c t u a l , t h e s e t t l e r m u s t h a v e d o n e e v e r y t h i n g w h i c h , a c c o r d i n g t o t h e n a t u r e o f t h e p r o p e r t y c o m -p r i s e d i n t h e s e t t l e m e n t , was n e c e s s a r y t o b e d o n e i n o r d e r t o t r a n s f e r t h e p r o p e r t y a n d r e n d e r t h e s e t t l e -m e n t b i n d i n g u p o n h i m . He may o f c o u r s e d o t h i s b y a c t u a l l y t r a n s f e r r i n g t h e p r o p e r t y t o t h e p e r s o n s f o r whom he i n t e n d s t o p r o v i d e , a n d t h e p r o v i s i o n w i l l t h e n b e e f f e c t u a l , a n d i t w i l l b e e q u a l l y e f f e c t u a l i f h e t r a n s f e r s t h e p r o p e r t y t o a t r u s t e e f o r t h e p u r p o s e s o f t h e s e t t l e m e n t , o r d e c l a r e s t h a t h e h i m -s e l f h o l d s i t i n t r u s t f o r t h o s e p u r p o s e s . . . b u t , i n o r d e r t o r e n d e r t h e s e t t l e m e n t b i n d i n g , o n e o r o t h e r o f t h e s e m o d e s m u s t , a s I u n d e r s t a n d t h e l a w o f t h i s C o u r t , b e r e s o r t e d t o , f o r t h e r e i s no e q u i t y i n t h i s C o u r t t o p e r f e c t a n i m p e r f e c t g i f t . 7 T h i s p r i n c i p l e , s o c l e a r i n t h e c o n t e x t o f t h e f a c t s i n M i l r o y v . L o r d , h a s c r e a t e d some d i f f i c u l t i e s when a p p l i e d i n s u b s e q u e n t c a s e s . I n d e e d , i t s m i s a p p l i c a t i o n h a s r e s u l t e d i n t h e c o n f u s i o n s u r r o u n d i n g r e v o c a b l e t r u s t s . T h e d i f f i c u l t i e s a r i s e i n d i s t i n g u i s h i n g t h e c h a r a c t e r o f t h e t r a n s f e r i n q u e s t i o n . T h e p a s s a g e q u o t e d a b o v e s e t s o u t t h e t h r e e p o s s i b l e m e t h o d s o f t r a n s f e r r i n g p r o p e r t y : f r o m t h e s e t t l o r d i r e c t l y t o t h e b e n e f i c i a r y ; f r o m t h e s e t t l o r t o a t r u s t e e i n t r u s t f o r t h e b e n e f i c i a r y ; o r f r o m t h e s e t t l o r b y a - 55 -p e r s o n a l d e c l a r a t i o n of t r u s t f o r the b e n e f i c i a r y . In many cases, the f a c t s , or perhaps only the arguments, have d i s g u i s e d the t r u e nature of the t r a n s f e r . For example, i f a d i r e c t t r a n s f e r to a b e n e f i c i a r y i s incomplete f o r some reason, the argument can (and has) been made that the court should f i n d that the s e t t l o r was n e v e r t h e l e s s d e c l a r i n g h i m s e l f as a t r u s t e e of the prop e r t y f o r the intended b e n e f i c i a r y . The same argument can be made, with somewhat l e s s f o r c e , i n an incomplete t r a n s f e r to a t r u s t e e . The s t r e n g t h of t h i s argument i s that there i s never a v e r i f i a b l e t r a n s f e r of pro p e r t y i n a d e c l a r a t i o n of t r u s t . There are only the donor's words and a c t i o n s to be i n t e r p r e t e d i n d e c i d i n g whether there has been a t r a n s f e r of p r o p e r t y . The co u r t s must determine i f such words and a c t i o n s c o n s t i t u t e a perso n a l d e c l a r a t i o n of t r u s t or merely an incomplete g i f t or t r a n s f e r to a t r u s t e e . In t h e i r e f f o r t s to do so, the c o u r t s have focused upon the b i n d i n g nature of the " t r a n s f e r " . In Warriner v. Rogers,8 Bacon, V. C , i n t e r p r e t e d M i l r o y v. Lord to mean that a donor or s e t t l o r could make a t r u s t b i n d i n g only by " a b s o l u t e l y " p a r t i n g with h i s i n t e r e s t i n the t r u s t p r o p e r t y . In that case, the deceased gave a box c o n t a i n i n g a deed and keys to her house to the P l a i n t i f f . I t a l s o contained a memorandum s t a t i n g "(T)he contents of t h i s box i s a deed of g i f t . . . " to the P l a i n t i f f . However, the box was . - 56 -not t o be opened u n t i l the deceased's d e a t h . The P l a i n t i f f p leaded t h a t t h i s amounted t o a d e c l a r a t i o n o f t r u s t . The c o u r t d i s a g r e e d , s t a t i n g t h a t the donor s h o u l d have a b s o l u t e l y p a r t e d w i t h t h a t i n t e r e s t which has been h i s up t o the time o f the d e c l a r a t i o n , s h o u l d have e f f e c t i v e l y changed h i s r i g h t i n t h a t r e s p e c t and put the p r o p e r t y out o f h i s power, at l e a s t i n the way o f i n t e r e s t . ? T h i s passage l e a v e s open the p o s s i b i l i t y o f r e t a i n i n g some o t h e r i n t e r e s t i n the p r o p e r t y , such as a l i f e i n t e r e s t , or even a power t o r e v o k e . However, i t i s the phrase " a b s o l u t e l y p a r t e d " which has s u b s e q u e n t l y been emphasized i n some c a s e s , l e a d i n g e v e n t u a l l y t o the use o f the word " i r r e v o c a b l e " when d i s c u s s i n g c o m p l e t e l y c o n s t i t u t e d t r u s t s . In R i c h a r d s v. D e l r i d g e , 1 0 an endorsement on a l e a s e t h a t " ( T ) h i s deed and a l l t h e r e t o b e l o n g i n g I g i v e t o [R] from t h i s time f o r t h " was h e l d t o be i n s u f f i c i e n t t o c o n s t i t u t e a t r u s t . J e s s e l , M. R., s t a t e s the p r i n c i p l e i n t h i s way: A man may t r a n s f e r h i s p r o p e r t y , w i t h o u t v a l u a b l e c o n s i d e r a t i o n , i n one o f two ways: he may e i t h e r do such a c t s as amount i n law to a conveyance or a s s i g n -ment o f the p r o p e r t y , and thus c o m p l e t e l y d i v e s t h i m s e l f o f the l e g a l o w nership, i n which case the person who by t h o s e a c t s a c q u i r e s the p r o p e r t y t a k e s i t b e n e f i c i a l l y , or on t r u s t , as the case may be; or the l e g a l owner o f the p r o p e r t y may, by one or o t h e r modes r e c o g n i z e d as amounting t o a v a l i d d e c l a r a t i o n o f t r u s t , c o n s t i t u t e h i m s e l f a t r u s t e e , and, w i t h o u t an a c t u a l t r a n s f e r o f the l e g a l t i t l e may so d e a l w i t h the p r o p e r t y as t o d e p r i v e h i m s e l f o f i t s b e n e f i c i a l ownership . . . 1 1 - 57 -The suggestion that the donor or s e t t l o r "completely d i v e s t h i m s e l f " of the l e g a l ownership and " d e p r i v e " h i m s e l f of the b e n e f i c i a l ownership was taken one step f u r t h e r i n Re  Cozens 12. There, the court suggested t h a t , where a d e c l a r a t i o n o f t r u s t i s r e l i e d upon, a present " i r r e v o c a b l e " d e c l a r a t i o n must be proved. 13 The use of the word i r r e v o c a b l e i s unf o r t u n a t e , f o r i t suggests that the donor cannot r e t a i n a power to revoke the d e c l a r a t i o n . The e d i t o r s of the t h i r t e e n t h e d i t i o n of U n d e r h i l l ' s Law of , T r u s t s and  Trustees 1^ counter that the term " i r r e v o c a b l e " should be taken to mean only that the " s e t t l o r must have made a f i n a l b i n d i n g unequivocal d e c i s i o n " to assume the r o l e of t r u s t e e . In other words, there must be a c l e a r i n t e n t i o n to d e c l a r e coupled with the words or a c t i o n s of a d e c l a r a t i o n . R e g r e t t a b l y , the d i s t i n c t i o n between an i r r e v o c a b l e i n t e n t i o n to d e c l a r e a t r u s t and a t r u s t that i s i r r e v o c a b l e has not always been understood i n the Canadian cases on the s u b j e c t . While the cases which suggest the need f o r i r r e v o c a b i l i t y i n order to completely c o n s t i t u t e a t r u s t are by no means a u t h o r i t a t i v e , the d i c t a does e x i s t , and should be c a r e f u l l y reviewed. One of the e a r l i e s t reported Canadian cases dates from On t a r i o i n 1892. In Kreh v. Moses, 15 the deceased, durin g h i s l i f e t i m e , gave h i s f i a n c e e a w r i t t e n document, - 58 -d i r e c t e d to h i s l i f e insurance company, which s t a t e d "I give and bequeath" the proceeds of the p o l i c y to her. He t o l d her at the time that i t was "as good as a w i l l " . The court purported to f o l l o w the M i l r o y v. Lord and Richards v. D e l r i d g e d e c i s i o n s , i n s t a t i n g : Assuming t h a t enough appears to r a i s e some t r u s t — which, however, I do not say i s so — I t h i n k the cases go to show that the t r u s t intended must be i r r e v o c a b l e , before the c o u r t w i l l enforce a pure act of v o l i t i o n a g a i n s t the donor or h i s r e p r e s e n t a t i v e s . ^ I t i s immediately apparent that the circumstances d i s c l o s e no c l e a r i n t e n t i o n to c r e a t e a t r u s t , and indeed the court so found i n the above passage. In a d d i t i o n , the court found the w r i t i n g to be testamentary i n nature, and not p r o p e r l y executed. I t i s thus f a i r to say that the c o u r t ' s i n t e r p r e t a t i o n of e a r l i e r cases as r e q u i r i n g i r r e v o c a b i l i t y may be d i s c o u n t e d . Another case contemporary with Kreh v. Moses may be s a i d to be even l e s s a u t h o r i t a t i v e on the s u b j e c t . In C l a t t e n b u r g v. Morine,17 the P l a i n t i f f conveyed h i s homestead to the Defendant i n t r u s t as s e c u r i t y f o r a debt owed to the Defendant, and f u r t h e r i n t r u s t f o r the P l a i n t i f f ' s c h i l d r e n . The P l a i n t i f f sought to revoke the t r u s t , as the debt had been paid and the c h i l d r e n , a l l s u i j u r i s , consented. The Defendant re f u s e d to reconvey the homestead. The Nova S c o t i a court s a i d : - 59 -...the grantor d i d not intend the deed to be i r r e v o c a b l e and, t h e r e f o r e , the t r a n s a c t i o n was not a f i n a l and f u l l y completed one w i t h i n the r u l e s t a t e d by Lord J u s t i c e Turner [ i n M i l r o y v Lord]18 As such, the court refused to enforce the t r u s t , and ordered the homestead reconveyed to the P l a i n t i f f . The d e c i s i o n does not r e s t upon these grounds alone, however. The court a l s o found that the p a r t i e s had intended t h a t the P l a i n t i f f be e n t i t l e d to revoke the t r u s t , and that the P l a i n t i f f had done so. I t i s not a p a r t i c u l a r l y w e l l reasoned or w e l l grounded case, and the r e f e r e n c e to the r u l e of Turner, L . J . , r u l e may be s u p e r f l u o u s at best (and at worst, i t i s submitted, a m i s i n t e r p r e t a t i o n of that r u l e ) . More d i f f i c u l t to e x p l a i n i s the d e c i s i o n of the Manitoba Court of Appeal i n Re Pfrimmer.19 i n that case, the deceased, duri n g h i s l i f e t i m e , purported to c r e a t e a t r u s t over c e r t a i n property by way of a D e c l a r a t i o n of T r u s t . The wording of the d e c l a r a t i o n , however, made i t c l e a r that the t r u s t was not to take e f f e c t u n t i l the donor's death; the s e t t l o r r e t a i n e d the r i g h t to dispose of the p r o p e r t y , and only such property as remained at h i s death was to be disposed pursuant to the terms of the t r u s t . Trueman, J.A., concluded that the D e c l a r a t i o n was intended "to take the place of a testamentary d i s p o s i t i o n " and was t h e r e f o r e i n v a l i d f o r non-compliance with the Manitoba W i l l s Act. 20 He went on to s t a t e that the - 60 -deceased d i d not intend to " c r e a t e an i r r e v o c a b l e t r u s t by a b i n d i n g t r a n s f e r of the p r o p e r t i e s " , 21 a n d concluded: The law i s c l e a r that to give v a l i d i t y to a d e c l a r a t i o n of t r u s t property, i t i s necessary that the donor or grantor should have a b s o l u t e l y parted with h i s i n t e r e s t i n the p r o p e r t y , and have e f f e c t i v e l y put such i n t e r e s t beyond h i s reach.22 In using the terra " i r r e v o c a b l e t r u s t " , was Trueman, J.A., s t a t i n g that the t r u s t had to be i r r e v o c a b l e per se, or merely that the method of t r a n s f e r was to be i r r e v o c a b l e ? C e r t a i n l y , the second passage suggests the l a t t e r , and i s , i n f a c t , r e m i n i s c e n t of the words of Turner, L . J . , i n M i l r o y v. Lord. The s e t t l o r , by t r a n s f e r r i n g h i s i n t e r e s t to a t r u s t e e , or to h i m s e l f as t r u s t e e , i s " a b s o l u t e l y " p a r t i n g with h i s i n t e r e s t i n the t r u s t p r o p e r t y . The i n t e n t i o n to part must be i r r e v o c a b l e , as must be the p a r t i n g , but that does not prevent the t r u s t from i t s e l f being revocable, i f i t c o n t a i n s a power to revoke. T h i s i s s u r e l y the meaning a t t r i b u t a b l e to the statement of Trueman, J.A. that the deceased d i d not intend to " c r e a t e an i r r e v o c a b l e t r u s t by a b i n d i n g t r a n s f e r of p r o p e r t y " . The c o n c l u s i o n to be drawn from the f o r e g o i n g review of cases i s that there i s very l i t t l e substance to the suggestion that a t r u s t must be i r r e v o c a b l e to be b i n d i n g . I f one steps back from the p a r t i c u l a r s of the cases, i t i s - 61 -immediately apparent that the need f o r i r r e v o c a b i l i t y does not f i t at a l l with other general p r i n c i p l e s or p r a c t i c a l i t i e s of t r u s t law. Since t r u s t s were f i r s t employed, as the medaeival use, t h e i r advantage l a y i n t h e i r f l e x i b i l i t y . A knight could leave h i s e s t a t e i n the hands of another while away on Crusade, to be passed on to h i s h e i r s i f he d i d not r e t u r n . I f he d i d r e t u r n , however, i t was s u r e l y with the e x p e c t a t i o n of r e g a i n i n g h i s e s t a t e . In modern times, the c r e a t i o n of b l i n d t r u s t s f o r p o l i t i c i a n s , employee b e n e f i t t r u s t s , R.R.S.P.'s and the myriad of other "temporary" t r u s t s would be impossible without a power of r e v o c a t i o n . I t i s f a i r to conclude that any suggestion of i r r e v o c a b i l i t y can only apply to the i n t e n t i o n to c r e a t e a t r u s t , and the a c t u a l t r a n s f e r of t r u s t p r o p e r t y . The Ontario Court of Appeal reached t h i s c o n c l u s i o n i n Barnett and Wise v. Wise_23. The f a c t s r e v e a l e d that a husband had signed a document prepared by h i s dying wife, to the e f f e c t that one h a l f of h i s property was, i n f a c t , hers, and that he would hold i t i n t r u s t f o r t h e i r c h i l d r e n u n t i l the youngest reached twenty one years of age. Laidlaw, J.A., reviewed the E n g l i s h cases, and a r r i v e d at the f o l l o w i n g t e s t to determine the c r e a t i o n of a t r u s t : Do the a c t s of the respondent amount to c l e a r and d e f i n i t e proof of an i n t e n t i o n and determination by him to part a b s o l u t e l y with the b e n e f i c i a l i n t e r e s t i n one h a l f of the assets held by him and to r e t a i n the l e g a l ownership t h e r e o f as a t r u s t e e f o r h i s w i f e ? 2 4 - 62 -Any remaining doubt that a revocable t r u s t i s e n t i r e l y e n f o r c e a b l e may be d i s s i p a t e d by r e f e r e n c e to two a d d i t i o n a l cases. In B r i t i s h Columbia, the Court of Appeal has recognized the concept of a revocable t r u s t , a l b e i t i n o b i t u r , i n the d e c i s i o n of Re Mee: 2^ Also the law i s c l e a r t h a t a s e t t l o r cannot revoke a completely c o n s t i t u t e d t r u s t unless a power of r e v o c a t i o n i s reserved, unless of course, the s e t t l e -ment was obtained by f r a u d , undue i n f l u e n c e , funda-mental mistake or the l i k e . 2 6 In the second case, Anderson ( A d m i n i s t r a t r i x of  C o s t e l l o E s t a t e ) v. Patton e t . a l . , 2 7 the deceased, s h o r t l y before h i s death, gave F i v e Thousand D o l l a r s to the Defendant "to hold i n t r u s t " f o r the deceased. The document acknowledging r e c e i p t of the t r u s t funds went on to provide that i f anything happened to the deceased, the monies were to be paid out to two named persons. F i n a l l y , there was a p r o v i s i o n t h at the monies were to be returned to the deceased upon demand. The A l b e r t a Court of Appeal confirmed the t r i a l judge's f i n d i n g t h a t there was a completed g i f t i n t e r v i v o s by the c r e a t i o n of a t r u s t . Ford, J.A., f o r t h e m a j o r i t y , s t a t e d : The r e s e r v a t i o n of a power of r e v o c a t i o n i s not i n c o n s i s t e n t with the c r e a t i o n of a v a l i d t r u s t and does not have the e f f e c t of making the document testamentary. 2 8 - 63 -This conclusion of the A l b e r t a Court of Appeal introduces the next issue which must be addressed i n t h i s d i s c u s s i o n of using a revocable t r u s t as a s u b s t i t u t e f or the w i l l . I t i s the very important issue of whether the t r u s t w i l l be t r e a t e d by the courts as a testamentary d i s p o s i t i o n . I f i t i s , then the t r u s t w i l l l i k e l y be unenforceable f o r non-compliance with the f o r m a l i t i e s of execution f o r a w i l l . Moreover, even i f such f o r m a l i t i e s were s a t i s f i e d , the purpose of avoiding probate would be defeated. 3- THE TESTAMENTARY NATURE OF THE TRUST In c o n s i d e r i n g the use of a t r u s t , whether ' i t be revocable or i r r e v o c a b l e , as a replacement f o r a w i l l , two apparently c o n f l i c t i n g p r i n c i p l e s of law must be resolved. The f i r s t p r i n c i p l e derives from the law of w i l l s , and i s stated i n Theobald on W i l l s i n the f o l l o w i n g terms: A g i f t intended to be testamentary can only be e f f e c t u a l l y made by an instrument duly executed as a w i l l . 2 9 The second p r i n c i p l e derives from the law of t r u s t s , and can be described as f o l l o w s : a s e t t l o r of a t r u s t may designate a b e n e f i c i a r y who i s to receive the t r u s t property only upon the - 64 -happening of a certain event. The beneficiary's interest may be a vested interest or a contingent interest, depending upon the terms of the t r u s t . Where the trust provides that the beneficiary s h a l l not receive the g i f t u n t i l the s e t t l o r ' s death, i t i s arguable that there i s " g i f t intended to be testamentary". If so, the p r i n c i p l e cited in Theobald should be followed, and the instrument "duly executed as a w i l l " . However, th i s argument f a i l s to consider the nature and formalities of the trust instrument. It w i l l be recalled from the e a r l i e r overview of the law of w i l l s and trusts that there i s a considerable difference in the nature of the two. The w i l l does not have any force or effect u n t i l after death. The prospective beneficiary has no interest in the donor's property u n t i l the death of the donor. The g i f t i s testamentary. A trus t , on the other hand, i s eff e c t i v e and enforceable immediately upon creation, and the beneficiary has an interest in the trust property, albeit subject to the conditions and li m i t a t i o n s created by the t r u s t . The g i f t , however conditional, i s a present one, not one "intended to be testamentary". While the d i s t i n c t i o n i s c e r t a i n l y a fine one — a f t e r a l l , in both cases, the g i f t i s not possessed u n t i l the death of the donor -- i t i s an e n t i r e l y proper one based on legal p r i n c i p l e s . Unfortunately, i t i s one which has not - 65 -always been easy to f ind in the caselaw. This may stem, in part , from the fact that the case most often quoted on the testamentary nature of a trus t did not deal with trus t s at a l l . The case, Cock v. Cooke, 30 dates to 1866. The facts are simple: short ly before her death, the deceased executed a document which contained the fol lowing words: "I wish my s i s t e r to have my bankbook for her own use". The deceased's signature was attested to by two witnesses. The s i s t e r sought to have the document propounded as the deceased's la s t w i l l and testament. The Court had to decide whether the document was testamentary or an out-and-out g i f t . It concluded that the deceased intended that the document "should only take effect in the event of her death",31 and was properly executed as a w i l l . The court r e l i e d upon the fol lowing test to determine testamentary nature: It i s undoubtedly law that whatever may be the form of a duly executed instrument, i f the person executing i t intends that i s s h a l l not take effect u n t i l after his death, and i t i s dependent upon his death for i t s vigour and e f fec t , i t i s testamentary.32 While the p r i n c i p l e enunciated in th i s passage can be applied when the instrument in question i s in the form of a t r u s t , i t s appl icat ion can overshadow the more important issue of whether the trus t i s properly created in the f i r s t instance. In other words, instead of focusing on the necessary - 66 -p r e r e q u i s i t e s f o r a v a l i d t r u s t , the court examines the i n t e n t i o n s of the s e t t l o r , and the r e s u l t s of the instrument. This happened i n Re Pfrimmer. I t w i l l be r e c a l l e d that the Manitoba Court of Appeal was not s a t i s f i e d on the f a c t s of that case that there was a completely c o n s t i t u t e d t r u s t . However, i t a l s o decided, f o l l o w i n g Cock v. Cooke, that no t r u s t e x i s t e d because the s e t t l o r intended that the t r u s t document take e f f e c t only upon h i s death, and was t h e r e f o r e testamentary i n nature. I t should be noted that such a d e c i s i o n was unnecessary i n l i g h t of the former f i n d i n g . Another case which concluded that a testamentary i n t e n t and r e s u l t v i t i a t e d a t r u s t i s Re Beardsmore T r u s t s . 34 There, a husband and wife entered i n t o a s e p a r a t i o n agreement which provided, i n t e r a l i a , f o r a t r a n s f e r to a t r u s t e e , i n t r u s t f o r the wife and t h e i r two c h i l d r e n , of t h r e e - f i f t h s of the husband's net e s t a t e upon death, the t r a n s f e r to be e f f e c t e d only upon the husband's death. The wife predeceased the husband, who subsequently brought an a p p l i c a t i o n to be r e l i e v e d of h i s t r u s t o b l i g a t i o n s under the agreement. (The two a d u l t c h i l d r e n supported the a p p l i c a t i o n . ) The Ontario High Court found that the p r o v i s i o n i n the s e p a r a t i o n agreement c r e a t i n g the t r u s t "was designed to have e f f e c t only a f t e r the death of the s e t t l o r " , and was vo i d f o r f a i l u r e to comply with the Ontario W i l l s Act.35 However, the Court a l s o examined the terms of the t r u s t p r o v i s i o n , and found that no t r u s t - 67 -existed because the subject matter was uncertain ("three-fifths of the net estate"), and the purpose had lapsed in any event (the wife having died). It i s submitted that these findings, which deal with the formalities of the t r u s t , were a l l that were required in t h i s case. It was unnecessary for the Court to have also declared the trust provision void because of i t s testamentary nature. The argument that an inter vivos trust i s a testamentary disposition and void i f not properly executed as a w i l l has met with less success in other cases. For example, in Corlet v. Isle of Man Bank Ltd.,36 the deceased executed a trust document during his l i f e t i m e , appointing the Defendant bank as trustee. The trust property consisted of certain l i f e insurance p o l i c i e s which were to be collected upon the s e t t l o r ' s death, the proceeds to be invested and held in trust for members of the s e t t l o r ' s family. The s e t t l o r reserved the right to discontinue payment of the l i f e insurance premiums, in which event the trust would, of course, terminate. The Alberta Court of Appeal rejected the argument that the document was a testamentary disposition in the following passage: The f a l l a c y in the argument based on the "oft-quoted" words of Sir J.P. Wilde in Cock v. Cooke [ c i t a t i o n deleted] l i e s in a misunderstanding of what the words "vigour and e f f e c t " are applicable to. They are c l e a r l y applicable not to the result obtained by, or to the performance of, the terms of the instrument, but to the instrument i t s e l f . The question i s whether the instrument has vigour to e f f e c t , and does eff e c t , or i s "consummate on execution" to e f f e c t , a - 68 -g i f t or create a t r u s t . If the document i s "consummate" to create a trust in praesenti, though to be performed after the death of donor, i t i s not dependent upon his death for i t s vigour and effect . 3 7 Ford, J.A., goes on to i d e n t i f y three ways in which a "testamentary intention" may be effected notwithstanding the non-compliance with the Wills Act: a donatio mortis causa, a deed promising that one's executor w i l l pay money to named per-sons after one's death, and a "conveyance of property to t r u s t -ees to hold for the benefit of the grantor for l i f e , and after his death for the benefit of other persons".38 A l l three may effect a testamentary intention without actually being testamentary because the forms of the transactions do not depend upon death for their "vigour and e f f e c t " . Other cases recognizing that a trust may contain testamentary intentions without i t s e l f being testamentary include Re Woodman,39 Anderson v. Patton et.al.,^° Re  Evans, ^  1 Hicks v. Rothermel e t . a l . , ^ 2 a n < j Goodman (Estate) v. Geffen.^3 There are also a number of cases dealing with the disposition of bank accounts which do not require compliance with the Statute of W i l l s . These cases w i l l be more closely examined below in another context. However, i t i s interesting to note that Anderson v. Patton was also a decision of the Alberta Court of Appeal, with Ford, J.A., again speaking for the majority. It i s worth quoting two sentences from his - 69 -judgment, for they summarize nicely the appropriate test in th i s area: If the document i s not intended to have any operation u n t i l the s e t t l o r ' s death i t i s testamentary. If the document i s intended to have, and does have, the effect of transferring the property or of setting up a trust thereof in praesenti, though to be per-formed after the s e t t l o r ' s death, i t is not testamen-tary. 44 This test better r e f l e c t s both the laws of w i l l s and tr u s t s , and the r e c o n c i l i a t i o n of the two where the testamentary nature of a trust i s in question. The cases suggesting that a trust instrument having testamentary intentions and effect cannot be v a l i d are distinguishable on a number of grounds. In both Re Pfrimmer and Re Beardsmore  Trusts, the documents were so worded that, to use the words of Ford, J.A., in Anderson v. Patton, they were not to have any operation u n t i l the s e t t l o r ' s death. In addition, both of these cases had alternate grounds for the finding that no trust existed. Although trusts containing testamentary intentions w i l l not necessarily be testamentary per se, caution must s t i l l be exercised in drafting and constituting any trust, to ensure that i t cannot be construed as having no "vigour and e f f e c t " u n t i l the death of the s e t t l o r . For the purposes of this study, i t i s necessary to ask whether the proposed revocable - 70 -trust could be considered testamentary. In pa r t i c u l a r , does the retention by the s e t t l o r of such powers as a power to revoke, a power to modify, a l i f e i n t e r e s t , a power to control the administration of a tr u s t , or a combination of these powers, r e f l e c t an intention that the trust i s to have no "vigour and e f f e c t " u n t i l the s e t t l o r ' s death? Canadian courts have rarely had an opportunity to review and analyze an express trust containing a l l of these powers. It i s therefore necessary to rely upon American decisions where the few Canadian cases do not provide answers. The caselaw w i l l be examined in three separate categories: where a power to revoke or modify has been found to be reserved to the s e t t l o r ; where the s e t t l o r retains a l i f e interest in the trust property; and where power to control the trust property or trustee i s found to e x i s t . 4 . THE EFFECTS OF A POWER TO REVOKE OR MODIFY Generally speaking, the Canadian cases which have examined trusts containing both testamentary intentions and a power to revoke follow the modern American approach. That i s , they find that a reservation by the s e t t l o r of a power to revoke the trust does not result in the trust being testamentary in nature, and therefore i n v a l i d for non-compliance with the Statute of W i l l s . This was the conclusion - 71 -i n Anderson v. Patton, where, as p r e v i o u s l y mentioned, the A l b e r t a Court of Appeal s t a t e d : The r e s e r v a t i o n of a power of r e v o c a t i o n i s not i n c o n s i s t e n t with the c r e a t i o n of a v a l i d t r u s t and does not have the e f f e c t of making the document c r e a t i n g i t testamentary.45 The Supreme Court of B r i t i s h Columbia has a l s o found that n e i t h e r powers of m o d i f i c a t i o n nor r e v o c a t i o n r e s u l t i n making the t r u s t testamentary. In Re Evans,46 Evans had set up a t r u s t f o r h i s wife and daughter, r e t a i n i n g the power to s u b s t i t u t e the t r u s t p roperty, which were s e c u r i t i e s . The co u r t allowed t h i s power to modify, and although i t found that there was no power of r e v o c a t i o n , i t n e v e r t h e l e s s concluded: Even had the s e t t l o r r e t a i n e d a power to withdraw the s e c u r i t i e s , such a r i g h t of withdrawal would not have rendered the t r u s t document i n v a l i d . 4 7 Dealing with a d i r e c t g i f t r a t h e r than a t r u s t , the Ontario Court of Appeal has a l s o , i n o b i t u r , approved the view that a power to revoke does not n e c e s s a r i l y make the g i f t tetamentary i n nature. In Campbell v. Fenwick,48 the court found that a cheque given to the Defendant three days p r i o r t o , and cashed one day p r i o r t o , the payor's death, was an absolute g i f t . I t continued: I t may have been and probably was s u b j e c t to a power of r e v o c a t i o n at any time before the death of the do-- 72 -nor, or i t may be th a t i t was sub j e c t to a t r u s t i n favour of the donor, but t e r m i n a t i n g upon her death. Neither would make the g i f t testamentary i n i t s c h a r a c t e r . There are v i r t u a l l y no cases i n Canada or England which take the opposing view, that i s , that a power to revoke or modify w i l l render a t r u s t testamentary i n nature. A few seem to imply t h i s r e s u l t , but are capable of a l t e r n a t e i n t e r p r e t a t i o n s . For example, i n F l e t c h e r v. F l e t c h e r , 5 0 an E n g l i s h d e c i s i o n from 1841, the court found that the t r u s t i n question contained no power of r e v o c a t i o n . S i r James Wigram thus concluded that "the part y was c l e a r l y bound, and there i s , t h e r e f o r e , no ground f o r the argument that the i n t e r e s t i s testamentary".51 I f S i r Wigram meant by t h i s t h at the t r u s t was f u l l y c o n s t i t u t e d , and t h e r e f o r e not testamentary, one can not argue with h i s c o n c l u s i o n . But i f he meant to imply that i r r e v o c a b i l i t y was a p r e r e q u i s i t e to a f i n d i n g t h at the t r u s t was not testamentary, i t i s submitted that he was i n e r r o r . The other d e c i s i o n which seems to support the view that r e v o c a b i l i t y equates to testamentary i s that of Re  Woodman,52 a B r i t i s h Columbia Supreme Court d e c i s i o n of Ch i e f J u s t i c e F a r r i s . In that case, the t e s t a t o r executed a se p a r a t i o n agreement with h i s wife which provided, i n t e r a l i a , a t r u s t of one t h i r d of h i s e s t a t e i n favour of h i s w i f e . The court was able to conclude, on the wording of the t r u s t p r o v i s i o n , t hat i t crea t e d a present i r r e v o c a b l e t r u s t i n - 73 -favour of h i s w i f e , and tha t i t was not the re fore a testamentary d i s p o s i t i o n . Aga in , i f F e r r i s , C . J . , i n us ing the term " i r r e v o c a b l e " , was r e f e r r i n g to the c r e a t i o n of the t r u s t r a the r than i t s na ture , there can be no argument w i t h him. On the other hand, i f h i s f i n d i n g was that the t r u s t was not testamentary only because i t was i r r e v o c a b l e , i t must be s e r i o u s l y ques t ioned . As S i r C. Pepys s a id i n Tompson v . B rowne^ over one hundred and f i f t y years ago: The d e c i s i o n i n The At torney General v . Jones seems to have proceeded upon the ground t h a t , under the circumstances of tha t case, nothing passed from the maker of the instrument so as to e n t i t l e any other person to i n t e r f e r e wi th h i s proper ty i n h i s l i f e t i m e . I f there be anything i n that d e c i s i o n to support the n o t i o n , that where a person by deed s e t -t l e s proper ty to h i s own use dur ing h i s l i f e , and af -t e r h i s decease for the bene f i t of other persons, a power of r evoca t ion reserved i n such a deed a l t e r s the charac te r of the ins t rument , and renders i t tes tamentary, and consequent ly subject to legacy duuty, I can only say t h a t , i f t h i s were law, a great number of t r a n s a c t i o n s of which the v a l i d i t y has nev-er been doubted would be l i a b l e to be impeached.54 5. THE EFFECT OF A LIFE INTEREST I t i s not , of course , on ly a power to revoke or modify which i s of importance i n employing a t r u s t as a testamentary ins t rument . In order to " i m i t a t e " a w i l l , the s e t t l o r w i l l a l s o c l e a r l y want to r e t a i n a b e n e f i c i a l i n t e r e s t i n the t r u s t proper ty u n t i l h i s or her death - - i n other words, - 74 -a l i f e i n t e r e s t . The American ju d i c i a r y has, o v e r a l l , permitted such an interest in a revocable t r u s t . 5 5 A large number of cases are cited by Professor Scott in support of such a combination of l i f e interests and powers to revoke, including one from the Supreme Court of Canada, Raynor v. Read. 56 j_ n fact, that case did not deal with a trust at a l l , but rather with a direct g i f t of s e c u r i t i e s . The issue determined by the court was whether the g i f t was complete, in l i g h t of the donor's continuing possession of the subject property. The decision of the Prince Edward Island Supreme Court, affirmed by the Supreme Court of Canada, was that the g i f t was complete. The fact that the donee returned the g i f t to the donor for "safekeeping" did not v i t i a t e the completed g i f t , as the donor became "a custodian and no more".57 A more recent decision of the Alberta Queen's Bench does address the v a l i d i t y of an inter vivos trust containing a l i f e interest in favour of the s e t t l o r but no power of revocation. In Goodman (Estate) v. Geffen,58 the executor of the deceased's w i l l sought to set aside a trust created by the deceased in her l i f e t i m e . One of the arguments advanced was that the trust was testamentary because no cestui que trust held an interest in the trust property during the s e t t l o r ' s l i f e t i m e : she held the entire b e n e f i c i a l interest as a l i f e tenant. The court rejected t h i s argument, finding that the intention of the s e t t l o r was not to create a testamentary trust - 75 -but a binding inter vivos t r u s t ; the trust property had vested in the trustee, and "the trust agreement was a v a l i d inter vivos trust".59 No other Canadian cases were found for t h i s study which dealt d i r e c t l y with both l i f e interests and powers to revoke in a t r u s t . There are, however, a number of cases which deal with the subject of a l i f e interest in connection with the outright g i f t of a j o i n t bank account. Generally, the fact pattern which emerges in these cases i s that one individual opens a jo i n t account e n t i r e l y with his or her funds, and. a second individual i s named as the joint tenant. The l a t t e r i s either unaware of the account, or understands or agrees that i t is not be used by him or her u n t i l the death of the individual who opened the account. That individual usually has sole use of the account u n t i l his or her death. As such, he or she has both a l i f e interest in and a power to revoke the g i f t . These cases can be broken down into two general categories: those which premise judgment on a finding of either a g i f t or a presumption of resulting t r u s t ; 6 0 and those which, having found a val i d g i f t , take the matter one step further, by examining the possible testamentary nature of the g i f t . 6 1 The cases in the f i r s t category have l i t t l e bearing - 76 -on the discussion at hand, dealing as they do with the fol lowing p r i n c i p l e s of law, as described by Crockett , J . of the Supreme Court of Canada, in Re Mailman: That both law and equity interpose such a presumption against an intent ion to create a j o i n t tenancy, except where a father makes an investment or bank deposit in the names of himself and a natural or adopted c h i l d or a husband does so in the names of himself and his wife, i s now too f irmly se t t l ed to admit of any controversy. This presumption, of course, is a rebuttable presumption, which may always be overborn by the owner's previous or contemporaneous ora l statements or other relevant facts or circumstances . . . 62 The second category of cases, although they do not deal with trusts in any form, are of some l imi ted assistance in examining how a Canadian court might approach the question of the effect of a l i f e in teres t in a revocable t r u s t . While some of the e a r l i e r cases found that a g i f t of a bank account by way of jo in t tenancy was testamentary, the more modern view i s that i t i s a present g i f t . The cases f inding the g i f t testamentary s tart with the Ontario High Court decis ion of H i l l v. H i l l , 63. in that case, a father deposited certa in monies at a bank and received a deposit rece ipt in the fol lowing terms: "payable to Wil l iam H i l l , Sr . and John R. H i l l , h is son, or e i ther , .or the survivor". It was understood by the son that the monies would remain in the fa ther ' s control and subject to his d i spos i t ion - 77 -u n t i l his death. The father advised the bank manager that the arrangement was to enable his son to receive the money when "he was done with". Anglin, J., found himself driven to the conclusion that the purpose of William H i l l , deceased, was by thi s means to make a g i f t to his son, the p l a i n t i f f , in i t s nature testamentary. As such, i t could only be made e f f e c t u a l l y by an instrument duly executed as a w i l l . The father retained the exclusive control and disposing power...the rights of the son were intended to arise only upon and after his father's death. 6 4 This case was followed by the New Brunswick Court of Appeal, in S h o r t i l l v. Grannon ( 1920)65 a n c j McKnight v. Titus (1930).66 However, in 1921 the Ontario Court of Appeal, in Re Reid, 67 had an opportunity to examine the same issue, and reached an opposite conclusion (while not expressly overruling H i l l v. H i l l ) . In that case, a son opened a jo i n t account with his father, s o l e l y with the son's funds. He did thi s only after he had been told by legal counsel that an e a r l i e r attempt to leave his father the same monies by signing a blank cheque to his father, to be negotiated after the son's death, would be unsuccessful. It -was understood between the father and son that the father would not draw any funds during his son's l i f e t i m e . Although Hodgins, J.A., in dissent, approved the reasoning in H i l l v. H i l l , 6&1 the majority found that the g i f t as evidenced by the opening of the joint account was "complete and perfect", and that the right of the donor to draw the money was only a "right and power to defeat" the g i f t , and did not - 78 -have the effect of making the g i f t testamentary.69 Re Reid was followed in the English decision of Young v. S e a l e y , 7 0 as authority for the proposition that the right of a survivor to a j o i n t account could not be defeated as an attempted testamentary disposition, as i t was a completed g i f t . The Supreme Court of Canada has also cited Re Reid and Young v. Sealey with approval in Edwards v. Bradley, 7 1 although in that case there was i n s u f f i c i e n t evidence to find a present g i f t . While not conclusive for the purposes of t h i s study, i t i s encouraging that some Canadian courts have accepted that a present g i f t may result from the creation of a j o i n t tenancy, even when the donor retains what amounts to a power to revoke and a l i f e interest in the gif t e d property. Of course, in these cases, the successful donee received a l e g a l , as well as a b e n e f i c i a l , interest in the g i f t , whereas in a t r u s t , only the b e n e f i c i a l interest would vest. Nevertheless, i t i s suggested here that i t i s the fact that the interest i s a present, vested interest which i s c r u c i a l , and the more recent cases dealing with joint bank accounts c l e a r l y recognize that such an interest cannot be defeated because of i t s testamentary q u a l i t i e s . It should make no difference that the interest passes by way of a trust instead of an outright g i f t . If that is so, i t follows that the reservation of a l i f e i nterest in a - 79 -revocable t r u s t should cause no d i f f i c u l t i e s . C e r t a i n l y , the American c o u r t s have had no d i f f i c u l t y i n a l l o w i n g t r u s t s which co n t a i n both a power to revoke and a l i f e i n t e r e s t reserved to the s e t t l o r . While there are l a r g e numbers of cases which support t h i s p r o p o s i t i o n , the 1938 d e c i s i o n of the Ohio Supreme Court i n Cleveland T r u s t Company v White,72 i s o n e Q f the more p o p u l a r l y c i t e d d e c i s i o n s . In that case, White executed a t r u s t agreement i n which a l i f e i n t e r e s t i n the t r u s t property was reserved, as w e l l as the power to revoke and a degree of c o n t r o l over the t r u s t p r o p e r t y . The court s t a t e d : By the weight of a u t h o r i t y , a t r u s t , otherwise e f f e c t i v e , i s not rendered nugatory because the s e t t l o r r e s e r v e s to h i m s e l f the f o l l o w i n g r i g h t s and powers: (1) the use of the property and the income therefrom f o r l i f e ; (2) the s u p e r v i s i o n and d i r e c t i o n of investments and reinvestments; ( 3 ) the amendment or m o d i f i c a t i o n of the t r u s t agreement; (4) the r e v o c a t i o n of the t r u s t i n whole or i n p a r t ; (5) the consumption of p r i n c i p a l . . . . These reserved powers are g e n e r a l l y regarded as c o n d i t i o n s subsequent, with no more than c u r t a i l i n g or d i v e s t i n g s i g n i f i c a n c e . 7 3 The i n c l u s i o n i n t h i s l i s t o f powers of "the s u p e r v i s i o n and d i r e c t i o n of investments and income" i s i n t e r e s t i n g , p a r t i c u l a r l y i n l i g h t of the date of the d e c i s i o n ( 1 9 3 8 ) . T h i s was a time when the F i r s t Restatment of the Law of T r u s t s s t i l l governed, and the law was that c o n t r o l over a d m i n i s t r a t i v e matters u s u a l l y r e s u l t e d i n a f i n d i n g of agency, - 80 -not t r u s t . This i s the subject of the following discussion, but the comment of the Ohio Supreme Court in Cleveland Trust  Co. v. White i s worth keeping in mind in that discussion: "It i s evident that cases of the type now under consideration must be decided on their p a r t i c u l a r f a c t s " . 7 4 6. THE EFFECT OF A POWER TO CONTROL The reservation by the s e t t l o r of such powers as control of investments, management and administration, the right to appoint or remove trustees, the right to withdraw a l l or part of the p r i n c i p a l of the trust property, the right to mortgage trust property and appropriate the proceeds, and the right to appoint remaindermen, a l l f a l l under the category of "powers to control". The extent to which such powers may properly be reserved to the s e t t l o r i s obviously of v i t a l importance in determining the usefulness of the revocable trust as a substitute for the w i l l . A w i l l , a f t e r a l l , does not dispose of any property u n t i l death, and u n t i l then, the testator has complete dominion over the property. If a s e t t l o r of a revocable trust does not have similar freedom to deal with his or her property, i t i s not l i k e l y to be his or her choice as a testamentary vehicle. Of course, in suggesting that a s e t t l o r has similar - 81 -freedom to a testator in dealing with the devised or t rus t property, i t must be understood that the expression "similar" i s in no way to be equated to "same". Whatever the p r a c t i c a l resu l t s of re ta in ing powers of contro l within a t r u s t , the s e t t l o r must understand that the property i s no longer absolutely his or hers, but rather i s t rus t property in which he or she has an interes t as a benef ic iary (and poss ibly as a t rus tee ) . F a i l u r e to make th i s d i s t i n c t i o n , in the t rus t deed i t s e l f or in the day to day administrat ion of the t r u s t , i s the very matter with which the courts are concerned in examining powers of c o n t r o l . I f such powers are very extensive, the courts may question whether the t rus t ex is ts at a l l . The Second Restatement of the Law of Trusts ,75 a n d the accumulated cases found in Scott on Trusts and other American authorit ies76 reveal that the modern trend of the American courts i s to permit quite extensive powers of c o n t r o l . This i s a l i b e r a t i n g move, away from the trend in the ear ly part of th i s century (as re f lec ted in the Restatement of the Law of Trusts of 1935), when a trustee was reduced to a mere agent of the s e t t l o r , i f the degree of contro l reserved to the s e t t l or was too extensive. Although the agency approach has f a l l e n into d is favour , f a i l i n g as i t does to assess the fundamental requirements of a t r u s t , i t has not been e n t i r e l y discounted in - 82 -some American j u r i s d i c t i o n s . Moreover, some American courts have disallowed trusts containing extensive powers to control on other grounds. While these cases remain in the minority o v e r a l l , they are of s u f f i c i e n t number and quality to be seriously considered by, and. possibly pursuasive to, the Canadian ju d i c i a r y , should the question arise in Canada. A review of them i s therefore in order. The preliminary point which must be made vis a vis the review of these cases i s that they are representative only. It would be v i r t u a l l y impossible to locate every American case on t h i s topic, much less review each one. The cases discussed are those more popularly mentioned in the American references, discounting some older pronouncements in j u r i s d i c t i o n s where more recent case authority adopts the modern trend. The second fact which must be noted in reviewing these cases i s that they are by no means consistent with each other. This i s not surprising, when one considers the d i v e r s i t y of j u r i s d i c t i o n s and j u d i c i a l minds from whence they originate. Neverthless, certain categories do emerge upon a careful reading. F i r s t , there are those decisions which b a s i c a l l y follow the Restatement of the Law of Trusts of 1935, finding that the trust i s merely an agency when the s e t t l o r retains too much control over the t r u s t . Second, there are a number of decisions which hold no trust was created in the - 8 3 -f i r s t instance because one of the key elements of a trust i s missing -- one of the c e r t a i n t i e s , or the vesting of the trust property in the trustee. Third, there are those decisions which find the trust " i l l u s i o n a r y " as against the surviving spouse who i s e n t i t l e d to a share of the communal property. These categories are by no means insulated: cases in which an agency i s found may be based on the f a i l u r e of the s e t t l o r to properly transfer the property to the trustee. When a trust has one of i t s c e r t a i n t i e s missing, or is a mere agency, i t may be called " i l l u s i o n a r y " by a court. (The term i l l u s i o n a r y was f i r s t coined in New York in a case involving spousal c l a i m s 7 7 , but has often since been used in New York and elsewhere even when no spousal claims are made.) Insofar as the cases finding a revocable trust i l l u s i o n a r y are generally those in which a surviving spouse's rights are concerned, they w i l l be dealt with in greater d e t a i l in Chapter 6. Of the remaining two categories, i t i s the f i r s t (dealing with the agency argument) which i s of particular importance to t h i s study. The cases in the second, where no trust was found, are only o.-f marginal inte r e s t , as any trust i s open to attack for lack of f o r m a l i t i e s . A revocable trust may be so poorly worded that i t f a i l s to pass a present interest, or define the trust property or beneficiary; i t may f a i l because the trust property i s not conveyed or transferred to the trustee. Such f a i l u r e s can be avoided by s t r i c t attention - 84 -to the f o r m a l i t i e s of c r e a t i n g a t r u s t , and i n d r a f t i n g the contents of i t . The Canadian case of Re Pfrimmer may be c i t e d i n t h i s c ontext. An example of an American case i n t h i s category i s the 1948 d e c i s i o n of the Supreme Court of M i s s o u r i i n A t l a n t i c N a t i o n a l Bank of J a c k s o n v i l l e e t . a l . v. St. Louis  T r u s t Co. e t . a l . 7 8 In that case, the t r u s t instrument s p e c i f i e d that "from and a f t e r " the s e t t l o r ' s decease, the t r u s t e e s were to " f o r t h w i t h take, hold, manage and c o n t r o l " the t r u s t p r o p e r t y . The court found that such words r e f l e c t e d an i n t e n t i o n t h at the t r u s t should operate i n f u t u r o , and t h a t there was no d e l i v e r y of the t r u s t p r o p e r t y . It i s d i f f i c u l t to f i n d f a u l t with such a c o n c l u s i o n . It i s i n t e r e s t i n g to note that there are a number of cases i n the "agency" category which do canvas the f o r m a l i t i e s of the t r u s t instrument. These cases g e n e r a l l y conclude t h a t there i s a mere agency only a f t e r f i n d i n g that there i s no t r u s t . For example, i n the 1944 d e c i s i o n of the New York Surrogate Court, Re Seeburg E s t a t e , 7 9 a mother "turned over" $3,000.00 to her son to d i s t r i b u t e amongst a l l her c h i l d r e n upon her death. The court found t h a t no t r u s t was c r e a t e d , the son being an agent o n l y . T h i s d e c i s i o n was followed i n another New York case, In Re E s t a t e of F o n t a n e l l a . 8 0 Again, the court f i r s t determined that no t r u s t had been created ( i n t h i s i n s t a n c e , - 85 -because there was no express intent ion to create a t r u s t , nor any designated benef i c iary , and the donor retained complete contro l of the property) . It then concluded that an agency only had been created. Cases such as th i s do not r e a l l y belong in the "agency" category, although they do make a f inding that an agency ex i s t s , and are c i ted as such. They do not, however, b l i n d l y follow the 1935 Restatement and labe l a t rus t an "agency" merely because there are extensive powers of contro l retained by the s e t t l o r . Of those cases that do make such a causal connection, some can be dis t inguished on the basis that they were decided pr ior to the Second Restatement in 1958. It w i l l be reca l l ed that th i s Restatement abandoned the focus of an agency re la t ionsh ip and recognized instead that a s e t t l o r might re ta in powers to contro l a trustee in the administrat ion of a trust without thereby i n v a l i d a t i n g the t r u s t . However, not a l l the cases fol lowing the agency p r i n c i p l e were decided before the Second Restatement. And some decided before have continued to be c i ted as good authority notwithstanding the Second Restatement. For example, in the State of Pennsylvania, the decis ion of Re Shapley Trust,81 decided under the F i r s t Restatement, i s s t i l l regarded as good law, and c i ted r e g u l a r l y . In that case, the Pennsylvania Su-preme Court made the fol lowing statements: - 86 -...where the deed vests a present interest in the b e n e f i c i a r i e s , i t i s a v a l i d inter vivos t r u s t . It i s not rendered testamentary in character because the s e t t l o r reserves a b e n e f i c i a l l i f e i n t e r e s t , and in addition, a power to revoke or modify in whole or in part, [citations omitted] Where, however, a s e t t l o r , in addition to the reservations above mentioned reserves the power to control the trustee as to d e t a i l s of the administration of the t r u s t , and thus makes the trustee merely the agent of the s e t t l o r , the scheme becomes testamentary as to dispositions intended to take effect after death.82 This decision was followed in Re Pengally's  Estate,83 where the Pennsylvania Supreme Court found that the trust agreement gave the s e t t l o r complete control over . the composition of the trust fund. The agreement granted to the trustee the power to a l t e r , vary, change or transfer invest-ments "with the approval of the s e t t l o r " during his l i f e t i m e , as well as the right of the s e t t l o r to require payments from pr i n c i p l e "as may in his opinion be necessary". The moral again would appear to be to exercise caution in drafting such clauses; i t i s suggested that the trustee's descretion to pay p r i n c i p l e might have been more appropriate, as would have advising rather than approval of the investments. An added un-fortunate factor in Re Pengally's Estate was that there had been a previously existing agency relationship between the s e t t l o r and trustee, leading the court to conclude that such a relationship continued, the trust agreement being merely an at-tempt to make a testamentary disposition without the benefit of a w i l l . One distinguishing feature of the case should be men-- 87 -tioned: the applicant was the widow, who was not provided for in the w i l l or the t r u s t . Whether th i s fact influenced the court in any way i s d i f f i c u l t to ascertain, but i t i s interesting to note that most of the Pennsylvania cases which follow Re Shapley Trust and Re Pengally's Estate have been ones in which spousal claims were make.84 T n e only Pennsylvania decision found where spousal claims were not involved allowed the t r u s t , although acknowledging the p r i n c i p l e that extensive controls result in an agency. The case i s Re Estate of  Mason,85 and the applicant seeking to set aside the trust was a creditor of the deceased. Nothwithstanding considerable control by the s e t t l o r (including prior authorization of any sale or mortgage of trust property, and the right to withdraw the p r i n c i p l e ) the court found that the trust was v a l i d . The reasoning of the case i s sound, for the trust was c l e a r l y f u l l y constituted and complete, and the trustee had active duties to perform. But the same can be said for the cases in which spousal claims successfully defeated a revocable t r u s t . This leads to the conclusion that the agency argument in Pennyslvania i s more l i k e l y to succeed where spousal claims are made, and the cases may be distinguished on that basis. The same conclusion applies to j u d i c i a l pronounce-ments in the State of Texas, although the agency argument has less support than in Pennsylvania. The Supreme Court in Texas has disallowed trusts containing reservations by the s e t t l o r of - 88 -a large degree o f control over the trus t property.86 Such t rus t s are referred to as " i l l u s i o n a r y " , fol lowing the t r a d i t i o n of the New York j u d i c i a r y ; however, f indings of i l l u s i h a r y trus t s have b e e n l imi ted to s i tuat ions where spouses claim a share of the community property.87 E a r l i e r decis ions applying the agency p r i n c i p a l , such as Fleet v. Baldwin,88 have been "severly l imited" by more recent decisions89 and statutory amendments.90 T h e same cannot be said for the D i s t r i c t of Columbia, where the C o u r t of A p p e a l decis ion of B e t k e r v. Nalley91 stands a s good l a w . T h e s e t t l o r executed a t rus t deed which reserved a. l i f e in teres t to her and the power to encumber or s e l l the t rus t property. T h e court concluded that the trustees were "mere agents with very l imi ted powers".92 A l t h o u g h the case was decided under the F i r s t R e s t a t e m e n t , and i s apparently an i so la ted one, i t does not appear to have been overruled or d i s t ingu i shed . N e v e r t h e l e s s , i t i s in teres t ing to note that the court r e l i e d on a number of decis ions from other s tates , a l l or which were subsequently overruled or dist inguished in those s tates . In p a r t i c u l a r , i t followed the 1929 Ohio case of U n i o n T r u s t Co. v. Hawkins93 which was overruled in the 1939 decis ion of C l e v e l a n d Trust Co. v. W h i t e ; 9 ^ the decis ion of the M a s s a c h u s e t t s court in 1909, McEvoy v. B o s t o n Five C e n t s  S a v i n g s . Bank95 which was overruled by the 1944 case of National Shawmut B a n k of Boston v. Joy, 96 a n c j f i n a l l y , the - 89 -Wisconsin case of Warsco v. Oshkosh Savings and Trust  Co.(1924)97 which was narrowly interpreted t h i r t y three years la t e r in Re Steck's Estate.98 Moreover, the reasoning in Warsco was not clear, for the court simultaneously found that there was no trust for f a i l u r e to vest the trust property and because the trustee was a mere agent. The relevant passage reads as follows: If the donor has f u l l control and dominion over the trust property, so that according to the terms of the trust he can use i t as and when he pleases, the trustee becomes his mere agent to hold t i t l e to the property, invest, s e l l , and c o l l e c t income for him, and pay as he d i r e c t s . The donor has parted with no dominion over his property nor any part thereof by the terms of the tru s t , and such an agreement i s no v a l i d trust agreement.99 The Supreme Court of Wisconsin interpreted Warsco in the following manner, in the case of Re Steck's Estate: In that case the agreement was held not to constitute a v a l i d conveyance in trust because the donor had re-tained f u l l dominion over the trust res, the trustee being a mere agent to hold the p r o p e r t y . 1 u u It would be f a i r to conclude that, both in the Dis-t r i c t of Columbia and the State of Wisconsin, the use of the agency argument would face some considerable opposition, in l i g h t of the more recent cases. Moreover, i t i s submitted that the same conclusion can be made for any other j u r i s d i c t i o n in the States. An interesting twist on t h i s conclusion i s found in New York State, where a case which approved the agency - 90 -p r i n c i p l e i s r e g u l a r l y c i t e d and followed f o r the p r o p o s i t i o n that r e s e r v a t i o n by the s e t t l o r of extensive powers of c o n t r o l does not make a t r u s t invalid. 1 0 1 j n the 1951 d e c i s i o n of In  Re Ford's E s t a t e , 1 0 2 the New York Supreme Court, A p p e l l a t e D i v i s i o n , accepted i n p r i n c i p l e the reasoning of the F i r s t Restatement. However, i t concluded on the f a c t s of the case that the t r u s t e e was not a mere agent of the s e t t l o r as the s e t t l o r was a c o - t r u s t e e , and was e n t i t l e d i n that c a p a c i t y to approve investments or changes to them. Once again, the proper wording of the t r u s t deed cannot be overemphasized. The State of F l o r i d a i s another j u r i s d i c t i o n where the agency argument has had some success. In the 1958 d e c i s i o n of Hanson v. Denckla,103 the s e t t l o r had executed a revocable t r u s t , r e t a i n i n g a l i f e i n t e r e s t , power to amend, change t r u s t e e s , and appoint b e n e f i c i a r i e s by w i l l or deed. The s e t t l o r was a l s o designated as " a d v i s o r " to the t r u s t e e . During h i s l i f e t i m e , the s e t t l o r e x e r c i s e d the power of appointment f r e q u e n t l y . The F l o r i d a Supreme Court concluded that such a c t i v i t y demonstrated " t h a t the s e t t l o r considered the appointments to be ambulatory i n nature and e x a c t l y l i k e s u c c e s s i v e w i l l s and c o d i c i l s i n t h e i r o p e r a t i o n " , 104 a n c j t h a t o n l y an agency was intended. The case i s not e n t i r e l y a u t h o r i t a t i v e f o r the agency p r i n c i p l e , however, as the c o u r t found, i n the a l t e r n a t i v e , - 91 -t h a t no i n t e r e s t vested i n any b e n e f i c i a r y , and that there was t h e r e f o r e no t r u s t . The case can a l s o be d i s t i n g u i s h e d on i t s very unusual f a c t s : the s e t t l o r , although r e s i d i n g i n F l o r i d a at the date of h i s death, had chosen a Delaware s i t u s and t r u s t e e f o r the t r u s t . The Delaware t r u s t e e brought a c t i o n i n Delaware to enforce the t r u s t a f t e r the executors i n F l o r i d a had obtained t h e i r judgment that the t r u s t was i n v a l i d . The Delaware c o u r t s came to the o p posite c o n c l u s i o n , 1 0 5 a n c | the United S t a t e s Supreme Court e v e n t u a l l y a f f i r m e d the Delaware d e c i s i o n , f i n d i n g that F l o r i d a had no j u r i s d i c t i o n i n the mat-t e r . I t s adherence to the agency p r i n c i p l e was thus of l i t t l e consequence. I t should be added that a F l o r i d a S t a t u t e passed i n 1969 e f f e c t i v e l y o v e r r u l e d the d e c i s i o n i n Hansen v. Denckla. 106 i t provides that an otherwise v a l i d i n t e r v i v o s t r u s t s h a l l not be held i n v a l i d or an attempted testamentary d i s p o s i t i o n because of the i n c l u s i o n of the f o l l o w i n g powers: 1. the power to revoke, amend, a l t e r or modify the t r u s t i n whole or i n p a r t ; 2. the power to appoint b e n e f i c i a r i e s by deed or w i l l ; 3. the power to add to or withdraw from the p r i n c i -p a l ; 4. the power to remove and appoint t r u s t e e s ; 5 the power to c o n t r o l t r u s t e e s i n the a d m i n i s t r a -t i o n of the t r u s t ; 6. the r i g h t to r e c e i v e a l l or p a r t of the income of the t r u s t . - 92 -The statute brings Florida law into l i n e with the p r i n c i p l e s of the Second Restatement of the Law of Trusts, but i t does contain one important exception. If the s e t t l o r i s the sole trustee, the trust instrument must either be executed in accor-dance with the formalities for the execution of a w i l l , or v a l -id under the laws of the j u r i s d i c t i o n in which i t i s executed. Whether i t would s t i l l be open to a Florida court to find a Declaration of Trust a mere agency where such formalities are not met i s open to question. It would seem, however, that such a finding would be stretching the agency argument past break-ing, for in effect the s e t t l o r would be appointing himself as the agent. It should be emphasized that, notwithstanding the statutory provisions, Hanson v. Denckla has not been expressly overruled in F l o r i d a , and i t is therefore open to courts in our own j u r i s d i c t i o n to follow i t . It i s true that the decision has been c r i t i c i z e d by the Florida D i s t r i c t Court of Appeal, in Lane v. Palmer F i r s t National Bank & Trust Company of Sarasota.1 u? In that case, some ten years after the Hanson decision, the court noted that i t had beeen decided under the o r i g i n a l Restatement, and that i t had been c r i t i c i z e d as a minority view. The court then went on: It i s the opinion of t h i s court that a v a l i d inter vivos trust may be created in Florida even though i t contains a power to control the trustee, in addition to being revocable and retaining the l i f e income to the s e t t l o r , in accordance with the provisions of - 93 -paragraph 57 Restatement (Second) T r u s t s 1959.108 Nevertheless, the court i n Lane merely d i s t i n g u i s h e d Hanson v. Denckla on the b a s i s that the frequent use of the power of ap-pointment i n the e a r l i e r case was not evident i n Lane. The court went so f a r as to conclude t h a t , had there been such day to day c o n t r o l , the s e t t l o r "would have d i v e s t e d h i m s e l f of nothing", and the t r u s t have been nothing but an agency agree-ment. 109 The c o n c l u s i o n of one commentator of Hanson v. Denckla i s that i t r e p r e s e n t s not only a m i n o r i t y view i n the United S t a t e s , but i s d i f f i c u l t to support.110 The commentator argues f o r c e f u l l y t h a t there i s no reason to d i s a l l o w a revocable i n t e r v i v o s t r u s t on p u b l i c p o l i c y grounds: The formal requirements of the w i l l s s t a t u t e s are i n -tended to prevent f r a u d u l e n t claims a g a i n s t the es-t a t e of a decedent. I t i s w e l l e s t a b l i s h e d t h a t an i n t e r v i v o s t r u s t instrument need not be executed with the f o r m a l i t i e s r e q u i r e d f o r a w i l l even though the s e t t l o r r e s e r v e s a l i f e i n t e r e s t and a power to revoke or amend the t r u s t . Fraudulent claims do not present any geater danger because the s e t t l o r a l s o reserves powers of c o n t r o l over the t r u s t e e as to the a d m i n i s t r a t i o n of the t r u s t and a power of appointment e x e r c i s a b l e only by an instrument executed and signed by the s e t t l o r and d e l i v e r e d to the t r u s t e e . 1 1 1 The reasoning that the danger of fraud does not i n c r e a s e by the _ 94 -r e t e n t i o n o f e x t e n s i v e p o w e r s o f c o n t r o l h a s c o n s i d e r a b l e m e r i t . I t a g a i n e m p h a s i z e s t h e i m p o r t a n c e o f t h e f o r m a l i t i e s o f t h e t r u s t i n d e t e r m i n i n g i t s v a l i d i t y . I f t h e t r u s t i s i n t h e f o r m o f a n e x p r e s s a n d d e t a i l e d a g r e e m e n t , t h e c h a n c e s o f f r a u d a r e m i n i m a l . I n f a c t , i t c o u l d b e a r g u e d t h a t e x t e n s i v e p o w e r s o f c o n t r o l d i m i n i s h f u r t h e r t h e o p p o r t u n i t y f o r f r a u d , c e r t a i n l y a s a g a i n s t t h e s e t t l o r who e x e r c i s e s t h o s e p o w e r s . T h e m o d e r n a p p r o a c h i s c l e a r l y t o p e r m i t s u c h e x t e n s i v e c o n t r o l s a n d t h e r e s e e m s l i t t l e r e a s o n why t h e y s h o u l d n o t b e p e r m i t t e d . T h e c a s e s f o l l o w i n g t h e a g e n c y p r i n c i p l e s h o u l d n o t be e n t i r e l y d i s c o u n t e d , h o w e v e r , f o r t h e y do c o n t a i n a common m e s s a g e , v a l u a b l e t o a n y o n e p r e p a r i n g o r u s i n g t h e r e v o c a b l e t r u s t a s a w i l l s s u b s t i t u t e . T h i s m e s s a g e i s s i m p l y t o u s e c a u t i o n i n t h e d r a f t i n g a n d a d m i n i s t r a t i o n o f s u c h t r u s t s . T h e t r u s t e e s h o u l d h a v e some a c t i v e d u t i e s t o p e r f o r m ; t h e t r u s t p r o p e r t y m u s t c l e a r l y v e s t . I f t h e s e t t l o r a c t s a s s o l e t r u s t e e , h e o r s h e much c l e a r l y d i s t i n g u i s h t h e r o l e o f t h e t r u s t e e f r o m t h e r o l e o f t h e l i f e t e n a n t / b e n e f i c i a r y . T h e w o r d s o f o n e O h i o j u d g e i n t h i s c o n t e x t a r e p a r t i c u l a r a p t : W i t h t h e i n c r e a s i n g p o p u l a r i t y o f t h e r e v o c a b l e l i v i n g o r i n t e r v i v o s t r u s t i n m o d e r n e s t a t e p l a n n i n g , i t s h o l d b e made c l e a r t h a t t h e p h r a s e o l o g o y u s e d i n t h e t r u s t i n s t r u m e n t i s m e a n i n g l e s s , i f t h e s o - c a l l e d s e t t l o r o r d o n o r a c t u a l l y r e m a i n s i n v i r t u a l c o n t r o l a n d t h e s o - c a l l e d - 9 5 -t r u s t e e f o r f e a r o f l o s i n g t h e b u s i n e s s a c q u i e s c e s i n h i s e v e r y a c t a n d w i s h . W h e r e t h e t r u s t e e c o n t i n u a l l y y i e l d s a n d m a k e s a d j u s t m e n t s i n a n a t t e m p t t o k e e p a s e m b l a n c e o f a t r u s t , a m e r e a g e n c y o r c u s t o d i a n s h i p i s b o u n d t o r e s u l t . 1 1 2 - 96 -Footnotes To Chapter 4 1. See, f o r example, the l i s t of uses i n the Canadian E s t a t e  Planning and A d m i n i s t r a t i o n Reports, " T r u s t s " , by Mary Louise Dickson, at 7591-2. 2. Income Tax Act, R.S.C. 1952 c. 148 and amendments t h e r e t o , s. 75. 3. For example, T r u s t s , Continuing Legal Education, November 7 & 8, 1985, at 8.1.01, suggests that "a v a l i d t r u s t i s i r r e v o c a b l e " . 4. Donovan M. Waters, Law of T r u s t i n Canada, 2nd ed., (Toronto: Carswell Company L i m i t e d , 1984), at 129. 5. (1862), 4 De G.F. & J . 264, 45 E.R. 1185. 6. I b i d . , 45 E.R. 1185, at 1190. 7. I b i d . , at 1189. 8. ( 1873), L.R. 16 Eq. 11 . 9. I b i d . , at 348. 10. ( 1874), L.R. 18 Eq. 11 . 11. I b i d . , at 14. 12. [19131 2 Ch. 478. 13- I b i d . , at 486. 14. H.C. U n d e r h i l l , 13 ed. (London: Butterworths, 1979). 15. (1892), 22 O.R. 307. 16. I b i d . , at 310. 17. (1895), 40 N.S.L.R. 193-18. I b i d . , at 198. 19 [1936] 1 W.W.R. 609, [1936] 2 D.L.R. 460 (Man. C A . ) 20 I b i d . , [ 1936] 2 D.L.R. 460, at 464. 21 . I b i d . 22. I b i d . - 9 7 -23. (1960), 26 D . L . R . (2d) 321. 24. I b i d . , at 327. 25. Re Mee (1971), 23 D . L . R . (3d) 491 at 496. 26. I b i d . 27. [1948] 1 W.W.R. 461. 28. I b i d . , at 463. 29. Theobald on W i l l s , 13 e d . , (London: Stevens & Sons, 1971), at 9 3 -30. (1866), L . R . 1 P. & D. 241. 31 . I b i d . , at 244. 32. I b i d . , at 243. 3 3 . Supra, footnote 19. 34. [1951] O.W.N. 728, [1952] 1 D . L . R . 41 (Ont. H . C . ) . 35. I b i d . , [1952] 1 D . L . R . 41 at 47. 36. [1937] 3 D . L . R . 163 ( A l t a . C . A . ) , aff irming [1937] 1 D . L . R . 768. 3 7 . I b i d . , at 165. 3 8 . I b i d . 39. [ 1947] 2 D . L . R . 797 ( B . C . S . C ) . 40. Supra, footnote 25. 41 . ( 1956), 7 D . L . R . (2d) 445 ( B . C . S . C ) . 42. [1949] 2 W.W.R. 705 (Sask. K . B . ) . 43. (1987), 52 Al ta L . R . (2d) 210. 44. Supra, footnote 40, at 463. 45. Ibid . 46. Supra, footnote 41. 47. I b i d . , at 451 . 48. [ 1934] 4 D . L . R . 787 (Ont. C A . ) - 98 49. I b i d . , at 763-50. (1841) 4 Hare 69, 67 E.R.564. 51. I b i d . , at 569 . 52. Supra, footnote 39. 53. (1835), 3 My. & K. 31, 40 E . R . 13. 54. I b i d . , 40 E . R . 13 at 14. 55. See Austin Wakeman Scott , The Law of Trusts , (Boston: L i t t l e , Brown & C o . , 1956) V o l . 1, at ph. 57.1; also "Annotation", 32 A . L . R . 2d 1270, at ph. 3-56. [ 1943] 2 D . L . R . 225 ( P . E . I . S . C ) , a f f d . [ 1943] 4 D . L . R . 803 57 . I b i d . , 58 . Supra, 59 . I b i d . , at 234. footnote 43. at 234. 60. See, f o r example, the f o l l o w i n g cases: Re Daley (1907), 39 S.C.R. 122; Re Mailman, [1941] S.C.R": 449; N i l e s v. Lake, [1947] S.C.R. 291, 2 D.L.R. 248; Re Ayleward, [1955] 5 D.L.R. 753 (N f l d S . C ) ; Edwards v. Bradley ( 1957), 9 D.L.R. 2d 673. 61. See, f o r example, the f o l l o w i n g cases: H i l l v. H i l l (1904), O.L.R. 710 (Ont. H.C.); McKnight v. T i t u s (193377 6 M.P.R. 282 (N.B.C.A.); Short!11 v. Grannon (1920), 55 D.L.R. 416 (N.B.C.A.); Re Reid (1921), 50 O.L.R. 595 (Ont. C.A.); Larondeau v. Larondeau, [1954] 4 D.L.R. 293, Re Fenton (1977), 26 N.S.R. (2d) 662 (N.S.S.C.). 62. Re Mailman, supra, footnote 60, at 454. 63. H i l l v. H i l l , supra, footnote 61. 64. I b i d . , at 711. 65. S h o r t i l l v. Grannon, supra, footnote 61. 66. McKnight v. T i t u s , supra, footnote 61. 67. Re Reid, supra, footnote 61. 68. I b i d . , at 604. - 99 -I b i d . , per Ferguson, J . A . , at 607. [19491 L . R . Ch. D. 278. Edwards v. Bradley, supra, footnote 60. (1938), 134 Ohio St 1, 15 N.E.2d 627. I b i d . , 629. Ibid . , 630. American Law I n s t i t u t e , Restatement of the Law: Trusts , ( 1958) . Supra, footnote 55, V o l . I; see also "Annotation", 32 A.L.R . (2d) 1970. Newman v. Pore, 275 N.Y. 371, 9 N.E.2d 966 (1937). A t l a n t i c National Bank of Jacksonvi l l e et . a l . v. St . Louis Trust Co. et . a l . , 357 Mo. 770, 21 1 S.W.2d 2 (194"8T7 S . C . Mis sour i . 79. Re Seeburg Estate , 46 N.Y.S.2d 412 (1944), Surrogate Ct, E r i e County. 80. In Re Estate of Fontane l la , 33 A.D.2d 29, 304 N.Y.S.2d 829 (1969), N . Y . S . C . , A . D 7 7 . 81. Re Shapley Trust , 353 Pa. 499, 46 A.2d 227 ( 1946), Penn. 3 • 0 • • 82. I b i d , at 48-49. 83. Re Pengal ly's Estate , 374 Pa. 358, 97 A.2d 844 ( 1953), Penn. S . C . 84. See, for example, Re Brown Estate , 284 Pa. 99, 119 A.2d 513 (1956), Re Montague Estate , 403 Pa. 558, 170 A.2d 103 (1961), Re Huested Estate~4~03 Pa. 185, 169 A.2d 57 ( 1961) 85. Re Estate of Mason, 395 Pa. 485, 150 A. 2d 542 ( 1059), Penn. S . C . 86. see Land v. Marshal l , 426 S.W.2d 841 (1968), Texas. 87. Westerf ie ld v Huckaby, 462 S.W.2d 324 (1971), Texas C . A . . 88. Fleck v. Baldwin, 141 Tex. 340, 172 S.W.2d 975 (1943). 89. see supra, footnote 86 and 87. 69. 70. 71 . 72. 73. 74. 75. 76. 77. 78. - 100 -90. Texas Tr u s t Act, A r t . 74256-7, subd A, Vernons Ann C i v . St. 9 1 . Betker v. N a l l e y , 78 App. D.C. 312, 140 F.2d 171 (1944). 92. I b i d . , at 173. 9 3 - Union T r u s t Co. v. Hawkins, 161 N.E. 548 (1929), Ohio App. 94. Cleveland T r u s t Co. v. White, 134 Ohio St 1, 15 N.E.2d 627 (1938). 95. McEvoy v. Boston F i v e Cents Savings Bank, 201 Mass. 20, 87 N.E.2d 465 (1909). 96. N a t i o n a l Shawmut Bank of Boston v. Joy, 315 Mass 457, 53 N.E.2d 1 13 ( 1944) . 97. Wasco v. Oshkosh Savings and Tr u s t Co., 196 N.W. 829 (1924), S.C. Wise. 98. Re Steck's E s t a t e , 275 Wise. 290, 81 N.W.2d 729 (1957) S.C. Wise. 99. Supra, footnote 97, at 830. 100. Supra, footnote 98, at 7 3 2 . 101. Supra, footnote 55, V o l . 1A, note 2, at 135; In Re Gould's  E s t a t e , 34 Misc.2d 58, 227 N.Y.S.2d 128 ( 1 9 6 2 7 , N.Y.S.C. 102. In Re Ford's E s t a t e , 279 A.D. 152, 108 N.Y.S .2d 122, a f f d 304 N.Y. 598, 107 N.E.2d 87 (1951), N.Y.C.of A. 103. Hanson v. Denkla, 100 So. 2d 378 ( 1956), F l . S . C , rev on other grounds, 375 U.S. 235 (1958). 104. I b i d . 105. Lewis v. Hanson, 36 Del. Ch. 235, 128 A.2d 819 ( 1957), a f f d 375 U.S. 235 (1958). 106. 20 West's F l o r i d a S t a t s . Ann., p. 689.075, 1969 and cumulations. 107. Lane v. Palmer F i r s t N a t i o n a l Bank and Tr u s t Company of  Sarasota, 213 So. 2d 301 ( 196"B), F l o r i d a D i s t r i c t C A . 108. I b i d . , at 3 0 3 . 109. I b i d . , at 306. 110. James S. Roth, " E s t a t e Planning i n F l o r i d a : The Revocable - 101 -Inter Vivos T r u s t " , 16 U. of F l o r i d a L.R. 34, at 48. 111. I b i d . , at 48-49. 112. Osborn v. Osborn, 226 N.E.2d 814 (1966). - 102 -CHAPTER 5 PRACTICAL CONCERNS IN USING THE REVOCABLE TRUST 1 . INTRODUCTION Having determined that a revocable trust can, i f ca r e f u l l y drafted and employed, be used in place of a w i l l , there remains to be examined certain p r a c t i c a l matters a r i s i n g from such use in B r i t i s h Columbia. What assets can and should be transferred to the revocable trust? What w i l l be the effect of such transfers? And what ri g h t s , i f any, w i l l residual beneficiaries have vis a vis the trust? These are some of the more important p r a c t i c a l concerns of using a revocable t r u s t . Of more philosophical or public policy concern i s the question of whether individuals should be permitted to place assets beyond the reach of those who might otherwise be e n t i t l e d to claim a portion of those assets. In thi s class of persons are spouses and children. The law in thi s area remains indeterminate in B r i t i s h Columbia. This chapter w i l l examine the p r a c t i c a l matters a r i s i n g in using a revocable t r u s t , and the next, the issues a r i s i n g in claims advanced by a spouse or children. 2. WHAT ASSETS - 103 -In u t i l i z i n g the revocable trust as a w i l l s substitute, careful consideration must be given to which assets should be transferred to the t r u s t . Clearly, some assets do not lend themselves e a s i l y to ownership by a trustee — for example, personal and household possessions, earnings from employment, motor vehicles, and perhaps even the j o i n t l y held family residence. That i s not to say that such assets could not be transferred to the revocable trust, but rather that i t would be inconvenient to do so. The better plan may be to accept that some assets w i l l pass through the s e t t l o r ' s estate upon death, and to arrange for disposition of those assets by w i l l . This course of action i s the one recommended by the American sources. 1 The assets can either be l e f t to named ben e f i c i a r i e s , or to the revocable trust i t s e l f . If the l a t t e r , the w i l l i s called by the American sources a "pour over w i l l " . 2 i f a pour over w i l l i s used, the doctrine of incorporation by reference must be noted, and the w i l l and trust drafted in such a way as to ensure that the trust i s not incorporated into the w i l l , but rather vice versa. Moreover, i f any changes are made to the t r u s t , or i t i s revoked and reconstituted, then a new w i l l should also be executed to avoid potential problems in the incorporation. If the s p e c i f i c concern of the s e t t l o r i s to avoid - 104 -claims under the Wills Variation Act, then only a minimum amount of assets should be l e f t to be transmitted by way of a w i l l . Beneficiary designations in pension plans, l i f e insurance, employee p r o f i t sharing plans and similar plans should be the revocable t r u s t , so as to avoid payment to the estate. (Designations to particular b e n e f i c i a r i e s are, of course, an alternative.) Indeed, a revocable trust may be e n t i r e l y unfunded u n t i l the s e t t l o r ' s death, i f the bulk of assets consist of death benefits under such plans. Generally speaking, assets such as land, savings, stocks and bonds, and other investments should be transferred to the revocable trust upon i t s creation. It may be necessary to deal with various public and private i n s t i t u t i o n s in order to f u l f i l l transfer requirements. Clearly, such requirements w i l l depend upon the asset and the i n s t i t u t i o n , and i t i s not possible to consider them in t h i s context. However, the transfer of assets to a revocable trust may trigger tax consequences at the federal and pr o v i n c i a l l e v e l , and a b r i e f review of these consequences i s in order. 3 . INCOME TAXES The subject of -taxing a trust i s an extensive one, deserving of study beyond the scope of t h i s thesis. In fact, a - 105 -thesis was published on the subject in 1985,3 and there are also a number of other sources a v a i l a b l e . 4 Only the b r i e f e s t of overviews on taxing a trust w i l l be dealt with here, with these sources recommended for any indepth review. On a general note, the taxation of trusts i s a d i f f i c u l t issue for taxing authorities, because of the very nature of the t r u s t . It i s not an individual or an entity of any kind. It i s only a label used for i d e n t i f y i n g a legal relationship. However, i t i s a truism that income tax law i s a creature of statute, and accordingly, can ignore the t r a d i t i o n a l view of a t r u s t , imposing instead i t s own d e f i n i t i o n of a trust for income tax purposes. Oddly enough, there i s no comprehensive d e f i n i t i o n of a trust in the Income Tax Act of Canada.5 The d e f i n i t i o n section in the subdivision of the Act dealing with trusts states only that a trust "includes an inter vivos trust and a testamentary t r u s t " . 6 The former i s defined as "a trust other than a testamentary t r u s t " . 7 Notwithstanding the lack of d e f i n i t i o n s , the Act e s s e n t i a l l y treats trusts as individuals for the purposes of taxation (except for certain deductions) . 8 More important than how a trust i s defined or treated under the Act i s the matter of when the trust i s taxed. For c l a r i t y , the income tax consequences for a revocable trust w i l l - 106 -be d i s c u s s e d with r e f e r e n c e to a simple h y p o t h e t i c a l f a c t s i t u a t i o n as f o l l o w s . The s e t t l o r t r a n s f e r s a l l h i s r e a l and p e r s o n a l property to a t r u s t , naming h i m s e l f and h i s wife as c o - t r u s t e e s , and h i s brother as a replacement t r u s t e e upon t h e i r deaths. The s e t t l o r r e t a i n s a power to revoke, some powers of a d m i n i s t r a t i o n , grants a l i f e i n t e r e s t to h i m s e l f and h i s wife j o i n t l y , and names h i s c h i l d r e n as the b e n e f i c i a r i e s f o l l o w i n g the death of both h i m s e l f and h i s w i f e . The t r u s t e e s have the power to encroach upon the c a p i t a l of the t r u s t f o r the b e n e f i t of the l i f e t e n a n t s . Both spouses work and r e t a i n t h e i r employment income p e r s o n a l l y , and there i s no business income generated by the t r u s t . The t r u s t w i l l be r e f e r r e d to as the Family T r u s t . For the purposes of t h i s d i s c u s s i o n , there are three p o s s i b l e "whens" which may t r i g g e r income tax f o r the Family T r u s t : upon i t s c r e a t i o n , during i t s o p e r a t i o n , and upon winding up. With res p e c t to the f i r s t event, the Income Tax Act i n c l u d e s i n income the aggregate of taxable c a p i t a l gains over a l l o w a b l e c a p i t a l l o s s e s from the " d i s p o s i t i o n of property".9 (A c a p i t a l gains exemption of up to $100,000.00 i s , however, a v a i l a b l e under s e c t i o n 110.6(3).) Subsection 54(c) d e f i n e s a d i s p o s i t i o n of property as i n c l u d i n g "any t r a n s f e r of property to a t r u s t , or any t r a n s f e r of p r o p e r t y of a t r u s t to any b e n e f i c i a r y under the t r u s t " . ^ u Thus, when the s e t t l o r t r a n s f e r s h i s property to the Family T r u s t , a - 107 -d i s p o s i t i o n has occurred f o r the purposes of the Income Tax Act, and i n c r e a s e d taxes may r e s u l t . The f a c t t h a t no c o n s i d e r a t i o n f o r the property may flow from the t r u s t to the s e t t l o r i s i r r e l e v a n t because of s e c t i o n 6 9 ( 1 ) ( b ) . That s e c t i o n s t i p u l a t e s t h a t the d i s p o s i t i o n of anything by a taxpayer, e i t h e r by g i f t i n t e r v i v o s , or to a person with whom he i s not d e a l i n g at arm's l e n g t h f o r no proceeds or l e s s than f a i r market value proceeds, s h a l l be deemed to reap proceeds equal to f a i r market va l u e . The r e c i p i e n t (the Family Trust here) w i l l be deemed to have r e c e i v e d the p r o p e r t y at f a i r market v a l u e . 1 1 Only i f the f a i r market value of the p r o p e r t y at the date of t r a n s f e r i s the same as the cost of the property to the s e t t l o r , or i f the s e t t l o r can c l a i m an exemption on any c a p i t a l gain i n c u r r e d , w i l l be no income tax consequences f o r the s e t t l o r . This i s not to say that there w i l l be no consequences at a l l ; i f nothing e l s e , the income tax r e t u r n of the s e t t l o r of the Family Trust w i l l be more complicated i n the year that he t r a n s f e r s the property to the t r u s t . In a d d i t i o n , a r e t u r n f o r the t r u s t w i l l have to be prepared and f i l e d . Assuming that there i s a p o t e n t i a l t axable c a p i t a l gain i n t r a n s f e r r i n g property to the Family T r u s t , i t i s arguable that the r e t e n t i o n of a l i f e i n t e r e s t by the s e t t l o r should exempt the t r a n s f e r from such gains under the wording of s u b s e c t i o n 5 4 ( c ) ( v ) . I t s t i p u l a t e s an e x c l u s i o n to the meaning - 108 -of " d i s p o s i t i o n " as f o l l o w s : any t r a n s f e r of property by v i r t u e of which there i s a change i n the l e g a l ownership of the property without any change i n the b e n e f i c i a l ownership thereof...12 T h e o r i t i c a l l y , t h i s s u b s e c t i o n can be a p p l i e d to an o r d i n a r y revocable t r u s t as contemplated i n the Family T r u s t here. However, c a r e f u l a t t e n t i o n must be paid to the words "without any change i n the b e n e f i c i a l ownership". One w r i t e r g i v e s the bare t r u s t as an example of a t r a n s f e r where the b e n e f i c i a l ownership i s unchanged.13 He d e s c r i b e s such a t r u s t as one i n which the s e t t l o r i s the s o l e b e n e f i c i a r y and the t r u s t e e has no a c t i v e d u t i e s to perform, except to t r a n s f e r the p r o p e r t y as the b e n e f i c i a r y d i r e c t s . Leaving aside the i s s u e of whether the absence of a c t i v e d u t i e s i s an e s s e n t i a l i n g r e d i e n t of a bare t r u s t , 1 ^  does the Family T r u s t as hypothesized here f i t Raphael's d e s c r i p t i o n of a bare t r u s t ? C l e a r l y , the answer i s no: the s e t t l o r i s not the sole or r e s i d u a l b e n e f i c i a r y and has a c t i v e d u t i e s to perform. C a r e f u l d r a f t i n g might make the Family T r u s t appear to be a bare t r u s t , p a r t i c u l a r l y i f the powers of a d m i n i s t r a t i o n granted to the s e t t l o r were e x t e n s i v e . However, c a u t i o n must be used i n such d r a f t i n g , as the t r u s t might be open to attack as a "mere agency". While the f i n d i n g of an agency would be advantageous f o r tax purposes (the exemption i n subsection 54(c)(v) would c e r t a i n l y a p p l y ) , i t could w e l l destroy the u s e f u l n e s s of the - 109 -F a m i l y T r u s t a s a w i l l s s u b s t i t u t e . I t i s p r o b a b l y b e t t e r t o a d m i t t h a t t h e t y p i c a l r e v o c a b l e t r u s t d i s c u s s e d h e r e i s s i m p l y n o t a b a r e t r u s t . D o e s t h a t c o n c l u s i o n n e c e s s a r i l y mean t h a t a t r a n s f e r t o a r e v o c a b l e t r u s t c a n n o t f a l l w i t h i n t h e e x c e p t i o n d e s c r i b e d i n s u b s e c t i o n 5 4 ( c ) ( v ) ? I t i s c e r t a i n l y a r g u a b l e t h a t t h e b e n e f i c i a l o w n e r s h i p o f t h e p r o p e r t y i s n o t a l t e r e d i n t h e F a m i l y T r u s t , a n d i n a r e v o c a b l e t r u s t g e n e r a l l y , a n d t h a t t h e s u b s e c t i o n d o e s a p p l y . T h e p o w e r t o r e v o k e may c o n s t i t u t e e f f e c t i v e c o n t i n u e d b e n e f i c i a l o w n e r s h i p a n d c o n t r o l o v e r t h e p r o p e r t y , n o t w i t h s t a n d i n g t h e p r o v i s i o n f o r l i f e t e n a n t s a n d r e s i d u a l b e n e f i c i a r i e s . T h e i n t e r p r e t a t i o n o f t h e p o w e r t o r e v o k e i s c r u c i a l i n d e t e r m i n i n g w h e t h e r t h e r e h a s b e e n a c h a n g e o f b e n e f i c i a l o w n e r s h i p . I f i t i s v i e w e d a s g i v i n g t h e s e t t l o r c o n s t r u c t i v e o w n e r s h i p o f t h e p r o p e r t y , t h e r e i s no r e a l c h a n g e i n t h e b e n e f i c i a l o w n e r s h i p . On t h e o t h e r h a n d , i f t h e p o w e r t o r e v o k e i s v i e w e d o n l y a s a m e a n s t o t r a n s f e r t h e b e n e f i c i a l o w n e r s h i p b a c k t o t h e s e t t l o r , p e n d i n g w h i c h t h e s e t t l o r h a s o n l y a l i f e i n t e r e s t , t h e r e w o u l d c l e a r l y b e a c h a n g e i n t h e b e n e f i c i a l o w n e r s h i p . A s s u m i n g t h a t t h e l a t t e r i n t e r p r e t a t i o n i s c o r r e c t , o n e m e t h o d w h i c h c o u l d b e u t i l i z e d t o a t l e a s t d e l a y t h e d i s p o s i t i o n f o r t h e p u r p o s e s o f t h e I n c o m e T a x A c t w o u l d b e t o g r a n t t o t h e s e t t l o r a p o w e r o f a p p o i n t m e n t , i n s t e a d o f n a m i n g — 110 — r e s i d u a l b e n e f i c i a r i e s when c r e a t i n g the Family T r u s t . In that case, a stronger argument could be made that there has been no change of b e n e f i c i a l ownership as r e q u i r e d by subsection 5 4 ( c ) ( v ) , as the s e t t l o r holds not only the l i f e i n t e r e s t but a l s o the r i g h t s to the r e s i d u e u n t i l such time as the power of appointment i s e x e r c i s e d . (Although the wife's l i f e i n t e r e s t may represent some change i n the b e n e f i c i a l ownership.) I t must be emphasized that t h i s course of a c t i o n would only delay the d i s p o s i t i o n and not avoid i t a l t o g e t h e r . Whether such a delay would be d e s i r a b l e would depend e n t i r e l y on the p a r t i c u l a r circumstances at the time of d r a f t i n g the t r u s t . I t should be pointed out that there are no cases d e a l i n g with the a p p l i c a t i o n of subsection 54(c)(v) to a revocable t r u s t . While not d e a l i n g s p e c i f i c a l l y with a revocable t r u s t , one commentator argues that the sub s e c t i o n does not apply to a t r a n s f e r of property to a t r u s t which pr o v i d e s the t r a n s f e r o r with only a l i f e i n t e r e s t , the remainder v e s t i n g i n a s p e c i f i e d l i v i n g person.15 However, none of the three cases he c i t e s i n support of t h i s statement deals with such a s i t u a t i o n , and a l l are E n g l i s h cases d e a l i n g with a t a x i n g p r o v i s i o n which i s concerned with "absolute ownership".1^ one d e a l t with a g r a t u i t o u s t r a n s f e r which gave r i s e to a r e s u l t i n g t r u s t , 1 ? and another with payment of insurance monies.18 jn the t h i r d case,19 shares of a f a m i l y run company were t r a n s f e r r e d to a t r u s t e e , to be held - 1 1 1 -f o r f i f t e e n y e a r s . T h e r i g h t s o f t h e s h a r e h o l d e r s t o d i s p o s e o f t h e s h a r e s o r d e a l w i t h t h e i r b e n e f i c i a l i n t e r e s t s w e r e r e s t r i c t e d u n d e r t h e t e r m s o f t h e t r u s t a g r e e m e n t . N o t w i t h s t a n d i n g s u c h r e s t r i c t i o n s , t h e s h a r e h o l d e r w a s h e l d t o b e a b s o l u t e l y e n t i t l e d t o t h e s h a r e s , a n d a c c o r d i n g l y t h e t r a n s f e r w a s n o t s u b j e c t t o c a p i t a l g a i n s t a x . I t i s s u b m i t t e d t h a t t h e r i g h t t o a r e t u r n o f t h e s h a r e s a f t e r f i f t e e n y e a r s i n t h i s c a s e i s a n a l o g o u s t o a p o w e r t o r e v o k e i n a t r u s t , i n s o f a r a s b o t h r e s u l t i n t h e r e t u r n o f t h e p r o p e r t y t o t h e s e t t l o r . A d m i t t e d l y , t h e r e t u r n p u r s u a n t t o t h e p o w e r t o r e v o k e i s c o n t i n g e n t o n l y , b u t t h e c a s e l e n d s some s u p p o r t t o t h e v i e w t h a t t h e r e i s no c h a n g e o f b e n e f i c i a l o w n e r s h i p i n a t r a n s f e r t o a r e v o c a b l e t r u s t . N e v e r t h e l e s s , u n t i l t h e c o u r t s a d d r e s s t h i s i s s u e , i t s h o u l d b e a s s u m e d t h a t t r a n s f e r s t o a r e v o c a b l e t r u s t may b e d i s p o s i t i o n s f o r t h e p u r p o s e s o f c a l c u l a t i n g c a p i t a l g a i n s . T h e p r o v i s i o n s o f s u b s e c t i o n 7 5 ( 2 ) d e a l w i t h t h e s e c o n d p o s s i b l e " w h e n " f o r t a x i n g r e v o c a b l e t r u s t s . T h a t s u b s e c t i o n s t i p u l a t e s t h a t , i n a t r u s t w h e r e p r o p e r t y i s h e l d o n c e r t a i n c o n d i t i o n s , a n y l o s s o r i n c o m e , o r c a p i t a l g a i n o r l o s s f r o m t h a t p r o p e r t y s h a l l b e d e e m e d t o be t h a t o f t h e s e t t l o r . T h e c o n d i t i o n s a r e a s f o l l o w s : ( 1 ) t h e p r o p e r t y ( w h e t h e r o r i g i n a l o r s u b s t i t u t e d ) may r e v e r t t o t h e s e t t l o r ; (2) t h e p r o p e r t y may p a s s t o p e r s o n s t o be d e t e r m i n e d b y t h e s e t t l o r s u b s e q u e n t t o t h e c r e a t i o n o f t h e t r u s t ; o r - 112 - • (3) the s e t t l o r has, during his or her l i f e t i m e , control over disposition of the property either by requiring his consent or direction.20 The f i r s t condition c l e a r l y encompasses a revocable trus t , and the other two would also often be found in such a t r u s t , under a power of appointment or powers of administration. Certainly, the subsection applies to the Family Trust described above. As such, the s e t t l o r would be deemed to be in receipt of the income and c a p i t a l gains, and could declare the losses, of the property held by the t r u s t . It can thus be said that, at least during the existence of the Family Trust under discussion here, the tax position of the s e t t l o r i s no di f f e r e n t than his position prior to the creation of the t r u s t . The wording of subsection 7 5 ( 2 ) provides only for a t t r i b u t i o n to the s e t t l o r during his l i f e t i m e . When the s e t t l o r of the Family Trust dies, his surviving wife, having only a l i f e i nterest, w i l l not be deemed to receive the income, ca p i t a l gains, or losses of the trust property. In fact, the trust w i l l no longer be revocable, the power to revoke having died with the s e t t l o r . The trust w i l l , however, not qualify as a spousal trust because the surviving spouse was not the only person e n t i t l e d to receive the income of the trust during her l i f e t i m e , as stipulated in section 7 3 ( 1 ) - 113 -A p r a c t i c a l point to remember i s that the reporting of the s e t t l o r ' s tax position w i l l be more complicated when using the Family Trust. This i s because the s e t t l o r i s required to f i l e not only annual personal income tax returns, but also annual returns for the trust, in his capacity as a trustee. The t h i r d event in the l i f e of the Family Trust, i t s winding up, w i l l occur when both the s e t t l o r and his wife have died. The remaining trustee w i l l then be required to di s t r i b u t e the trust property to the named b e n e f i c i a r i e s . It w i l l be recalled that subsection 54(c) includes in the d e f i n i t i o n of a disposition "any transfer of property of a trust to a beneficiary under the tr u s t " . 2 2 However, under subsection 1 0 7 ( 2 ) , any property distributed by the trust to a beneficiary under the trust in s a t i s f a c t i o n of a l l or any part of his or c a p i t a l interest i s deemed to be disposed of in an amount equal to the cost of the property to the t r u s t . In other words, there i s no c a p i t a l gain or loss by the trust upon the transfer to the beneficiary. If the s e t t l o r had not used the t r u s t , there would have been a deemed disposition of a l l his c a p i t a l property upon death. 23 Assuming that the property has been increasing in value over the years, the creation of the trust can c l e a r l y be advantageous to the s e t t l o r ' s estate, for i t "freezes" the - 114 -v a l u e o f t h e c a p t i a l p r o p e r t y o n t h e d a t e t h a t i t i s t r a n s f e r r e d t o t h e t r u s t . S u b s e q u e n t i n c r e a s e s i n v a l u e w i l l h a v e no t a x c o n s e q u e n c e s f o r t h e s e t t l o r , p r o v i d e d t h a t t h e c a p i t a l p r o p e r t y i s r e t a i n e d . T h e b e n e f i c i a r y , o f c o u r s e , may s u f f e r a d v e r s e t a x c o n s e q u e n c e s , f o r he o r s h e a c q u i r e s t h e p r o p e r t y a t l e s s t h a n f a i r m a r k e t v a l u e a n d w i l l b e l i a b l e f o r a l a r g e r c a p i t a l g a i n i f a s a l e s u b s e q u e n t l y o c c u r s . I t s h o u l d be n o t e d t h a t s e t t l o r ' s p o t e n t i a l t a x s a v i n g s i n u s i n g t h e F a m i l y T r u s t may b e a t r i s k , b e c a u s e o f t h e p r o v i s i o n s f o r d e e m e d d i s p o s i t i o n s u p o n d e a t h . I n s o f a r a s t h e s e t t l o r h a s c e r t a i n i n t e r e s t s i n t h e t r u s t p r o p e r t y i m m e d i a t e l y p r i o r t o h i s d e a t h , t o w h a t e x t e n t c a n a n d s h o u l d s u c h i n t e r e s t s b e e v a l u a t e d a n d t h e p r o c e e d s i n c l u d e d i n t h e t e r m i n a l r e t u r n ? I n t h e F a m i l y T r u s t d e s c r i b e d , t h e s e t t l o r a n d h i s w i f e a r e e n t i t l e d t o a l i f e i n t e r e s t i n t h e t r u s t p r o p e r t y . To t h e e x t e n t t h a t i n c o m e h a s a c c r u e d b u t n o t b e e n p a i d p r i o r t o d e a t h , i t m u s t b e i n c l u d e d a s i n c o m e i n t h e t e r m i n a l y e a r p u r s u a n t t o s u b s e c t i o n 7 0 ( 1 ) . T h a t s e c t i o n s t a t e s I n c o m p u t i n g t h e i n c o m e o f t h e t a x p a y e r f o r t h e t a x a t i o n y e a r i n w h i c h he d i e d , an a m o u n t o f i n t e r e s t , r e n t , r o y a l i t y , a n n u i t y . . . r e m u n e r a t i o n f r o m an o f f i c e o r e m p l o y m e n t , o r o t h e r a m o u n t p a y a b l e p e r i o d i c a l l y , t h a t w a s n o t p a i d b e f o r e h i s d e a t h . . . s h a l l b e i n c l u d e d i n c o m p u t i n g t h e t a x p a y e r ' s i n c o m e f o r t h e y e a r i n w h i c h h e d i e d . - 115 -While the income from the t r u s t c l e a r l y f a l l s w i t h i n t h i s p r o v i s i o n , the i n c l u s i o n of any c a p i t a l payable under the power to encroach i s more d o u b t f u l . Unless i t could be e s t a b l i s h e d that the power was e x e r c i s e d so c o n s i s t e n t l y so as to produce an "amount paid p e r i o d i c a l l y " , s u bsection 70(1) would not seem to apply. Even i f i t could be shown that 1 there were p e r i o d i c payments, there s u r e l y i s no payment "owing" on the taxpayer's death, as such payments are s o l e l y i n the t r u s t e e ' s d i s c r e t i o n . U n t i l t h a t d i s c r e t i o n i s e x e r c i s e d , the s e t t l o r has no a s c e r t a i n a b l e i n t e r e s t i n the c a p i t a l . The same can be s a i d f o r the power to revoke. However, while these i n t e r e s t s may not be e a s i l y a s c e r t a i n a b l e , i t i s arguable that they do e x i s t , and should be evaluated as p r o p e r t y . T h i s argument i s based on the d e f i n i t i o n of a c a p i t a l i n t e r e s t of a t r u s t , i n s u b s e c t i o n 108(1)(c), as f o l l o w s : a r i g h t (whether immediate or f u t u r e and whether absolute or c o n tingent) of the taxpayer as a b e n e f i c i a r y under the t r u s t to, or to r e c e i v e , a l l or any part of the c a p i t a l of the t r u s t . T h i s d e f i n i t i o n may be s u f f i c i e n t l y broad to encompass a power to encroach or a power to revoke. A t e c h n i c a l argument might be made that the s e t t l o r holds the power to revoke qua s e t t l o r r a t h e r than as a b e n e f i c i a r y . T h i s would s t i l l leave the power to encroach as a p o t e n t i a l c a p i t a l i n t e r e s t . Is t h i s c a p i t a l i n t e r e s t a p r o p e r t y f o r the purposes of d i s p o s i t i o n s upon - 116 -death? The answer would appear to be yes, based on v a r i o u s p r o v i s i o n s of the Income Tax Act. Subsection 70(5) s p e c i f i e s t h a t "the taxpayer s h a l l be deemed to have disposed, immediately before h i s death, of each property owned by him at th a t time that was a c a p i t a l p r o p e r t y " . Subsection 54(b) d e f i n e s c a p i t a l property as d e p r e c i a b l e property and any other p r o p e r t y "any gain or l o s s from the d i s p o s i t i o n of which would, i f the property were disposed o f , be a c a p i t a l gain or a c a p i t a l l o s s , as the case may be, of the taxpayer". Subsection 107(1) prov i d e s f o r a ta x a b l e c a p i t a l gain upon the d i s p o s i t i o n of a c a p i t a l i n t e r e s t i n a t r u s t . These three s u b s e c t i o n s , read together with the d e f i n i t i o n of a c a p i t a l i n t e r e s t i n s u s e c t i o n 108(1)(c), form a strong presumption t h a t a power to encroach or a power to revoke are c a p i t a l p roperty deemed to be disposed of upon death. Nevertheless, the f a c t remains that the value of such " p r o p e r t y " would be d i f f i c u l t , i f not impos s i b l e , to a s c e r t a i n . The f a i r market value of a power to revoke may be the value of a l l the property held by the t r u s t , provided that the power i s e x e r c i s e d . But i f i t i s not, what b a s i s can be used to evaluate the f a i r market value? The f a i r market value of a power to encroach upon c a p i t a l i s even more tenuous, p a r t i c u l a r l y i f e x e r c i s a b l e only i n the d i s c r e t i o n of the t r u s t e e . Would the value f l u c t u a t e depending upon the t r u s t e e ' s g e n e r o s i t y ? The v a l u a t i o n problems seem insurmountable, and i t i s u n l i k e l y that the problem i s a r e a l i s t i c one. In f a c t , no cases were found where Revenue - 117 -Canada has attempted to value e i t h e r a power to revoke or a power to encroach, l e a d i n g to the bold c o n c l u s i o n that the matter has simply not a r i s e n . Returning from the tax problems of the deceased s e t t l o r ' s e s t a t e to those of the revocable t r u s t , another matter which should be considered i n a d i s c u s s i o n of winding up the Family T r u s t i s s u b s e c t i o n 104(4). Under that s u b s e c t i o n , every t r u s t (other than a spousal t r u s t f o r which s p e c i a l r u l e s apply) s h a l l be deemed to have disposed of a l l c a p i t a l p r o p e r t y every twenty one years, and have r e a c q u i r e d i t immediately t h e r e a f t e r , at f a i r market value. Assuming that the p r o p e r t y has increased s u f f i c i e n t l y i n value, taxable c a p i t a l gains may r e s u l t i n a d d i t i o n a l taxes payable by the t r u s t (and i f the s e t t l o r i s s t i l l a l i v e , the s e t t l o r by a t t r i b u t i o n ) . A l t e r n a t e l y , such c a p i t a l gains may be a l l o c a t e d to b e n e f i c i a r i e s under su b s e c t i o n 104(21). The reason f o r t h i s deemed d i s p o s i t i o n i s c l e a r l y to prevent tax d e f e r r a l i n d e f i n i t e l y by the use of t r u s t s . For the purposes of the Family T r u s t , the s e t t l o r might consider e x e r c i s i n g the power to revoke p r i o r to the twenty one year d e a d l i n e , i n which case s u b s e c t i o n 107(2) would apply and no taxable c a p i t a l gains would r e s u l t . However, any resettlement to a revocable t r u s t would probably be caught by the d e f i n i t i o n of d i s p o s i t i o n of property, as d i s c u s s e d e a r l i e r , and no r e a l - 118 -tax advantage would ensue. The most that can be s a i d about the twenty one year r u l e i s that i t s p o s s i b l e a p p l i c a t i o n must be considered when d r a f t i n g or contemplating the revocable t r u s t . Another matter which should be mentioned i n connection with the winding up of the Family Trust i s a c o n s i d e r a t i o n of t r a n s f e r r i n g t r u s t p roperty to the r e s i d u a l b e n e f i c i a r i e s before the death of the s e t t l o r . Because of a recent amendment to the Income Tax Act,24 t h i s course of a c t i o n may have adverse tax consequences. I t w i l l be r e c a l l e d that s u b s e c t i o n 107(2) permits a r o l l o v e r from a t r u s t to a b e n e f i c i a r y i n s a t i s f a c t i o n of a l l or any part of h i s or her c a p i t a l i n t e r e s t i n the t r u s t . Subsection 107(4) exempts such a r o l l o v e r when the t r u s t concerned i s a spousal t r u s t as d e f i n e d by the Act. The amendment, su b s e c t i o n 107(4.1), extends t h i s exemption to t r u s t s to which subsection 75(2) a p p l i e s , when d i s t r i b u t i o n to b e n e f i c i a r i e s i s made during the s e t t l o r ' s l i f e t i m e . In other words, where the terms of a t r u s t cause the a t t r i b u t i o n r u l e s i n s u b s e c t i o n 75(2) to apply, any d i s t r i b u t i o n of a c a p i t a l i n t e r e s t to a b e n e f i c i a r y during the s e t t l o r ' s l i f e t i m e w i l l r e s u l t i n a deemed d i s p o s i t i o n with tax consequences. Therefore, i f income tax consequences are of concern, any such d i s t r i b u t i o n should be approached with c a u t i o n . In c o n c l u s i o n , there are i n e v i t a b l e income tax - 119 -consequences i n the use of a revocable t r u s t . These consequences may work i n favour of the s e t t l o r * taxpayer, and may make the revocable t r u s t a more a t t r a c t i v e v e h i c l e f o r e s t a t e planning i n B r i t i s h Columbia. Conversely, the tax consequences may be negative, and other methods of a v o i d i n g c l a i m s under the W i l l s V a r i a t i o n Act w i l l need to be e x p l o r e d . Unavoidable i n e i t h e r circumstance i s the i n c r e a s e d complexity of the taxpayer's f i n a n c i a l a f f a i r s . While such c o m p l e x i t i e s may encourage a taxpayer to keep b e t t e r r e c o r d s , or employ an i n s t i t u t i o n a l t r u s t e e to do so, they are j u s t as l i k e l y to discourage the use of the revocable t r u s t by many i n d i v i d u a l s . 4 . PROVINCIAL TAXES There are at l e a s t two forms of taxes at the p r o v i n c i a l l e v e l which must be considered when s e t t i n g up a revocable t r u s t . The f i r s t i s a s a l e s or t r a n s f e r tax on personal property, d e t a i l e d i n the S o c i a l S e r v i c e s Tax A c t 2 5 and the second i s the tax imposed upon the t r a n s f e r of r e a l p r operty pursuant to the Purchase Property Tax A c t . 2 6 (The p r o v i s i o n s of the p r o v i n c i a l Income Tax Act are not i n c l u d e d i n t h i s d i s c u s s i o n , as they are to a l a r g e extent a n c i l l i a r y to the p r o v i s i o n s of the f e d e r a l Act.) The i m p o s i t i o n of a s a l e s tax upon the revocable - 120 -t r u s t a s the r e c i p i e n t of personal property i s u n l i k e l y , given the wording o f the S o c i a l S e r v i c e s Tax Act. Tax i s imposed upon a purchaser who i s defi n e d i n s e c t i o n 1 a s a person who ac q u i r e s t a n g i b l e personal p r o p e r t y at a sa l e i n the Province f o r h i s own consumption or use... 27 It i s u n l i k e l y that a t r u s t would be considered a "person" under the Act, a s i t does not i n c l u d e a t r u s t w i t h i n the d e f i n i t i o n of person, and at common law a t r u s t i s not a person. Moreover, while i t i s arguable that the t r u s t e e might be the r e c i p i e n t , he or she i s not a c q u i r i n g the property f o r h i s or her "own consumption or use". F i n a l l y , provided that the t r a n s f e r to the revocable t r u s t i s made without c o n s i d e r a t i o n , the d e f i n i t i o n of " s a l e " i n the Act c l e a r l y does not cover the t r a n s a c t i o n . I t s t i p u l a t e s that a s a l e i n c l u d e s a c o n d i t i o n a l s a l e and a t r a n s f e r of t i t l e or p o s s e s s i o n , c o n d i t i o n a l or otherwise, i n c l u d i n g a s a l e on c r e d i t or where the p r i c e i s payable by ins t a l m e n t s , a n exchange, b a r t e r , l e a s e or r e n t a l or any other c o n t r a c t whereby at a p r i c e or other  c o n s i d e r a t i o n a personal d e l i v e r s to another t a n g i b l e personal p r o p e r t y . . . ( u n d e r l i n e added)28 I t i s a l s o arguable t h a t , as a b e n e f i c i a l i n t e r e s t i n the property remains i n the t r a n s f e r o r , the t r a n s f e r i s not one which p r o p e r l y f a l l s w i t h i n the p r o v i s i o n s of the Act. Caution must n e v e r t h e l e s s be e x e r c i s e d i n d r a f t i n g and c o n s t i t u t i n g the - 121 -t r u s t t o ensure t h a t the t r a n s f e r s are indeed made f o r no v a l u a b l e c o n s i d e r a t i o n . The a p p l i c a t i o n o f the Purchase P r o p e r t y Tax Act cannot be so e a s i l y d i s m i s s e d . That Act p r o v i d e s t h a t , s u b j e c t t o c e r t a i n exemptions, a t a x i s imposed upon " t a x a b l e t r a n s a c t i o n s at the Land T i t l e O f f i c e " . 2 9 A t a x a b l e t r a n s a c t i o n i s d e f i n e d , i n p a r t , as any t r a n s a c t i o n p u r p o r t i n g t o t r a n s f e r by any method i n c l u d i n g a d i s p o s i t i o n , an o r d e r o f a c o u r t , i n c l u d i n g an o r d e r a b s o l u t e o f f o r e c l o s u r e , or by the o p e r a t i o n o f any enactment or law, an e s t a t e i n f e e s i m p l e r e f e r r e d t o i n s e c t i o n 2 3 ( 1 ) o f the Land T i t l e A c t , a l i f e i n t e r e s t i n l a n d . . . 30 The t a x imposed upon such t r a n s a c t i o n s i s one p e r c e n t o f the f i r s t $ 2 0 0 , 0 0 0 . 0 0 o f the f a i r market v a l u e o f the i n t e r e s t t o be t r a n s f e r r e d , and two p e r c e n t o f the r e m a i n i n g f a i r market value. 3 1 i t i s not n e c e s s a r y t h a t the t r a n s f e r be r e g i s t e r e d , 3 2 o r even r e g i s t r a b l e , 3 3 t o a t t r a c t the l i a b i l i t y o f the t a x . A t r a n s f e r e e must f i l e a r e t u r n and pay t a x e s w i t h i n a p e r s c r i b e d p e r i o d i n e i t h e r e v e n t . C e r t a i n l y , the d e f i n i t i o n o f a t a x a b l e t r a n s a c t i o n i s broad enough t o encompass a t r a n s f e r t o the t r u s t e e o f a r e v o c a b l e t r u s t , and even a p e r s o n a l d e c l a r a t i o n o f t r u s t . There are exemptions from payment o f the t a x s e t out i n s e c t i o n 5 o f the A c t . Some twenty t h r e e t r a n s a c t i o n s a r e exempt, but - 122 -only a few of these could p o s s i b l y apply to a revocable t r u s t . Much depends upon how the revocable t r u s t i s s t r u c t u r e d . For example, i f the s e t t l o r t r a n s f e r s the property to a t r u s t e e who c o n c u r r e n t l y t r a n s f e r s back to the s e t t l o r a l i f e i n t e r e s t , the t r a n s a c t i o n may be exempt under subsection 5 ( 2 ) ( i ) . I t provides an exemption of a t r a n s f e r of a l i f e e s t a t e where the t r a n s f e r e e of t h a t l i f e e s t a t e t r a n s f e r r e d the fee simple e s t a t e i n the same land to the t r a n s f e r o r of the l i f e e s t a t e i n a concurrent t r a n s a c t i o n . 34 No mention i s made of the remainder, but the p r o v i s i o n c l e a r l y suggests that i t passes to the " t r a n s f e r o r " ( i n t h i s case, the t r u s t e e ) upon the l i f e tenant's ( s e t t l o r ' s ) death. Whether the t a x i n g a u t h o r i t i e s would permit the exemption to be claimed where the t r a n s f e r o r holds the fee simple i n t r u s t f o r other remaindermen i s open to q u e s t i o n . A second p o s s i b l e exemption may a r i s e i f the s e t t l o r and the t r u s t e e are r e l a t e d i n d i v i d u a l s , and the land t r a n s f e r r e d i s a f a m i l y farm, p r i n c i p l e r e s i d e n c e , or r e c r e a t i o n a l r e s i d e n c e . A r e l a t e d i n d i v i d u a l i s d e f i n e d as a spouse, parent, c h i l d , grandparent, g r a n d c h i l d , great grandparent, great g r a n d c h i l d or the spouse of any of them, provided that he or she i s a c i t i z e n or permanent r e s i d e n t of Canada. 35 I f the t r u s t e e i n the revocable t r u s t i s such a person, i t i s arguable that he or she can c l a i m an exemption. - 123 -The argument i s based upon the assumption that the t r u s t e e i s the t r a n s f e r e e i n the taxable t r a n s a c t i o n and not the t r u s t i t s e l f . As the d e s c r i p t i o n of a t r a n s f e r e e i n s e c t i o n 1 of the Act "means a person to whom land i s t r a n s f e r r e d under a taxable t r a n s a c t i o n " , 36 t h i s argument has some m e r i t . I t i s moot, however, i f the property t r a n s f e r r e d i s not a p r i n c i p l e or r e c r e a t i o n residence or f a m i l y farm. A t h i r d p o s s i b l e exemption which might apply to a r evocable t r u s t i s a t r a n s f e r to the P u b l i c Trustee or a t r u s t e e r e g i s t e r e d under the T r u s t Company Act, R.S.B.C. 1979 c. 412, where the a d m i n i s t r a t i o n of the t r u s t e s t a t e i s f o r the s o l e b e n e f i t of the s e t t l o r and on the t e r m i n a t i o n of the t r u s t the land r e v e r t s to the s e t t l o r - or h i s eatate or from the t r u s t e e back to the s e t t l o r . 3 7 Leaving a s i d e the question of whether an i n s t i t u t i o n a l t r u s t e e i s recommended or d e s i r e d , the d i f f i c u l t y with t h i s p r o v i s i o n i s the s p e c i f i e d c o n d i t i o n s of the t r u s t . Is the revocable t r u s t envisaged here f o r the " s o l e b e n e f i t of the s e t t l o r " ? Although i t may be from a p r a c t i c a l viewpoint, i n l i g h t of the l i f e i n t e r e s t and power to revoke, i t i s u n l i k e l y that the t a x i n g a u t h o r i t i e s w i l l accept i t as such, p a r t i c u l a r l y i f r e s i d u a l b e n e f i c i a r i e s are named i n the t r u s t instrument. I f a power of appointment i s u t i l i z e d , the argument i s s l i g h t l y s t r o n g e r , but s t i l l m a r g i nal. Another problem i s t h a t , while the land may r e v e r t to the s e t t l o r upon t e r m i n a t i o n i f the - 124 -power of r e v o c a t i o n i s e x e r c i s e d , i t w i l l not n e c e s s a r i l y r e v e r t to the s e t t l o r . I t w i l l c e r t a i n l y not r e v e r t to h i s e s t a t e , i f by e s t a t e i s meant that property which a l e g a l r e p r e s e n t a t a t i v e i s e n t i t l e d to administer upon the s e t t l o r ' s death. (The term e s t a t e i s not d e f i n e d i n the Act.) N e e r t h e l e s s , the exemption may be of some value where the terms of the revocable t r u s t are a p p r o p r i a t e l y d r a f t e d . The only exemption which s p e c i f i c a l l y r e f e r s to an i n t e r v i v o s t r u s t deals only with a t r a n s f e r from a t r u s t e e to a b e n e f i c i a r y . 3 8 The exemption i s l i m i t e d to s i t u a t i o n s where the s e t t l o r and the b e n e f i c i a r y are r e l a t e d i n d i v i d u a l s and the land t r a n s f e r r e d i s a f a m i l y farm, p r i n c i p l e r e s i d e n c e or r e c r e a t i o n a l r e s i d e n c e . T h i s exemption may be of some a s s i s t a n c e to the t r u s t e e who i s o b l i g e d to t r a n s f e r the t r u s t p r o p e r t y upon the s e t t l o r ' s death, but i t i s of l i t t l e a s s i s t a n c e i n the i n i t i a l t r a n s f e r of the property from the s e t t l o r to the t r u s t e e . I t i s not d i f f i c u l t to conclude that the draftsman of the Purchase Property Tax Act d i d not address t h e i r minds to whether t r a n s f e r s to revocable t r u s t s should or should not be exempt. U n t i l t h i s i s done, and amendments made to the Act, the p o s s i b l e i m p o s i t i o n of purchase property tax must be c a r e l y reviewed i n d r a f t i n g the revocable t r u s t . - 125 -5. BENEFICIARIES CLAIMS Where a t r u s t e e i s appointed i n a revocable t r u s t , the t r u s t instrument w i l l g e n e r a l l y set out the d u t i e s of that t r u s t e e . The law of t r u s t s a l s o imposes upon the t r u s t e e of any t r u s t c e r t a i n d u t i e s and o b l i g a t i o n s . These i n c l u d e the duty to preserve the t r u s t property, and not to gain p e r s o n a l advantage from i t without proper a u t h o r i t y , to maintain an even hand between the l i f e tenants and r e s i d u a l b e n e f i c i a r i e s , and to keep proper accounts. A d e t a i l e d a n a l y s i s of such d u t i e s can be found i n any t e x t on t r u s t s and t r u s t e e s , and i t i s not the i n t e n t i o n to review them here. For the present purposes, i t i s the breach of those d u t i e s , and the consequences of such breaches, which are of i n t e r e s t . In p a r t i c u l a r , what w i l l be the e f f e c t of a breach of t r u s t by the s e t t l o r / t r u s t e e of a r e v o c a b l e t r u s t ? For the purposes of t h i s d i s c u s s i o n , i t w i l l be assumed that the s e t t l o r only has r e t a i n e d the power to revoke. In a d d i t i o n , the term " b e n e f i c i a r i e s " w i l l r e f e r only to the remaindermen of the revocable t r u s t . The r i g h t s of a b e n e f i c i a r y of a revocable t r u s t are no d i f f e r e n t from the r i g h t s of a b e n e f i c i a r y under any t r u s t . These broadly i n c l u d e : the r i g h t to compel the t r u s t e e s to perform t h e i r d u t i e s i n a proper manner, and to b r i n g a c t i o n to recover t r u s t property w r o n g f u l l y t r a n s f e r r e d . 3 9 However, - 126 -t h e a p p l i c a t i o n o f t h o s e r i g h t s i n a r e v o c a b l e t r u s t s i t u a t i o n may be d i f f i c u l t i n l i g h t o f t h e n a t u r e o f t h e b e n e f i c i a r y ' s i n t e r e s t . T h e i n t e r e s t i s a r e m a i n d e r f o l l o w i n g a l i f e e s t a t e , a n d may be c l a s s i f i e d a s a p r e s e n t v e s t e d i n t e r e s t . H o w e v e r , w h i l e a u s u a l r e m a i n d e r i n t e r e s t may n o t v e s t i n p o s s e s s i o n b e c a u s e o f t h e p r e m a t u r e d e a t h o f t h e b e n e f i c i a r y , a r e m a i n d e r i n t e r e s t i n a r e v o c a b l e t r u s t may a d d i t i o n a l l y n o t v e s t i n p o s s e s s i o n b e c a u s e t h e p o w e r o f r e v o c a t i o n i s e x e r c i s e d . T h e e x i s t e n c e o f s u c h a p o w e r e s s e n t i a l l y p l a c e s t h e b e n e f i c i a r y a t t h e m e r c y o f t h e s e t t l o r / t r u s t e e , a t l e a s t d u r i n g t h e s e t t l o r / t r u s t e e ' s l i f e t i m e . N o t w i t h s t a n d i n g a n y r i g h t s t h e b e n e f i c i a r y may h a v e u n d e r l a w , he o r s h e i s n o t l i k e l y t o i n v i t e t h e r e v o c a t i o n o f t h e t r u s t b y m a k i n g a c o m p l a i n t a b o u t t h e s e t t l o r - t r u s t e e ' s m a n a g e m e n t o f t h e t r u s t p r o p e r t y , e v e n t h o u g h t h a t m a n a g e m e n t may v a r y f r o m a c c e p t e d t r u s t p r a c t i c e s . ^ u P r a c t i c a l l y s p e a k i n g , t h e b e n e f i c i a r y i s f a r m o r e l i k e l y t o e v e n t u a l l y r e c e i v e t h e t r u s t p r o p e r t y b y a c q u i e s c i n g t o a n y b r e a c h e s o f t r u s t o n t h e p a r t o f t h e s e t t l o r / t r u s t e e , t h a n i f c o m p l a i n t s a r e r e g i s t e r e d . T h i s a s s u m e s , o f c o u r s e , t h a t t h e b e n e f i c i a r y i s a w a r e o f t h e t e r m s o f t h e t r u s t , a n d h a s some k n o w l e d g e o f b r e a c h e s . I n f a c t , i n u s i n g a r e v o c a b l e t r u s t a s a s u b s t i t u t e f o r a w i l l , i t i s m o r e l i k e l y t h a t t h e b e n e f i c i a r i e s w i l l h a v e n o k n o w l e d g e o f i t s t e r m s o r e v e n i t s e x i s t e n c e . - 127 -However, i f the b e n e f i c i a r y does have such knowledge, and complains of a breach of t r u s t on the part of the s e t t l o r / t r u s t e e , what remedy does the b e n e f i c i a r y have? The b e t t e r view would seem to be that there i s only a r i g h t to have the t r u s t p r o p e r l y a dministered. 41 As P r o f e s s o r Waters e x p l a i n s , (T)he b e n e f i c i a r y ' s p r i n c i p a l r i g h t i s to r e q u i r e that the t r u s t e e s , who have caused l o s s to the t r u s t through t h e i r breach of t r u s t , s h a l l out of t h e i r own pockets indemnify the t r u s t f o r i t s l o s s . 4 2 T h i s r i g h t i s based on the l o s s to the t r u s t . A b e n e f i c i a r y not yet e n t i t l e d to possession of the t r u s t property can do no more than i n s i s t that compensation be paid to the t r u s t f o r any l o s s e s s u f f e r e d . No damages can be awarded p e r s o n a l l y to the b e n e f i c i a r y u n t i l he or she r e a l i z e s an a c t u a l l o s s from the t r u s t e e ' s breach, by r e c e i v i n g t r u s t property l e s s v a l u a b l e , or no t r u s t property at a l l . In a d d i t i o n to o r d e r i n g compensation payable to the t r u s t , the c o u r t might a l s o order that an accounting, or even appoint a r e c e i v e r , to prevent f u r t h e r breaches of t r u s t . On the other hand, the court might re f u s e to grant any r e l i e f , on the theory that i t would be p o i n t l e s s i n l i g h t of the power of r e v o c a t i o n . I t may s a f e l y be s a i d t h a t i t i s only a f t e r the s e t t l o r ' s death that the b e n e f i c i a r i e s have any r e a l remedy f o r - 128 -breaches of t r u s t committed by the s e t t l o r as t r u s t e e . T h i s i s because of the well e s t a b l i s h e d p r i n c i p a l t h a t t r u s t e e s can be held r e s p o n s i b l e f o r breaches of t r u s t o c c u r r i n g before they assumed t h e i r d u t i e s . ^ 3 The b e n e f i c i a r i e s may sue not only the succeeding t r u s t e e , but a l s o the e s t a t e of the s e t t l o r / t r u s t e e . As the purpose of the revocable t r u s t may w e l l have been to minimize the value of the e s t a t e f o r probate purposes, the succeeding t r u s t e e i s we l l advised to review the s e t t l o r / t r u s t e e " s accounts c a r e f u l l y before assuming t r u s t e e s h i p . Indeed, some American sources recommend that the succeeding t r u s t e e be appointed as j o i n t t r u s t e e d u r i n g the s e t t l o r ' s l i f e t i m e , i n order to ensure that the t r u s t i s p r o p e r l y a d m i n i s t e r e d . ^ It may we l l be that the succeeding t r u s t e e may o b t a i n some r e l i e f from the c o u r t s under s e c t i o n 98 of the Trustee Act,^5 which provides I f i t appears to the court that a t r u s t e e , however, appointed, i s or may be p e r s o n a l l y l i a b l e f o r a breach of t r u s t , whenever the t r a n s a c t i o n a l l e g e d to be a breach of t r u s t o c curred, but has acted honestly and reasonably, and ought f a i r l y to be excused f o r the breach of t r u s t . . . t h e n the court may r e l i e v e the t r u s t e e e i t h e r wholly or p a r t l y from that personal l i a b i l i t y . While only the circumstances can determine the a p p l i c a b i l i t y of t h i s s e c t i o n , i t may o f f e r some a s s i s t a n c e f o r innocent or in a d v e r t e n t breaches of t r u s t by the s e t t l o r / t r u s t e e . The - 129 -m o r a l , h o w e v e r , i s t h a t t h e s e t t l o r m u s t b e c a r e f u l l y i n s t r u c t e d a s t o h i s o r h e r o b l i g a t i o n s a s a t r u s t e e i n t h e a d m i n i s t r a t i o n o f t h e t r u s t . - 130 -Footnotes to Chapter 5 1. For example, E . Wil l iam Carr , Revocable Trusts , (Englewood, N . J . : Prent i ce -Ha l l I n c . , 1 9 B 0 T ^ i t chi 3; George M. Turner, Revocable Trusts , (Colorado Springs: McGraw/Hill Book Company, 1 9 8 3 1 , at ch. 16. 2. I b i d . 3. P a t r i c i a Anne Johnson, The Taxation of Trust Income: Some  Inherent Problems and Comparative Perspectives, A Thesis Submitted in P a r t i a l Fu l f i l lment of the Requirements for the Degree of Masters of Laws, Univers i ty of B r i t i s h Columbia, March 1985. 4. See, for example: Maurice C. C u l l i t y , "Taxation of Estates , Trusts and Benef i c iar i e s" , Chapter 35 of Volume 4, Canadian Income Tax Revised, (Toronto: Butterworth and Co. (CanadaT L t d , 1974); Lloyd F . Raphael, Canadian Income Taxation of Trusts , 2nd ed. (Don M i l l s , Ontario: C . C . H . Canadian Limited , 1982). 13 14 5. Income 6. Ibid . , 7. I b i d . , 8. Ibid . , 9. Ibid . , B. 10. I b i d . , 11. Ibid . , 12. I b i d . , s. 1 0 8 ( 1 ) ( j ) . subsection f. s. 104(2). s. 38, and general ly , Subdivis ion (c) of D iv i s ion s. 5 4 ( c ) ( i i i ) . s. 6 9 ( 1 ) ( b ) . s. 54(c)(v) - the subsection goes on to make cer ta in exceptions to the exc lus ion , where the transfer is by a t rus t resident in Canada to a trus t not resident in Canada, or a transfer to an R . R . S . P . , defined p r o f i t sharing plan, employees p r o f i t sharing plan, or regis tered retirement income fund by a bene f i c iary . Supra, footnote 4, at 70. D.W.M. Waters, Law of Trusts in Canada, (Toronto: Carswell Company Limi ted , 1984), at 27. 15. Supra, footnote 4, at 69. 16. 17. 18. 19. 20. 21 . 22. 23. 24. 25. 26. 27. 28. 29. 30. 31 • 32. 33. 34. 35. 36. 37. 38. 39. 40. 41 . - 131 -I b i d . , note 97. Soul v. Irving (1963), 41 T . C . 517 ( C . A . ) . Commissioners of Inland Revenue v. Montgomery (1974), 49 T . C . 679. (High Court of J u s t i c e , C D . ) Booth v. E l l a r d (Inspector of Taxes), [1978] 1 W.L.R. 927 ( C D . ) Supra, footnote 6, s. 70(5). I b i d . , s. 73(1). Supra, footnote 11. Supra, footnote 6, s. 70(5). Subsection 107(4.1). R . S . B . C . 1979, ch. 388 and amendments. S . B . C . 1987, B i l l 17, in force September 8, 1987. Supra, footnote 25, s. 1. Ibid Supra Ibid Ibid Ibid I b i d . Ibid . Ibid . Ibid Ibid . Ibid . Supra Supra footnote 26, s. 2(1). s. 1(1). s. 3. s. 2(4). s. 2(5). s. 5 ( 2 ) ( i ) . s. 5(1). s. 1(1). s. 5 (2 ) ( t ) . s. 5 ( 2 ) ( a ) ( i i i ) . footnote 15, chapters 18 and 19. footnote 1, Carr , at 172. D.W.M. Waters, "The Nature of the Trust Benef i c iary ' s - 132 -Interest" (1967), 45 C .B .R . 219. 42. Supra, footnote 15, at 984. 43. Ibid . , at 991. 44. Supra, footnote 1, Turner at ch. 9. 45. R . S . B . C . 1979 c. 414 and amendments. - 1 3 3 -CHAPTER 6 SPOUSAL CLAIMS 1 . INTRODUCTION There are three circumstances where a spouse might a s s e r t a c l a i m to the property held i n a revocable t r u s t : where the s e t t l o r spouse d i e s i n t e s t a t e ; where the s e t t l o r spouse d i e s t e s t a t e but the e s t a t e i s minimal or non-existence because the t r u s t holds the bulk of the deceased's a s s e t s ; and where there i s a marriage breakdown. In the f i r s t two circumstances, the c h i l d r e n of the s e t t l o r may a l s o have a c l a i m a g a i n s t the t r u s t p r o p e r t y . Insofar as such claims have a common b a s i s , the d i s c u s s i o n w i l l r e f e r mainly to spousal c l a i m s . In the t h i r d s i t u a t i o n , the c l a i m i s c l e a r l y governed i n B r i t i s h Columbia by l e g i s l a t i o n , and w i l l t h e r e f o r e be reviewed f i r s t . 2. MARRIAGE BREAKDOWN When p a r t i e s to a marriage separate, and d i v i s i o n of pro p e r t y i s an i s s u e , the Family R e l a t i o n s Act of B r i t i s h Columbia i s the governing l e g i s l a t i o n . The Act provides f o r an equal d i v i s i o n of " f a m i l y a s s e t s " upon c e r t a i n t r i g g e r i n g - 134 -events: namely, a s e p a r a t i o n agreement, a d e c l a r a t o r y order, an order f o r d i s s o l u t i o n of marriage or j u d i c i a l s e p a r a t i o n , or an order d e c l a r i n g the marriage n u l l and v o i d . 1 Family a s s e t s are d e f i n e d i n s e c t i o n 45 of the Act as a s s e t s owned by one or both spouses which are used fo r a f a m i l y purpose, and i n c l u d e both an " i n t e r e s t i n a t r u s t " owned by a spouse, and ...where property would be a f a m i l y asset i f owned by a spouse, property ( i ) over which the spouse has, e i t h e r alone or with another person, a power of appointment e x e r c i s a b l e i n favour of h i m s e l f ; or ( i i ) disposed of by the spouse but over which the spouse has, e i t h e r alone or with another person a power to revoke the d i s p o s i t i o n or a power to use or dispose of the p r o p e r t y . 2 I f the d e f i n i t i o n of a f a m i l y asset had been l i m i t e d to "an i n t e r e s t i n a t r u s t " , some i n t e r e s t i n g i s s u e s could have a r i s e n i n i n t e r p r e t i n g the terms of a revocable t r u s t . For example, i f the spouse owned a l i f e i n t e r e s t only, how would such a l i f e i n t e r e s t be valued f o r the purposes of d i v i s i o n ? I f the spouse as s e t t l o r had a l s o r e t a i n e d a power to encroach upon c a p i t a l , would t h i s be i n c l u d e d as "an i n t e r e s t " , and i f so, again, how would i t be valued? However, these questions become moot with the i n c l u d e d d e f i n i t i o n of f a m i l y a s s e t s as set out i n the passage above. This d e f i n i t i o n i s c l e a r l y broad enough to capture any f a m i l y asset t r a n s f e r r e d to a revocable t r u s t . While there - 135 -have been no reported cases d e a l i n g d i r e c t l y with t h i s s e c t i o n as i t a p p l i e s to a revocable t r u s t , there i s no reason to b e l i e v e t hat a j u d i c i a l d i v i s i o n of assets h e l d i n such a t r u s t could be avoided, provided of course that the a s s e t s were used f o r a f a m i l y purpose. At l e a s t one d e c i s i o n of the Supreme Court of B r i t i s h Columbia has i n d i c a t e d a w i l l i n g n e s s to review property held i n t r u s t f o r a spouse. In Graham v. Graham,3 the Respondent husband made an a p p l i c a t i o n pursuant to Se c t i o n 45 and the B.C. Supreme Court Rules, to examine the wife's f a t h e r concerning, amongst other t h i n g s , t r u s t s c r e a t e d f o r the b e n e f i t of the wi f e . The court allowed the a p p l i c a t i o n . Oppal, L . J . S . C , found that "evidence r e l a t i n g to the e x i s t e n c e or non-existence of s e c r e t or b l i n d t r u s t s i n favour of the wife i s m a t e r i a l " to the determination of property under s e c t i o n 45.^ The d e c i s i o n was a f f i r m e d on appeal.5 Although there i s no r e p o r t as to the f i n a l outcome i n the Graham case, another d e c i s i o n of the Supreme Court of B r i t i s h Columbia r e v e a l s no h e s i t a t i o n on the c o u r t ' s part i n s e t t i n g aside g r a t u i t o u s i n t e r v i v o s d i s p o s i t i o n s of f a m i l y a s s e t s i f made to avoid spousal c l a i m s . In O s c r o f t v. Os c r o f t , 6 the wife g r a t u i t o u s l y t r a n s f e r r e d the f a m i l y r e s i d e n c e to her daughter and a t h i r d party months before commencing a d i v o r c e p e t i t i o n . The husband c o u n t e r p e t i t i o n e d f o r d i v i s i o n of f a m i l y a s s e t s under the Family R e l a t i o n s Act, and a l s o commenced an a c t i o n a l l e g i n g a f r a u d u l e n t t r a n s f e r of the f a m i l y r e s i d e n c e , seeking r e c t i f i c a t i o n of t i t l e and/or a t r u s t . The court found - 136 -that the " o b j e c t behind the transfer...was to defeat or attempt to defeat the i n t e r e s t " 7 of the husband, and a c c o r d i n g l y set a s i d e the t r a n s f e r . The d e c i s i o n was based upon a f i n d i n g of fraud, and i t s a p p l i c a b i l i t y to a revocable t r u s t would depend l a r g e l y upon the i n t e n t i o n s of the s e t t l o r i n c r e a t i n g the t r u s t . But c a u t i o n should c e r t a i n l y be e x e r c i s e d i n u s i n g a revocable t r u s t only to avoid a spousal c l a i m under the Family R e l a t i o n s Act. T h i s i s not to say that a revocable t r u s t might not be u s e f u l i n matrimonial s i t u a t i o n s . For example, a t r u s t might be c r e a t e d p r i o r to the marriage to p r o t e c t a wealthy spouse from f u t u r e claims under the Family R e l a t i o n s Act by the spouse who comes i n t o the marriage with no a s s e t s . The t r u s t agreement would have to be c a r e f u l l y worded, and the t r u s t p roperty i t s e l f i n s u l a t e d from use f o r a f a m i l y purpose. ( I t seems that income from such t r u s t property may be used f o r a f a m i l y purpose. I t has been held that such use does not change the c h a r a c t e r of the asset i t s e l f i n t o a f a m i l y asset.8 ) C u r r e n t l y , p r e - n u p t i a l agreements are commonly used to p r o t e c t such spouses, but a revocable t r u s t could not only p r o t e c t the e s t a t e of the wealthy spouse during marriage but a l s o p o t e n t i a l l y upon death. I t i s the a b i l i t y of the revocable t r u s t to f u l f i l l the l a t t e r need which w i l l be d i s c u s s e d next. The p o i n t to remember here, however, i s that a revocable t r u s t c r e a t e d at or near the breakdown of a marriage, with the - 137 -i n t e n t i o n of defrauding a spouse of h i s or her r i g h t s under the Family R e l a t i o n s Act i s u n l i k e l y to withstand c h a l l e n g e s . 3. TESTACIES AND INTESTACIES A. Current L e g i s l a t i o n When a revocable t r u s t i s used i n c o n j u n c t i o n with, or as a replacement f o r , a w i l l , the questions a r i s e whether a s u r v i v i n g spouse or c h i l d i s , or should be, e n t i t l e d to a share of the t r u s t res by v i r t u e of the s t a t u t o r y scheme f o r d i s t r i b u t i o n of the deceased's e s t a t e . In B r i t i s h Columbia, i f there i s a w i l l , the s t a t u t o r y a u t h o r i t y d e r i v e s from the W i l l s V a r i a t i o n Act;9 i f there i s no w i l l , the a u t h o r i t y i s found under Part 7 of the E s t a t e A d m i n i s t r a t i o n Act.1° On a s t r i c t r eading, the p r o v i s i o n s of e i t h e r Act would not appear to apply to claims against p r o p e r t y held i n a revocable t r u s t . S e c t i o n 2 of the W i l l s V a r i a t i o n Act provides that the court may order " p r o v i s i o n f o r the proper maintenance and support" of a s u r v i v i n g spouse or c h i l d r e n from the e s t a t e of the t e s t a t o r , where the w i l l f a i l s to do so.11 S e c t i o n 96 of the E s t a t e A d m i n i s t r a t i o n Act d i s t r i b u t e s an i n t e s t a t e ' s e s t a t e amongst next of k i n , beginning with the s u r v i v i n g spouse and c h i l d r e n . 1 2 ( P r o t e c t i o n i s a l s o provided f o r common law - 138 -spouses and i l l e g i t i m a t e c h i l d r e n . ) In e i t h e r event, i f the deceased has t r a n s f e r r e d some or a l l of h i s or her wo r l d l y goods to a revocable t r u s t p r i o r to death, i t i s no longer part of the deceased's e s t a t e . T h i s r e s t r i c t i o n c o u l d , of course, be remedied by extending the d e f i n i t i o n of an e s t a t e to i n c l u d e p r o p e r t y t r a n s f e r r e d to an i n t e r v i v o s t r u s t , as has been done in the Ontario l e g i s l a t i o n . 1 3 But u n t i l such l e g i s l a t i o n i s demanded and enacted, the s u r v i v i n g spouse and c h i l d r e n must look to the c o u r t s f o r r e l i e f a g a i n s t complete or p a r t i a l d i s i n h e r i t a n c e through the medium of a revocable t r u s t . Before examining the c o u r t s ' o p t i o n s f o r a p p l y i n g s u c c e s s i o n r i g h t s to property held i n a revocable t r u s t , i t would be wise to examine the reasons and purpose u n d e r l y i n g the e x i s t i n g s t a t u t o r y r e l i e f . Such an understanding i s important i n a s s e s s i n g whether claims by a s u r v i v i n g spouse or c h i l d should be extended by the c o u r t s i n the absence of a s t a t u t o r y mandate. Moreover, while the c o u r t s may not c l e a r l y express a concern f o r the reasons and purposes behind such r e l i e f , i t i s suggested that such c o n s i d e r a t i o n s w i l l c e r t a i n l y i n f l u e n c e j u d i c i a l d e c i s i o n making. B. The J u s t i f i c a t i o n f o r S t a t u t o r y Succession Rights H i s t o r i c a l l y , a widow has always had some measure of - 139 -p r o t e c t i o n from the husband's freedom of a l i e n a t i o n and t e s t a t i o n of r e a l property i n the form of dower r i g h t s . ^ These r i g h t s e n t i t l e d a widow, upon her husband's death, to a l i f e i n t e r e s t i n one t h i r d of the land owned by the husband d u r i n g the marriage. Although the i n t e r e s t d i d not vest u n t i l the husband's death, i t could not be defeated by an i n t e r v i v o s d i s p o s i t i o n without consent by the w i f e . Curtesy o f f e r e d a s i m i l a r l i f e i n t e r e s t to the husband, although i t attached to a l l of the wife's lands, provided that i s s u e r e s u l t e d from the marriage.15 Dower and c u r t e s y ceased to be a p p l i c a b l e i n England when land ceased to be of importance, but was not a b o l i s h e d u n t i l 1925. 1 6 For l a n d l e s s f a m i l i e s , there were su c c e s s i o n r u l e s of a s o r t enforced f i r s t by the Church and l a t e r by Parliament. 1 7 These r u l e s gave a part of the deceased's per s o n a l property to the widow and c h i l d r e n . However, the r u l e s l o s t much of t h e i r potency by the seventeenth century with the advent of freedom of t e s t a t i o n . While the succession r u l e s continued to apply upon an i n t e s t a c y , i t was not u n t i l the t w e n t i e t h century that l e g i s l a t i o n provided f o r r e l i e f to a widow and c h i l d r e n where there was a w i l l . Today, p r o t e c t i o n i s provided by the l e g i s l a t i o n p r e v i o u s l y d e s c r i b e d : the E s t a t e A d m i n i s t r a t i o n Act ensures that an i n t e s t a t e ' s e s t a t e goes f i r s t to the s u r v i v i n g spouse and c h i l d r e n and the W i l l s V a r i a t i o n Act permits r e d i s t r i b u t i o n of a t e s t a t e ' s e s t a t e i f - 140 -adequate p r o v i s i o n has not been made f o r the s u r v i v i n g spouse and c h i l d r e n . T h i s l e g i s l a t i o n has c o u n t e r p a r t s i n England, A u s t r a l i a and New Zealand. The g e n e r a l l y accepted r a i s o n d'etre of dower and s u c c e s s i o n r i g h t s i s that they p r o t e c t e d the widow from being impecunious, and gave a measure of s e c u r i t y to the f a m i l y unit.18 While i t s e f f e c t i v e n e s s i n accomplishing these ends has been q u e s t i o n e d , ^ there i s no doubt that the modern r i g h t s as provided i n the W i l l s V a r i a t i o n Act are concerned with the same goals of p r o t e c t i o n and s e c u r i t y . Those who champion the need f o r p r o t e c t i n g the f i n a n c i a l p o s i t i o n of the widow g e n e r a l l y p e r c e i v e her as an u n s o p h i s t i c a t e d and undereducated homemaker who has l e f t a l l the f i n a n c i a l management of the f a m i l y u n i t to the husband.20 She t h e r e f o r e r e q u i r e s a s s i s t a n c e from the s t a t e i n ensuring that her husband does not leave her and her c h i l d r e n stranded, f i n a n c i a l l y . I m p l i c i t i n the suggestion that t h i s s t e r e o t y p i c a l widow needs p r o t e c t i o n i s a strong b e l i e f i n the t r a d i t i o n a l f a m i l y u n i t . The f o l l o w i n g statement of P r o f e s s o r MacDonald, who wrote the standard t e x t on the s u b j e c t , Fraud on the Widow's Share, demonstrates t h i s emphasis: The need f o r p r o t e c t i o n i s obvious. By the m a r i t a l vows the wife assumes her n a t u r a l r o l e of homemaking and the husband undertakes to 'provide' f o r the home.21 - 141 -While these words were w r i t t e n i n 1960, before the "women's l i b e r a t i o n " movement took hold, they undeniably r e f l e c t the h i s t o r i c a l r a t i o n a l e f o r s t a t u t o r y widow's r i g h t s . They do not, however, seem to j u s t i f y the extension of such r i g h t s to widowers i n modern times (or, f o r that matter, the custom of c u r t e s y i n former days). I f men are the " p r o v i d e r s " , i t cannot be argued t h a t they need f i n a n c i a l support and maintenance from t h e i r wives' e s t a t e . The extension of s t a t u t o r y s u c c e s s i o n r i g h t s to husbands seems to be an attempt to update an o l d concept with s o c i e t y ' s modern concerns of n o n - d i s c r i m i n a t i o n and e q u a l i t y of the sexes. The husband should be no l e s s e n t i t l e d to a share of the wife's e s t a t e than v i c e v e r s a . I t i s , however, i r o n i c that t h i s modern concern with e q u a l i t y between the sexes should be a p p l i e d to r i g h t s founded i n the t r a d i t i o n a l unequal p o s i t i o n s of the spouses. In f a c t , one c r i t i c of the fo r c e d share l e g i s l a t i o n found i n many American s t a t e s suggests that i t perpetuates the s u b s e r v i e n t r o l e of women, by " r e i n f o r c i n g the very system f o r which i t i s compensating".22 Although i t may be argued that s t a t u t o r y p r o t e c t i o n of a spouse upon d i s i n h e r i t a n c e under a w i l l or an i n t e s t a c y i s based upon a dated view of the f a m i l y u n i t and the r o l e s of the sexes, the i s s u e s are somewhat more complex. The modern concern f o r e q u a l i t y w i t h i n a marriage has produced l e g a l - 142 -i n n o v a t i o n s which are more s u b s t a n t i v e than the cosmetic changing of "wife" to "spouse" i n l e g i s l a t i o n . Perhaps most important i s the i d e a , found i n most f a m i l y l e g i s l a t i o n i n Canada today, of an equal s h a r i n g of the f a m i l y a s s e t s upon d i s s o l u t i o n of a marriage. This s h a r i n g i s based upon a b e l i e f that marriage i s a p a r t n e r s h i p , and that each spouse should be compensated f o r h i s or her r e s p e c t i v e r o l e s i n t h a t p a r t n e r s h i p . I t i s not unreasonable to a s s e r t that such compensation should be a v a i l a b l e whenever a marriage ends — whether i t be by d i v o r c e or death. This element of compensation can be seen as a modern j u s t i f i c a t i o n f o r the s t a t u t o r y s u c c e s s i on r i g h t s as found i n the E s t a t e A d m i n i s t r a t i o n Act. Moreover, although the W i l l s V a r i a t i o n Act speaks only of maintenance and support, i t i s a s s e r t e d that the aspect of compensation i s considered by the c o u r t s i n B r i t i s h Columbia when ap p l y i n g the W i l l s V a r i a t i o n Act. The Law Reform Commission takes a s l i g h t l y d i f f e r e n t approach to the j u s t i f i c a t i o n f o r s t a t u t o r y s u c c e s s i o n r i g h t s . I t bases the e n t i t l e m e n t of the deceased's f a m i l y to the ass e t s of h i s e s t a t e upon a moral c l a i m . I t d i s t i n g u i s h e s i n t e r v i v o s o b l i g a t i o n s from o b l i g a t i o n s at death as f o l l o w s : A deceased's moral o b l i g a t i o n to provide adequately f o r h i s f a m i l y d i f f e r from i n t e r v i v o s o b l i g a t i o n s he may have owed them. P r i n c i p l e s which determine i n t e r v i v o s o b l i g a t i o n s are p r i m a r i l y founded upon concepts of maintenance and support. In some cases members of the deceased's f a m i l y have a moral c l a i m to share the a s s e t s of h i s e s t a t e which i s not n e c e s s a r i l y l i m i t e d - 143 -to support.... O b l i g a t i o n s a r i s i n g a f t e r the deceased's demise should be determined with r e f e r e n c e to the f a c t that the deceased no longer has any needs.23 The emphasis upon moral claims may c r e a t e major d i f f i c u l t i e s , p a r t i c u l a r l y where the deceased i s s u r v i v e d by more than one f a m i l y . Moreover, i n order to a d j u d i c a t e such c l a i m s , the cou r t has l i t t l e choice but to impose i t s own m o r a l i t y upon the s i t u a t i o n . However, the moral approach i s comprehensive, i n th a t i t j u s t i f i e s c h i l d r e n ' s as w e l l as spouses' s t a t u t o r y s u c c e s s i o n r i g h t s , p a r t i c u l a r l y when those c h i l d r e n are no longer dependent upon the deceased as at the date of death. Whether the r a t i o n a l e f o r s t a t u t o r y s u c c e s s i o n r i g h t s be p r o t e c t i o n and s e c u r i t y , compensation, a moral o b l i g a t i o n , or a combination t h e r e o f , the l e g i s l a t o r s i n B r i t i s h Columbia have made a p u b l i c p o l i c y d e c i s i o n i n enacting such r i g h t s . I t i s a d e c i s i o n that p r e f e r s the r i g h t s of s u r v i v i n g spouses and c h i l d r e n over the freedom of the t e s t a t o r to bequeath h i s wo r l d l y goods or not, as he chooses. This p u b l i c p o l i c y d e c i s i o n has yet to be co n s i d e r e d , or determined, where the t e s t a t o r t r a n s f e r s h i s w o r l d l y goods to a revocable t r u s t . As p r e v i o u s l y mentioned, u n t i l the l e g i s l a t o r s concern themselves with the q u e s t i o n , i t w i l l be up to the c o u r t s i n B r i t i s h Columbia to answer i t . I f t h e i r i n t e r p r e t a t i o n of the W i l l s V a r i a t i o n Act i s any i n d i c a t i o n , our c o u r t s apparently have a p r e d i l e c t i o n f o r the r i g h t s of f a m i l y members as opposed to the - 1 4 4 -p r i n c i p a l of freedom of t e s t a t i o n . However, whether t h i s p r e d i l e c t i o n w i l l be strong enough to r e s u l t i n the r e -a l l o c a t i o n to a s u r v i v i n g spouse or c h i l d of property t r a n s f e r r e d to a revocable t r u s t i s the subj e c t which must now be examined. Our c o u r t s have but two opt i o n s i n t h i s matter: they can adopt a l e g a l i s t i c , t e c h n i c a l approach and deny the c l a i m , or they can apply a more c r e a t i v e and e q u i t a b l e approach, and allow the c l a i m . Both o p t i o n s can be supported by caselaw. The former i s favoured i n some j u r i s d i c t i o n s i n the United S t a t e s , and arguably, i n New Zealand, A u s t r a l i a , Ontario and A l b e r t a . The term arguably i s used because there i s no ex t e n s i v e caselaw i n those j u r i s d i c t i o n s , and c e r t a i n l y not d e a l i n g with revocable t r u s t s per se. The c r e a t i v e , e q u i t a b l e approach can be found i n a v a r i e t y of forms i n some American j u r i s d i c t i o n s . Both approaches w i l l be examined i n the f o l l o w i n g d i s c u s s i o n . As a p r e f a c e , i t should be noted that i n reviewing American caselaw, the d i s c u s s i o n w i l l be l i m i t e d to the caselaw i n the common law s t a t e s , as the cases i n community property s t a t e s have s u b s t a n t i a l l y d i f f e r e n t c o n s i d e r a t i o n s . ( C h i e f among them i s the f a c t that the s u r v i v i n g spouse has a vested i n t e r e s t i n the community pro p e r t y during the marriage, whereas i n common law s t a t e s , the i n t e r e s t does not vest u n t i l the - 145 -death of the spouse.) I t should a l s o be noted that s t a t u t o r y r i g h t s considered i n the caselaw d i s c u s s e d vary from s t a t e to s t a t e and country to country, and no attempt i s made here to review such r i g h t s i n depth.24 Reference to p a r t i c u l a r s t a t u t o r y p r o v i s i o n s w i l l , however, be made where necessary. C. Options: The Legal Approach The cases i n which the j u d i c i a r y have not allowed the s u r v i v i n g spouse to c l a i m a share of the deceased's property t r a n s f e r r e d i n t e r v i v o s focuses e x c l u s i v e l y upon the completeness of the t r a n s a c t i o n or instrument i n q u e s t i o n . In the case of a revocable t r u s t , the i s s u e i s whether the formal requirements f o r a t r u s t have been s a t i s f i e d . I f they have, and a completely c o n s t i t u t e d t r u s t e x i s t s the court w i l l r e f u s e to impeach that t r u s t i n favour of the s u r v i v i n g spouse. This view has been d e s c r i b e d by American s c h o l a r s as the " l i b e r a l l e g a l view",25 i n l i g h t of i t s emphasis upon l e g a l f o r m a l i t i e s and i t s i m p l i c i t b e l i e f i n freedom of a l i e n a t i o n of prop e r t y . T h i s view has a l s o been c a l l e d the "Massachusetts theory",26 acknowledging the s t a t e from whence the b e t t e r known American cases f o r the p r i n c i p l e have emerged. I t w i l l be r e c a l l e d that the c l a s s i c case d e a l i n g with the e f f e c t of - 1 4 6 -powers of c o n t r o l i n a revocable i n t e r v i v o s t r u s t , N a t i o n a l  Shawmut Bank of Boston v. J o y , 2 7 h a i l s from Massachusetts. That d e c i s i o n , although not d e a l i n g with the c l a i m of a s u r v i v i n g spouse, i s an e a r l y example of the " l i b e r a l l e g a l view". I t enunciated the r u l e that a revocable t r u s t c o n t a i n i n g powers of c o n t r o l could not be considered testamentary, provided the t r u s t created a present i n t e r e s t i n the t r u s t e e and b e n e f i c i a r y . Moreover, the d e c i s i o n discounted as immaterial the s e t t l o r ' s motive of evading or circumventing the s t a t u t o r y requirements f o r a w i l l . The court s a i d : I f an owner of p r o p e r t y can f i n d a means of d i s p o s i n g of i t i n t e r v i v o s that w i l l render a w i l l unnecessary f o r the accomplishment of h i s p r a c t i c a l purposes, he has a r i g h t to employ i t . The f a c t t h a t the motive of a t r a n s f e r i s to o b t a i n the p r a c t i c a l advantages of a w i l l without making one i s i m m a t e r i a l . 2 ^ The views of the court i n N a t i o n a l Shawmut were a p p l i e d to the s u r v i v i n g spouse who claimed a g a i n s t property held i n a revocable t r u s t , i n the l a t e r Massachusetts case of Kerwin v. Donaghy. 2 9 Although the f a c t s i n that case r e v e a l e d t h a t the r e l a t i o n s between the s u r v i v i n g wife and the h u s b a n d - s e t t l o r were good, there was the o c c a s i o n a l disagreement. I t was during one of those disagreements that the s e t t l o r created two revocable t r u s t s i n favour of h i s daughter from a previous marriage. The t r u s t s comprised s u b s t a n t i a l l y a l l of the s e t t l o r ' s p r o p e r t y , and provided f o r a - 147 -l i f e i n t e r e s t to the s e t t l o r . The court found that the t r u s t s were v a l i d l y created and b i n d i n g as a g a i n s t the p a r t i e s to them. The court went on to suggest t h a t , as the s u r v i v i n g spouse could only c l a i m a g a i n s t the s e t t l o r ' s e s t a t e at death f o r her s t a t u t o r y f o r c e d share, her a t t a c k on the t r u s t s could be no more s u c c e s s f u l than one i n s t i t u t e d by the s e t t l o r . In a d d i t i o n , f o l l o w i n g N a t i o n a l Shawmut, the court found that motive f o r c r e a t i n g the t r u s t was i r r e l e v a n t . The Massachusetts theory i s unquestionably grounded i n a b e l i e f i n the s a n c t i t y of f r e e a l i e n a b i l i t y of one's property, as can be seen from the f o l l o w i n g passages from Kerwin v. Donaghy: He could not 'cheat' her i n any l e g a l sense by means of those agreements un l e s s she had r i g h t s that were paramount to h i s r i g h t to do what he pleased i n h i s l i f e t i m e with h i s own personal p r o p e r t y . . . . In t h i s Commonwealth a husband has an absolute r i g h t to dispose of any or a l l of h i s personal property i n h i s l i f e t i m e , without the knowledge or consent of h i s wif e , with the r e s u l t t h a t i t w i l l not form part of h i s e s t a t e f o r her to share under the s t a t u t e of d i s t r i b u t i o n s [ c i t a t i o n s o m i t t e d ] , under h i s w i l l , or by v i r t u e of a waiver of h i s w i l l . 3 0 Courts i n other American j u r i s d i c t i o n s (although not always un i f o r m l y ) have a l s o a p p l i e d t h i s preference f o r freedom of a l i e n a t i o n . 3 1 For example, i n Ohio, i n the 1961 d e c i s i o n of Smyth v. Cleveland Trust Co.,32 where the court opined: I f a v a l i d t r u s t i n t e r v i v o s was c r e a t e d , v a l i d t i t l e - 148 -i n the corpus passed to the t r u s t e e , and nothing remained i n the s e t t l o r except the r i g h t to revoke, a l t e r , or amend the agreement. At the time of the s e t t l o r ' s death, i f the agreement has not been revoked, a l t e r e d , or amended, the t i t l e to the t r u s t p r operty was s t i l l i n the t r u s t e e , s u b j e c t to d i s t r i b u t i o n under the t r u s t instrument, and i t i s d i f f i c u l t to see how a p a r t of the t r u s t property could pass to the s e t t l o r ' s a d m i n i s t r a t o r or executor.3 3 The emphasis of the Ohio court i n t h i s passage i s c l e a r l y upon the l e g a l f o r m a l i t i e s of the t r a n s a c t i o n . Concern f o r the s u r v i v i n g spouse i s not r e a d i l y apparent i n t h i s or other American d e c i s i o n s a p p l y i n g the Massachusetts theory. The same can be s a i d f o r d e c i s i o n s o r i g i n a t i n g i n New Zealand, A u s t r a l i a , Ontario and A l b e r t a . These cases are few i n number, and must be c i t e d with c a u t i o n , as only two deal with t r u s t s , and i t i s u n c e r t a i n whether one of those d e a l s with a revocable t r u s t . Nevertheless, they are v a l u a b l e i n s o f a r as they r e v e a l the general l e a n i n g s of other commonwealth c o u r t s . The one case which deals with revocable t r u s t s , In Re  Paulin, 3 4 h a i l s from New Zealand. The t r u s t s i n question were of the v a r i e t y known i n America as Totten t r u s t s . Mr. P a u l i n Senior deposited monies i n two separate bank accounts, d e s i g n a t i n g h i m s e l f as t r u s t e e , with the b e n e f i c i a r y on one being h i s daughter, L a v i n i a Margaret, and on the other, h i s son, W i l l i a m Bruce.- Upon h i s death, h i s widow made a p p l i c a t i o n f o r p r o v i s i o n f o r her maintenance from h i s e s t a t e , as she had been omitted from h i s w i l l . In d i s c u s s i n g what that e s t a t e - 149 -was, the c o u r t held that the monies di d not form part of h i s e s t a t e , and t h a t : In New Zealand i t has been held that the Court cannot deal with property s e t t l e d by the t e s t a t o r i n h i s l i f e t i m e — P a r i s h v. P a r i s h [1923] N.Z.G.R. 72— a n d i n South A u s t r a l i a i t was s a i d i n Re Richardson [1920] S.A.L.R. 24 at p. 40 that the Court could not touch property disposed of by the t e s t a t o r i n h i s l i f e t i m e , even though dependents are thereby l e f t without adequate p r o v i s i o n . . . 35 The c o u r t s i n New Zealand apparently take the same approach with w i l l s - v a r i a t i o n type l e g i s l a t i o n . In Thomson v. Thomson,36 a n i n t e r v i v o s t r a n s f e r of the f a m i l y farm from the deceased to one of h i s sons was attacked by the other c h i l d r e n . The court found t h a t ...the r i g h t to r e l i e f a r i s e s only i f any person d i e s l e a v i n g a w i l l without making t h e r e i n adequate p r o v i s i o n f o r the proper maintenance and support of the t e s t a t o r ' s wife, husband or c h i l d r e n . The s t a t u t e i n no way attempts to r e g u l a t e d i s p o s i t i o n s i n l i f e . 3 7 C l o s e r to home, the A l b e r t a Supreme Court, A p p e l l a t e D i v i s i o n , reviewed the p r o v i s i o n s of the A l b e r t a Family R e l i e f Act, R.S.A. 1955, to determine i t s a p p l i c a b i l i t y to property t r a n s f e r r e d to an i n t e r v i v o s t r u s t , i n C o l l i e r v. Yonkers e t .  a l . .38 i t i s not c l e a r from the case r e p o r t whether the t r u s t contained a power to revoke, but i t d i d provide that income be paid to the s e t t l o r f o r l i f e , with a g i f t over to her - 150 -c h i l d r e n upon her death. The court concluded that the t r u s t fund d i d not form part of the e s t a t e f o r the purposes of the Family R e l i e f Act, notwithstanding a p p a r e n t l y l i b e r a l d e f i n i t i o n s f o r " w i l l " and " t e s t a t o r " i n the Act, as f o l l o w s : " w i l l " means any deed, w i l l , c o d i c i l , instrument or other act by which a t e s t a t o r so disposes of r e a l or personal property that the same w i l l pass at h i s death to some other person; " t e s t a t o r " means a person who by deed or w i l l or by any other instrument or act so disposes of r e a l or personal property or any i n t e r e s t t h e r e i n t h a t the same w i l l pass at h i s death to some other person. The c o u r t found a complete g i f t upon the execution of the t r u s t deed and t r a n s f e r of the funds to the t r u s t , f o l l o w i n g C o r l e t v. I s l e of Man Bank.39 There was thus no pro p e r t y or i n t e r e s t passing at death. The court i n C o l l i e r v. Yonkers e t . a l . d i d not review i n any d e t a i l the broad d e f i n i t i o n s f o r w i l l and t e s t a t o r i n the Act, except to r e j e c t the argument that they a p p l i e d to the t r u s t g i f t . The court simply followed a Supreme Court of Canada d e c i s i o n which reviewed i d e n t i c a l d e f i n i t i o n s i n the Ontario Dependent's R e l i e f Act, R.S.O. 1950. In that case, Kerslake v. G r e y 4 0 the question was whether proceeds from a l i f e insurance p o l i c y , payable not to the e s t a t e but to a t h i r d p a r t y , were part of the e s t a t e of the t e s t a t o r f o r the purposes of the Dependant's R e l i e f Act. A m a j o r i t y of the Supreme Court of Canada s a i d no; notwithstanding the extended - 151 -meaning of " w i l l " and " t e s t a t o r " i n the Act, "a dependant i s e n t i t l e d to look only to the e s t a t e which the personal r e p r e s e n t a t i v e s of the deceased are e n t i t l e d to administer".^1 The personal r e p r e s e n t a t i v e had no c l a i m a g a i n s t the insurance proceeds u n l e s s , the cou r t opined, there were some grounds to set aside the d e s i g n a t i o n i n the insurance p o l i c y . T h i s , of course, i s a c l a s s i c example of the Massachusetts t h e o r y — t h e i n t e r v i v o s t r a n s a c t i o n can be attacked o n l y on l e g a l f o r m a l i t i e s . As i n the American cases, concern f o r , or c o n s i d e r a t i o n o f , the needs of the dependants was ignored i n both Kerslake and C o l l i e r . In another A l b e r t a case, Dower v. P u b l i c Trustee e t . a l . 2 * 2 (to be di s c u s s e d i n d e t a i l below), the c o u r t a l l u d e d to the problems of the s u r v i v i n g f a m i l y , but suggested t h a t the s o l u t i o n l a y with the l e g i s l a t u r e , not the c o u r t s . But i f the f o l l o w i n g paragraph i s any i n d i c a t i o n , the court i n Dower had l i t t l e r e a l sympathy f o r the r i g h t s of the s u r v i v i n g f a m i l y : I f the r i g h t to avoid g i f t s and other i n t e r v i v o s d i s p o s i t i o n s of h i s pro p e r t y i s given a f t e r h i s death to a man's wife and other dependents on the ground t h a t they hinder, delay or defeat t h e i r claims under the Family R e l i e f Act, they would have a s i m i l a r r i g h t of a c t i o n during h i s l i f e t i m e on the ground that they tend to or w i l l n e c e s s a r i l y have such e f f e c t upon h i s death. Any d i s g r u n t l e d dependent could use t h i s r i g h t of a c t i o n before or a f t e r h i s death to prevent or set aside a man's b e n e f a c t i o n s and g i f t s and circumvent the o b j e c t of h i s c h a r i t y . ^ 3 - 152 -In a c o n t e s t between r i g h t s of the s u r v i v i n g spouse or c h i l d r e n , and the r i g h t to f r e e l y a l i e n a t e one's property d u r i n g one's l i f e t i m e , the l a t t e r i s c l e a r l y the p r e f e r r e d c h o i c e of the cases u s i n g the l e g a l l i b e r a l approach. However, ca u t i o n must be e x e r c i s e d i n over-emphasizing the p o l i c y p r e f e r e n c e s i n these cases. Notwithstanding the comments of the court i n Dower, the l a c k of concern f o r the s u r v i v i n g spouse or c h i l d r e n i s not n e c e s s a r i l y a conscious or considered d e c i s i o n by the j u d i c i a r y . T h i s i s c l e a r l y i l l u s t r a t e d i n a recent Massachusetts case, where the i s s u e of p u b l i c p o l i c y was brought to the a t t e n t i o n of the c o u r t s . In S u l l i v a n v. Burkin,44 the Supreme J u d i c i a l Court of Massachusetts considered the modern r o l e s and r i g h t s of spouses i n the f o l l o w i n g passage: There have been s i g n i f i c a n t changes s i n c e 1945 i n p u b l i c p o l i c y c o n s i d e r a t i o n s b e a ring on the r i g h t of one spouse to t r e a t h i s or her property as he or she wishes dur i n g marriage. The i n t e r e s t s of one spouse i n the property of the other have been s u b s t a n t i a l l y i n c r e a s e d upon the d i s s o l u t i o n of a marriage by d i v o r c e . We b e l i e v e t h a t , when a marriage i s terminated by the death of one spouse, the r i g h t s of the s u r v i v i n g spouse should not be so r e s t r i c t e d as they are by the r u l e i n Kerwin v. Donaghy. I t i s n e i t h e r e q u i t a b l e nor l o g i c a l to extend to a d i v o r c e d spouse gre a t e r r i g h t s i n the a s s e t s of an i n t e r v i v o s t r u s t c r e a t e d and c o n t r o l l e d by the other spouse than are extended to a spouse who remained married u n t i l the death of h i s or her spouse.45 - 153 -I t i s i n t e r e s t i n g to note that t h i s reasoning, which was p r e v i o u s l y d e s c r i b e d as a p o s s i b l e j u s t i f i c a t i o n f o r modern day s t a t u t o r y s u c c e s s i o n r i g h t s , has been so r e a d i l y adopted by the c o u r t f o r j u s t i f y i n g the attachment of those r i g h t s to property t r a n s f e r r e d i n t e r v i v o s . Moreover, the focus on modern spousal r i g h t s i s one which might s u c c e s s f u l l y d i s t i n g u i s h the Canadian cases c i t e d above, a l l of which were decided before the advent of modern f a m i l y l e g i s l a t i o n . P a r e n t h e t i c a l l y , although the court i n S u l l i v a n v. Burkin followed i t s e a r l i e r d e c i s i o n of Kerwin v. Donaghy, i t warned that i t would no longer do so f o r t r u s t s c r e a t e d or amended a f t e r the date of i t s judgment. I t would seem that the Massachusetts theory may no longer be an a p p r o p r i a t e l a b e l f o r the l i b e r a l l e g a l approach. D. Options: The E q u i t a b l e C r e a t i v e Approach The concern f o r more e q u i t a b l e r e s u l t s i n the d i s t r i b u t i o n of a deceased's e s t a t e , as demonstrated i n S u l l i v a n v. Burkin, has been found i n other American j u r i s d i c t i o n s . The cases which allow the s u r v i v i n g spouse to c l a i m property t r a n s f e r r e d i n t e r v i v o s f a l l i n t o two general c a t e g o r i e s . The cases i n the f i r s t category t r a d i t i o n a l l y obscures the p u b l i c p o l i c y question with ingenuous l e g a l - 154 -r e a s o n i n g . T h i s reasoning i s commonly r e f e r r e d to as the " i l l u s i o n a r y t r a n s f e r d o c t r i n e " . That term i s used here with some h e s i t a t i o n , f o r the cases which purport to f o l l o w the d o c t r i n e defy any easy i n t e r p r e t a t i o n or c l a s s i f i c a t i o n . G e n e r a l l y , however, as i t s name i m p l i e s , the d o c t r i n e examines not only the f o r m a l i t i e s of the i n t e r v i v o s t r a n s a c t i o n but a l s o the substance of i t . The cases i n the second category a l s o examine the substance of the i n t e r v i v o s t r a n s a c t i o n , but g e n e r a l l y r e a d i l y admit that t h i s i s done f o r p u b l i c p o l i c y reasons. The i s s u e i s d e s c r i b e d as one of fraud upon the m a r i t a l r i g h t s , but as w i l l be seen, " f r a u d " as more of a l a b e l than* a considered l e g a l p r i n c i p l e . I t i s suggested here t h a t , of the two, the d o c t r i n e of fraud on the m a r i t a l r i g h t s i s a much neater one to argue than the i l l u s i o n a r y t r a n s f e r d o c t r i n e , and hence may be b e t t e r r e c e i v e d by our own c o u r t s . However, the i l l u s i o n a r y t r a n s f e r d o c t r i n e has a l o y a l f o l l o w i n g i n the American j u d i c i a r y and cannot be a l t o g e t h e r d i s c o u n t e d . The term " i l l u s i o n a r y t r a n s f e r " was p o p u l a r i z e d by the 1937 New York d e c i s i o n of Newman v. Pore • ^ 6 In t h a t case, the husband executed a revocable t r u s t , r e t a i n i n g the r i g h t to income and s u b s t a n t i v e c o n t r o l over the t r u s t e e s d u r i n g h i s l i f e t i m e . He died three days l a t e r . The c o u r t ' s reasoning i s not e n t i r e l y without ambiguity, and has been - 155 -v a r i o u s l y i n t e r p r e t e d over the years by both academicians and the c o u r t s of v a r i o u s j u r i s d i c t i o n s . Although the c o u r t at one p o i n t assumes the t r u s t to be v a l i d , i t a l s o s t a t e s that "the s e t t l o r never intended to d i v e s t h i m s e l f of h i s p r o p e r t y " . 1 * 7 T h i s has lead one commentator to conclude that there never was a t r u s t i n f a c t . ^ 8 However, the more popular view would appear to be that ...the case was accepted as h o l d i n g t h a t there was a r e a l t r u s t but t h a t i t could not defeat the s t a t u t o r y m a r i t a l r i g h t of the s u r v i v i n g spouse d e s p i t e i t s r e a l i t y because a r e t e n t i o n of c o n t r o l i n the s e t t l o r brought the i n t e r v i v o s t r a n s f e r , i n s o f a r as the s u r v i v i n g spouse was concerned, too c l o s e to a testamentary t r a n s f e r , which the s t a t u t e made i n e f f e c t i v e to defeat the s u r v i v i n g spouse.^9 T h i s view i s supported by a c a r e f u l reading of the case. The t e s t used by the court i n Newman v. Pore i s the degree of c o n t r o l r e t a i n e d by the deceased over the t r u s t p r o p e r t y . T h i s t e s t , i t w i l l be recalled,'was a l s o used i n the e a r l y American cases i n determining whether a t r u s t was r e a l l y an attempted testamentary d e v i c e . However, there i s a c r u c i a l d i f f e r e n c e i n the use of t h i s t e s t i n the i l l u s i o n a r y t r a n s f e r d o c t r i n e : i n the e a r l i e r cases of attempted testamentary d i s p o s i t i o n s , the t r u s t was set aside a l t o g e t h e r , i f i t was found to be a testamentary d i s p o s i t i o n which d i d not comply with the s t a t u t e of w i l l s ; i n the case of an i l l u s i o n a r y t r a n s f e r , the court w i l l set the t r u s t aside only to the extent of s a t i s f y i n g the c l a i m of the s u r v i v i n g spouse.50 While - 156 -the l a t t e r r e s u l t seems to c o n t r a d i c t the p r i n c i p l e s of t r u s t law ( e i t h e r a t r u s t i s v a l i d or i t i s n o t ) , i t can be understand i n l i g h t of p u b l i c p o l i c y c o n s i d e r a t i o n s . The c o u r t , without admitting the f a c t , i s " l e g i s l a t i n g a p r e f e r r e d s t a t u s f o r the spouse".51 As Robert C. Bensing p o i n t s out, the concept of a v a l i d t r u s t except as ag a i n s t the s u r v i v i n g spouse i s simply a r e c o g n i t i o n of the f a c t that the p o l i c y u n d e r l y i n g the e l e c t i o n s t a t u t e s i s stronger i n regard to the degree of divestment of c o n t r o l necessary f o r v a l i d i t y of an i n t e r v i v o s t r a n s f e r than i s the p o l i c y u n d e r l y i n g the S t a t u t e of W i l l s . 5 2 Another aspect of the reasoning i n Newman v. Pore which demonstrates not only t h i s preference but a l s o the obscure l e g a l reasoning used to j u s t i f y i t , i s the matter of motive or i n t e n t . The court found that the deceased had a c l e a r i n t e n t i o n to deprive h i s wife of her s t a t u t o r y r i g h t s upon h i s death, but concluded that he was e n t i t l e d to a l i e n a t e h i s property during h i s l i f e t i m e . I t s t a t e d b l u n t l y that "motive or i n t e n t i s an u n s a t i s f a c t o r y t e s t of the v a l i d i t y of a t r a n s f e r of property".53 That t h i s statement was mere l i p s e r v i c e to the concept of f r e e a l i e n a b i l i t y i s c l e a r , however, i n the subsequent f i n d i n g of the court that any a l i e n a t i o n of property had to proceed " i n good f a i t h " . T h i s good f a i t h , the court emphasized, was not r e l a t e d to the i n t e n t i o n to deprive the wife, but ra t h e r r e f e r r e d to the - 157 -i n t e n t i o n to " d i v e s t h i m s e l f of ownership of h i s p r o p e r t y " . Now, although "good f a i t h i s an i n t a n g i b l e and a b s t r a c t q u a l i t y with no t e c h n i c a l meaning or s t a t u t o r y d e f i n i t i o n " , 5 4 most l e g a l s c h o l a r s would accept the suggested d e f i n i t i o n i n Black's Law D i c t i o n a r y that i t encompasses, among other t h i n g s , an honest b e l i e f , the absence of malice and the absence of design to defraud or to seek an unconscionable advantage...(I)n common usage t h i s term i s o r d i n a r i l y used to d e s c r i b e that s t a t e of mind denoting honesty of purpose, freedom from i n t e n t i o n to defraud, and g e n e r a l l y speaking, means being f a i t h f u l to one's duty or o b l i g a t i o n . 5 5 In other words, good f a i t h i s very much interwoven with motive. To d e s c r i b e i t as an i n t e n t i o n to d i v e s t o n e s e l f of p r o p e r t y i s s u r e l y only d i s g u i s i n g t h a t motive with an accepted l e g a l concept, that i s , the c e r t a i n t y of i n t e n t i o n to cr e a t e a t r u s t . However, using such an accepted l e g a l concept would r e s u l t i n a f i n d i n g that no t r u s t e x i s t s , and as alre a d y noted, the t r u s t i n Newman v. Pore was found to be i n v a l i d only to the extent necessary to s a t i s f y a c l a i m by the s u r v i v i n g spouse. The d i f f i c u l t i e s c reated by the contorted reasoning and r e s u l t s i n Newman v. Pore become r e a d i l y apparent i n the New York c o u r t s ' a p p l i c a t i o n of the d e c i s i o n to Totten t r u s t s , a l s o known as t e n t a t i v e t r u s t s . I t w i l l be r e c a l l e d t h a t the - 1 5 8 -nature of the tentat ive trus t i s that i t i s not absolute u n t i l death. As such, i t i s l o g i c a l that a claim by a surviv ing spouse might succeed against such a t r u s t . This was in fact the outcome in the 1941 decis ion of Krause v. Krause.56 However, the New York Court of Appeals reached th i s outcome not by applying such l o g i c , but by fol lowing Newman v. Pore, and f inding that the tentat ive t rus t was i l l u s i o n a r y . Subsequent to th i s dec i s ion , lower courts and commentators categorized Totten trus t s as i l l u s i o n a r y per se.57 However, ten years l a t e r , in the decis ion of Re Halpern's Estate,58 the same court concluded that "(T)here i s nothing i l l u s i o n a r y about a Totten trus t as such."59 i t denied the applicant surviv ing spouse any r ight to the monies held in a Totten t r u s t , and dist inguished the cases fol lowing the Newman l i n e of reasoning in the fol lowing fashion: In each of those cases the f inding of i l l u s o r i n e s s was made on a factual showing of u n r e a l i t y , and not so le ly because the transfers operated to , and were intended to , defeat the widow's expec tancy . 6 0 A comparison of the facts in two of the cases under discuss ion suggest otherwise, and demonstrate the d i f f i c u l t y in re ly ing (or even understanding) the i l l u s i o n a r y transfer doctr ine . In Krause v. Krause, part of the s e t t l o r ' s property was l e f t in a tentat ive t rus t for a daughter whom the s e t t l or had not seen in years, and who resided in a foreign country. The t rus t was set up three years after marriage to a second - 159 -wife (the a p p l i c a n t ) and three years before h i s death. I t was found to be i l l u s i o n a r y . In Re Halpern's E s t a t e , the f a c t s r e v e a l e d that the decedent had separated from h i s wife two years before h i s death, and that the t e n t a t i v e t r u s t s were i n favour of h i s i n f a n t granddaughter. These t r u s t s were found to be v a l i d . I t i s submitted t h a t , whatever the terminology, the j u d i c i a l mind i n these d e c i s i o n s considered the e q u i t i e s of the f a c t s , whether admitting i t or not. In Krause, e q u i t y favoured the s u r v i v i n g spouse over a g e o g r a p h i c a l l y and e m o t i o n a l l y d i s t a n t daughter; i n Halpern, an i n f a n t granddaughter was favoured over a separated spouse. T h i s c o n s i d e r a t i o n i s more apparent i n d e c i s i o n s from other j u r i s d i c t i o n s where the i l l u s i o n a r y t r a n s f e r d o c t r i n e i s used, p a r t i c u l a r l y when motive i s discussed.61 For example, i n the Colorado case of Richard v. James,62 the s u r v i v i n g wife argued that an i n t e r v i v o s t r a n s f e r of property to an i r r e v o c a b l e t r u s t was " i l l u s i o n a r y , c o l o u r a b l e and not i n good f a i t h " , because of the s e t t l o r ' s d i r e c t i o n to pay h i s debts at death from the t r u s t res (thus e n a b l i n g him to e f f e c t i v e l y c o n t r o l the t r u s t p r o p e r t y ) . However, the court found t h a t : (T)here i s a b s o l u t e l y no evidence i n the r e c o r d . . . that the grantor and t r u s t o r had any e v i l i n t e n t i o n whatsoever, or make and executed s a i d documents with the purpose i n mind of d e f e a t i n g them by c o n t r a c t i n g indebtedness i n a haphazard and w i l l f u l manner. Such i t would seem to us would be r e q u i r e d before i t could be reasonably contended that the documents attacked were i n any way c o l o u r a b l e or bear the earmark of pretense or sham.63 - 160 -Elsewhere, the court i n t i m a t e s that the i s s u e i s one of f r a u d . While the use of words such as c o l o u r a b l e , pretense, sham, and f r a u d , do nothing to s i m p l i f y the r e a s o n i n g , 6 4 the court i s c l e a r l y concerned with good f a i t h and motive. I t i s , at l e a s t i m p l i c i t l y , w i l l i n g to impose a c e r t a i n standard of behavior upon the deceased. U n f o r t u n a t e l y , i d e n t i f y i n g the concern does not r e s o l v e the d i f f i c u l t i e s inherent i n the i l l u s i o n a r y t r a n s f e r d o c t r i n e . Recently, the A p p e l l a t e Court of I l l i n o i s has attempted to r a t i o n a l i z e and c l a r i f y the i l l u s i o n a r y t r a n s f e r d o c t r i n e , i n the d e c i s i o n of Toman v. Svoboda.65 The case does not deal with a t r u s t , but r a t h e r with p r o p e r t y held i n j o i n t tenancy with the deceased's mother and s i s t e r . The s u r v i v i n g spouse a s s e r t e d her s t a t u t o r y m a r i t a l r i g h t a g a i n s t the p r o p e r t y . The c o u r t , i n addressing the i s s u e of i l l u s i o n a r y t r a n s f e r s , s t a t e d : Under I l l i n o i s law, which i s i n accord with the weight of American a u t h o r i t y , a r e a l i n t e r v i v o s g i f t to another _is thus e f f e c t i v e , even thought the s a i d r e a l i n t e r v i v o s g i f t i s made f o r the p r e c i s e purpose of minimizing or d e f e a t i n g what would otherwise have been the s t a t u t o r y m a r i t a l r i g h t . . . . T h e c o n f u s i n g f a c t o r i s that I l l i n o i s and the m a j o r i t y of American s t a t e s a l s o examine the g i f t l o o k i n g f o r what they u n f o r t u n a t e l y c a l l f r a u d u l e n t circumstances, but by which they mean circumstances i n d i c a t i n g that the g i f t was not a r e a l g i f t because there was no present donative i n t e n t Cthat i s , no donative i n t e n t of any kind or, at most, a mere testamentary, as d i s t i n g u i s h e d from a present, donative i n t e n t ) , f o r - 161 -l a c k of which the a l l e g e d g i f t was simply a sham or a mere c o l o u r a b l e t r a n s f e r of l e g a l title.°6 I t seems that the court here i s suggesting that a t r a n s f e r i s i l l u s i o n a r y i f i t l a c k s c e r t a i n t y of i n t e n t i o n , which would c e r t a i n l y r a t i o n a l i z e the d o c t r i n e with accepted t r u s t law. However, the court f a i l s to address how such a t r a n s f e r can be void only as a g a i n s t the s u r v i v i n g spouse. Indeed, i t confuses matters f u r t h e r by suggesting that even a " r e a l " g i f t may be v o i d a b l e to s a t i s f y the c l a i m of a s u r v i v i n g spouse, i f the donor l a w f u l l y r e t a i n s "such a degree of c o n t r o l " over the property that "the t r a n s f e r of t i t l e to the donee must be regarded as quasi-testamentary".67 In other words, the t r a n s f e r i s v a l i d enough to avoid o p e r a t i o n of the S t a t u t e of W i l l s , but remains somehow testamentary v i s a v i s the s u r v i v i n g spouse. I t seems t h a t the most that can be s a i d d e f i n i t e l y about the i l l u s i o n a r y t r a n s f e r d o c t r i n e i s that i t can be used to e f f e c t r e d i s t r i b u t i o n of property t r a n s f e r r e d i n t e r v i v o s , to provide f o r a s u r v i v i n g spouse, without o f f e r i n g a sound l e g a l b a s i s as to why such r e d i s t r i b u t i o n i s proper. While i t may be argued that the d o c t r i n e of fraud upon m a r i t a l r i g h t s has no b e t t e r l e g a l b a s i s f o r r e d i s t r i b u t i n g p r o p e r t y t r a n s f e r r e d to an i n t e r v i v o s t r u s t , i t i s c e r t a i n l y e a s i e r to understand than the i l l u s i o n a r y t r a n s f e r d o c t r i n e . While the same terminology o f t e n s u r f a c e s i n both - 162 -d o c t r i n e s — t r a n s a c t i o n s are c a l l e d i l l u s i o n a r y , c o l o u r a b l e , f r a u d u l e n t or shams—the fraud d o c t r i n e avoids using the terminology to produce a complicated l e g a l p r i n c i p l e . Instead, a pragmatic approach i s taken i n s e a r c h i n g f o r c e r t a i n f a c t o r s , the e x i s t e n c e of which w i l l j u s t i f y i n f r i n g i n g upon the r i g h t to f r e e l y a l i e n a t e p r o p e r t y . In a p p l y i n g the d o c t r i n e , the American c o u r t s openly acknowledge that they are concerned with p u b l i c p o l i c y . As the Maryland Court of Appeal s t a t e d i n 1952, (T)he d o c t r i n e of fraud on m a r i t a l r i g h t s represent an e f f o r t to balance the s o c i a l and p r a c t i c a l u n d e s i r a b i l i t y of r e s t r i c t i n g the f r e e a l i e n a t i o n of personal p r o p e r t y a g a i n s t the d e s i r e to p r o t e c t the l e g a l share of a spouse.68 Although the American cases which f o l l o w t h i s d o c t r i n e of fraud upon m a r i t a l r i g h t s are not o v e r l y concerned with p r e c i s e d e f i n i t i o n s , i t i s suggested that the fraud contemplated i s an e q u i t a b l e or c o n s t r u c t i v e fraud, as opposed to a l e g a l f r a u d . While the d i s t i n c t i o n between l e g a l and e q u i t a b l e fraud has f a l l e n i n t o d i s f a v o u r i n the United States i n recent years,69 i t i s s t i l l good law i n B r i t i s h Columbia.70 The p r i n c i p l e of e q u i t a b l e fraud i s t h e r e f o r e of a s s i s t a n c e i n understanding the American fraud on m a r i t a l r i g h t s cases, and t h e i r p o t e n t i a l a p p l i c a b i l i t y i n our own j u r i s d i c t i o n . The p r i n c i p l e was d e s c r i b e d by Viscount Haldane, L.C., i n the 1914 case of Nocton v. Lord Ashburton.71 My Lords, i t i s known that i n cases of a c t u a l fraud - 163 -the Courts of Chancery and of Common Law e x e r c i s e d a concurrent j u r i s d i c t i o n from the e a r l i e s t times....But i n a d d i t i o n to t h i s concurrent j u r i s d i c t i o n , the Court of Chancery e x e r c i s e d an e x c l u s i v e j u r i s d i c t i o n i n cases which, although c l a s s i f i e d i n that Court as cases of f r a u d , yet d i d not n e c e s s a r i l y import the element of dolum malus. ...A man may misconceive the extent of the o b l i g a t i o n which a Court of E q u i t y imposes on him. His f a u l t i s t h a t he has v i o l a t e d , however i n n o c e n t l y because of h i s ignorance, an o b l i g a t i o n which he must be taken by the Court to have known, and h i s conduct has i n that sense always been c a l l e d f r a u d u l e n t , even i n such a case as a t e c h n i c a l fraud on a power. I t was thus that the expression " c o n s t r u c t i v e f r a u d " came i n t o existence....What i t r e a l l y means i n t h i s connection i s , not moral fraud i n the o r d i n a r y sense but breach of the s o r t of o b l i g a t i o n which i s enforced by a Court that from the beginning regarded i t s e l f as a Court of c o n s c i e n c e . 7 2 The approach of the American j u d i c i a r y i n cases of m a r i t a l fraud i s s u b s t a n t i a l l y the same as that taken by Viscount Haldane i n the passage above. D e p r i v i n g a s u r v i v i n g spouse of a share i n the deceased's e s t a t e by t r a n s f e r r i n g p r o p e r t y to a revocable t r u s t i s condemned as behavior that i s unconscionable, whether or not there was an i n t e n t i o n to defraud. L i k e any p r i n c i p l e s u b s t a n t i a l l y e q u i t a b l e i n nature, the fraud on m a r i t a l r i g h t s d o c t r i n e would seem to r e s u l t i n a h i g h l y s u b j e c t i v e , and hence u n p r e d i c t a b l e , s e r i e s of cases. However, the American d e c i s i o n s are q u i t e p a r t i c u l a r ' i n i d e n t i f y i n g the i n d i c i a of behavior i t c o n s i d e r s unconscionable. For example, i n Maryland, the Court of Appeals has s p e c i f i e d t h at the f o l l o w i n g f a c t o r s w i l l a l l be considered - 164 -mater ia l in determining whether a transact ion i s fraudulent as against the surviv ing spouse: the completeness of the transfer ; the extent of control retained by the trans feror; the motive of the trans feror; p a r t i c i p a t i o n by the transferee in the al leged fraud; and the degree to which the surviv ing spouse is s tr ipped of his or her interes t in the estate of the decedent spouse.73 Other factors which may also be considered inc lude: the r e l a t i v e moral claims of the surviv ing spouse and the transferee; other provis ions made for the surv iv ing spouse; whether the surviv ing spouse has independent means; and the i n t e r v a l between the transfer and the death of the transferor .74 These factors have been adopted in toto by the courts in the D i s t r i c t of Columbia.75 i f mari ta l fraud i s found in these two states , the ent ire transact ion i s set as ide. The courts of other states have attempted to s t ipu la te s imi lar standards, but with less success from the point of view of c l a r i t y . For example, in Tennessee, the Court of Appeal in S h e r r i l l v. Mall icote76 recognized that each case must be determined on i t s own fac t s , with p a r t i c u l a r consideration to: the lack of cons iderat ion , the s ize of the transfer v i s a v i s the set t lors" t o t a l assets, the time between the transfer and date of death, the re la t ions between the spouses at the time of the t rans fer , and the source from which the property came. However, the court also suggested that even i f there was no fraud - 165 -( G ) e n e r a l l y a g i f t or t r a n s f e r i n t e r v i v o s by a husband of h i s property, i f absolute and bona f i d e and not made with a f r a u d u l e n t i n t e n t , i s not a fraud on the r i g h t of the wife to share i n h i s e s t a t e at h i s death. However, the co u r t s have voided such t r a n s f e r s when they have found them to be merely c o l o u r a b l e — a device by which the husband i s able to use and enjoy the prop e r t y during h i s l i f e t i m e and at the same time deprive h i s wife of her r i g h t s i n the prope r t y at h i s d e a t h . . . 7 7 This r e f e r e n c e to c o l o u r a b l e t r a n s a c t i o n s r a i s e s the spec t r e of the i l l u s i o n a r y t r a n s f e r d o c t r i n e : the t r a n s f e r o r r e t a i n s such a degree of c o n t r o l over the property that there i s no " r e a l " t r a n s f e r at a l l . At l e a s t one commentator suggests t h a t , i n Tennessee, the two d o c t r i n e s of fraud upon the m a r i t a l r i g h t s and i l l u s i o n a r y t r a n s f e r s , c o - e x i s t . 7 & However, i n S h e r r i l l v. M a l l i c o t e , the e n t i r e t r a n s a c t i o n (an i n t e r v i v o s t r u s t ) was set a s i d e , and i t i s t h e r e f o r e perhaps more accurate to say that some v a r i a t i o n of the i l l u s i o n a r y t r a n s f e r d o c t r i n e e x i s t s i n Tennessee. « Another form of the fraud on m a r i t a l r i g h t s d o c t r i n e i s found i n M i s s o u r i . There, the c o u r t s are a l s o w i l l i n g to "consider a l l f a c t s and circumstances i n e v i d e n c e " . 7 9 However, such c o n s i d e r a t i o n s are only r e l e v a n t to e s t a b l i s h the i n t e n t i o n s of the deceased i n the i n t e r v i v o s t r a n s a c t i o n . In Pot t e r v. Winter, the Supreme Court of M i s s o u r i made t h i s c l e a r i n the f o l l o w i n g passage: - 166 -...the v o l u n t a r y conveyance which the widow may set aside as f r a u d u l e n t i s one executed with the i n t e n t  and purpose to defeat h i s wife's m a r i t a l r i g h t s . 8 0 T h i s emphasis upon motive pl a c e s m a r i t a l fraud i n M i s s o u r i much c l o s e r to what Lord Haldane i n Nocton v. Ashburton c a l l e d " l e g a l f r a u d " , that i s "fraud as d e s c r i p t i v e of the dishonest mind of a person who knowingly deceives".81 Even c o u r t s which g e n e r a l l y f o l l o w the "Massachusetts theory" have allowed that proof of such fraud may r e s u l t i n a f i n d i n g t h a t the t r a n s a c t i o n i s i n v a l i d . 8 2 The c o u r t s broadcast a c l e a r message that c e r t a i n behavior, p r e d i c a t e d on s p e c i f i e d f a c t o r s , w i l l not be t o l e r a t e d . In i t s purest form, as found i n Maryland and the D i s t r i c t of Columbia, there i s an a t t r a c t i v e s i m p l i c i t y to the d o c t r i n e of fraud on the m a r i t a l r i g h t s . I t i s a p r a c t i c a l d o c t r i n e : while fraud i s the term used to l a b e l the s o l u t i o n , i t i s more of a c a t c h a l l f o r unacceptable behavior than a s t r i c t l e g a l p r i n c i p l e . Nevertheless, the k i n s h i p to e q u i t a b l e fraud should not be ignored, f o r t y i n g the American d o c t r i n e of fraud upon the m a r i t a l r i g h t s to the E n g l i s h concept of e q u i t a b l e fraud may make the d o c t r i n e more acceptable to our own c o u r t s . The p r i n c i p l e of e q u i t a b l e fraud i s a p p l i e d where one p a r t y i s considered to be o b l i g a t e d to another i n good c o n s c i e n c e — t h a t i s , i n e q u i t y . In Canada, t h i s has i n c l u d e d - 167 -r e l a t i o n s h i p s between employees and employers,83 r e a l e s t a t e agents and t h e i r p r i n c i p a l s , 8 4 and c r e d i t o r s and debtors.85 Whether i t would apply to f a m i l y r e l a t i o n s h i p i s u n c e r t a i n . The E n g l i s h a u t h o r i t i e s would suggest i t should. In reviewing e q u i t a b l e f r a u d , Halsbury's i n d i c a t e s that ( R ) e l i e f w i l l be granted i n e q u i t y a g a i n s t a t r a n s a c t i o n which i n v o l v e s i n j u r y to t h i r d p a r t i e s who stand i n such a r e l a t i o n to the p r i n c i p a l p a r t i e s as to be a f f e c t e d by i t , a r u l e which has been e s t a b l i s h e d on grounds of p u b l i c p o l i c y . 8 6 Cases c i t e d i n c l u d e one i n which "a woman about to marry made a d i s p o s i t i o n of her property i n fraud of her husband's m a r i t a l r i g h t s " . 8 7 However, that d e c i s i o n dates to 1789, a time when men had c o n s i d e r a b l e r i g h t s over h i s wife's p r o p e r t y , a r i s i n g upon marriage as opposed to death. As w i l l be seen, the nature of these r i g h t s may be c r u c i a l . For the present, an argument can be made that there i s an o b l i g a t i o n flowing from the deceased to the s u r v i v i n g spouse or c h i l d r e n , an o b l i g a t i o n which today i s to provide f i n a n c i a l s e c u r i t y or compensation, or to s a t i s f y moral c l a i m s , from the deceased's e s t a t e . The f a c t that t h i s o b l i g a t i o n i s to some extent c o d i f i e d b u t t r e s s e s the argument: the c o u r t s would merely be extending the l e g i s l a t i o n to a s i t u a t i o n not contemplated by i t but c l e a r l y w i t h i n i t s i n t e n t . E q u i t y was cr e a t e d f o r s i t u a t i o n s such as t h i s , and e q u i t a b l e fraud might w e l l be the remedy that the s u r v i v i n g spouse or c h i l d needs. - 168 -The e q u i t a b l e p r i n c i p l e of unjust enrichment i s another remedy which deserves mention i n making the argument that a revocable t r u s t should be set aside i n favour of the s u r v i v i n g spouse or c h i l d r e n . The now c l a s s i c d e f i n i t i o n was enunciated by Dickson, J . i n Pettkus v. Becker,88 a s f o l l o w s : There are three requirements to be s a t i s f i e d before an unjust enrichment can be s a i d to e x i s t : an enrichment, a corresponding d e p r i v a t i o n , and absence of any j u r i s t i c reason f o r the enrichment.89 The s u r v i v i n g spouse or c h i l d r e n can c e r t a i n l y show that the b e n e f i c i a r i e s under the revocable t r u s t have been e n r i c h e d . I f (once again) the court accepts that the deceased i s under a general o b l i g a t i o n to provide f o r h i s or her s u r v i v i n g spouse or c h i l d r e n , then there i s a corresponding d e p r i v a t i o n . I t would then be a matter of f a c t to determine i f there was any j u r i s t i c reason f o r the enrichment. The o b s t a c l e to be h u r t l e d i n arguing e i t h e r a v a r i a t i o n of e q u i t a b l e f r a u d / f r a u d on the m a r i t a l r i g h t s , or unjust enrichment i s c o n v i n c i n g ' the c o u r t s that succession r i g h t s as they p r e s e n t l y e x i s t give r i s e to an e q u i t a b l e o b l i g a t i o n on the part of the deceased to provide f o r the s u r v i v i n g spouse or c h i l d r e n . While t h i s o b s t a c l e seems formidable i n l i g h t of the Canadian cases d i s c u s s e d above, i t may w e l l be that counsel i n those cases d i d not argue, or argue - 169 -f o r c e f u l l y , the equi'-ties. C o l l i e r v. Yonkers90 a n c j Kerslake v. Gray91 both focused on an in terpre ta t ion of l e g i s l a t i o n rather than the r ights of the surviv ing spouse or c h i l d r e n . The case of Dower v. Public Trustee92 i s the only case in which the equit ies were argued, i f the Statement of Claim i s any i n d i c a t i o n . It i s therefore worth reviewing in some d e t a i l . The P l a i n t i f f was the wife of one John Dower, and the Defendants included the Public Trustee as Committee of the said John Dower, and apparently a l l of Mr. Dower's business associates and other r e l a t i v e s . The P l a i n t i f f al leged that her husband had made g i f t s to the Defendants, other than the Public Trustee, for the purpose of defeating her claims for maintenance, support, and a f a i r share of h is estate upon his death. She also al leged that the g i f t s were incomplete, i l l u s i o n a r y , unconscionable, improvident, made under mistake, undue influence or while mentally incompetent. She s p e c i f i c a l l y argued the provis ions of 13 El izabeth Ch. 5, dealing with fraudulent conveyances. Mr. Dower died during the course of the proceedings, and the Defendants, again other than the Public Trustee, brought an appl i ca t ion to s t r i k e out cer ta in paragraphs in the Statement of Claim as d i s c lo s ing no cause of ac t ion , p a r t i c u l a r l y those dealing with maintenance and the fraudulent - 170 -conveyances s t a t u t e . The court d e c l i n e d to s t r i k e out those d e a l i n g with maintenance, notwithstanding that such a c l a i m ceased to e x i s t when Mr. Dower di e d , because the c l a i m was made aga i n s t the P u b l i c Trustee as committee, and he was not the a p p l i c a n t . The balance of the judgment d e a l t with the i s s u e of whether an a c t i o n l i e s under 13 E l i z a b e t h Ch. 5 by the s u r v i v i n g spouse, to set aside t r a n s f e r s or g i f t s of property made durin g the deceased's e s t a t e . The s t a t u t e d e c l a r e d void a l l conveyances or deeds made with the i n t e n t i o n "to delay, hinder or defraud c r e d i t o r s or o t h e r s " . The court r e f e r r e d to May on Fraudulent and Voluntary D i s p o s i t i o n s of Property, i n f i n d i n g t h at the words " c r e d i t o r s and o t h e r s " i n c l u d e d any persons with l e g a l or e q u i t a b l e claims a g a i n s t the grantor or s e t t l o r . The question then arose as to whether a s u r v i v i n g spouse had any l e g a l or e q u i t a b l e c l a i m to share i n property disposed of during the l i f e t i m e of the deceased spouse. The court found no such c l a i m at common law, and then turned to a review of the p r o v i s i o n s of the Family R e l i e f Act, R.S.A. 1955, c. 109. The A u s t r a l i a n and New Zealand cases were reviewed, and the cou r t followed t h e i r reasoning i n f i n d i n g that p r o v i s i o n could be made only out of the e s t a t e of the deceased. The c o u r t s t a t e d : The Court, t h e r e f o r e , has no j u r i s d i c t i o n to grant a dependent a share of any property which was not owned by the deceased at the date of h i s death and i s not - 171 -comprised i n h i s e s t a t e . . 9 3 Nor could 13 E l i z a b e t h Ch. 5 a s s i s t the s u r v i v i n g spouse with r e s p e c t to any i n t e r v i v o s t r a n s f e r s , f o r (A) wife has no absolute r i g h t to an order under t h i s S t a t u t e [the Family R e l i e f Act] and the Court i s not here d e a l i n g with l e g a l or e q u i t a b l e r i g h t s of the widow or other dependent but with h i s or her moral r i g h t s and the moral o b l i g a t i o n which the Family R e l i e f Act recognizes as r e s t i n g upon a man to provide f o r h i s widow and other dependents a f t e r h i s death.94 This d i s t i n c t i o n between moral and e q u i t a b l e or l e g a l c l aims i s an important one f o r the present d i s c u s s i o n . I f the s u r v i v i n g spouse or c h i l d has only a moral c l a i m to share i n the deceased's e s t a t e , i s t h i s an o b l i g a t i o n which e q u i t y should enforce under the e q u i t a b l e fraud or c o n s t r u c t i v e t r u s t d o c t r i n e s ? While only the c o u r t s can answer that q u e s t i o n , i t i s c l e a r that an a f f i r m a t i v e answer would be an i n n o v a t i o n i n the law as i n c u r r e n t l y stands i n B r i t i s h Columbia. E. Conclusion The f o r e g o i n g d i s c u s s i o n examined d i f f e r e n t approaches open to our c o u r t s i n determining the question of the r i g h t s of s u r v i v i n g spouses and c h i l d r e n to property t r a n s f e r r e d by the deceased to a revocable t r u s t . The - 172 -Massachusetts, or l i b e r a l l e g a l , d o c t r i n e i n c e r t a i n l y the most popular one i n the United S t a t e s . There are strong i n d i c a t i o n s that i t i s the p r e f e r r e d approach i n j u r i s d i c t i o n s s i m i l a r to our own: New Zealand, A u s t r a l i a , Ontario, and A l b e r t a . I t i s a d o c t r i n e which i s easy to adopt, c o i n c i d i n g as i t does with t r a d i t i o n a l l y acceptable p r i n c i p l e s of law. Nevertheless, i t i s a d o c t r i n e which ignores and d e f e a t s c e r t a i n r i g h t s which modern s o c i e t y c o n s i d e r s important: the r i g h t s of s u r v i v i n g members of a deceased's f a m i l y to have s e c u r i t y , compensation or perhaps moral claims s a t i s f i e d from the deceased's e s t a t e . When such r i g h t s are brought to the c o u r t s ' a t t e n t i o n , they may be l e s s w i l l i n g to apply the l i b e r a l l e g a l approach, as was the case i n the Massachusetts case of S u l l i v a n v. Burkin. The court there e f f e c t i v e l y made a j u d i c i a l amendment to the Massachusetts su c c e s s i o n s t a t u t e because, while acknowledging that such a change i s "best handled by l e g i s l a t i o n . . . u n t i l i t i s , the answers to these problems w i l l be determined i n the usual way through the j u d i c i a l process".95 i f our c o u r t s can be convinced that t h i s i s the a p p r o p r i a t e approach, they have s e v e r a l a l t e r n a t e j u s t i f i c a t i o n s f o r i t : the d o c t r i n e s of i l l u s i o n a r y t r a n s f e r s and fraud on the m a r i t a l r i g h t , or the e q u i t a b l e remedies of e q u i t a b l e fraud or the c o n s t r u c t i v e t r u s t . I t i s suggested here, however, that i t w i l l not be easy to convince a court i n B r i t i s h Columbia t h a t i t should adopt an - 173 -approach which might "open the f l o o d g a t e s " of a new cause of a c t i o n . The e q u i t a b l e approach i s n o t o r i o u s l y u n p r e d i c t a b l e , i n s o f a r as i t i s e s s e n t i a l l y a s u b j e c t i v e judgment of f a c t s , as opposed to a p p l y i n g e s t a b l i s h e d r u l e s to f a c t s . I t i s suggested here that the p r a c t i c e of t r a n s f e r r i n g property i n t e r v i v o s to defeat spousal and c h i l d r e n ' s r i g h t s would have to be very widespread before the c o u r t s i n B r i t i s h Columbia contemplated t a k i n g the i n i t i a t i v e over the L e g i s l a t u r e . - 174 -Footnotes to Chapter 6 1. Family R e l a t i o n s Act, R.S.B.C. 1979 c 121, s e c t i o n 43. 2. I b i d . , s e c t i o n 45. 3. Graham v. Graham (1983), 48 B.C.L.R. 134, a f f d . 59 B.C.L.R. 27• 4. I b i d . , at 137. 5. 59 B.C.L.R. 27. 6. O s c r o f t v. O s c r o f t (1982), 15 F.L.D. 244 (B.C.S.C.) 7. I b i d . , at 248. 8. Samuels v. Samuels (1981), 30 B.C.L.R. 186, 22 F.R.L. (2d) 2W. 9. W i l l s V a r i a t i o n Act, R.S.B.C. 1979 c 435. 10. E s t a t e Adminstration Act, R.S.B.C. 1979 c 114. 11. Supra, footnote 9, s e c t i o n 2. 12. Supra, footnote 10, s e c t i o n 96 and 85-86. 13- Succession Law Reform Act, R.S.O. 1980 c 488. 14. For a review of dower r i g h t s , see: Barbara Ann K u l z e r , "Property and the Family: Spousal P r o t e c t i o n " (1972), 4 Rutgers-Canadian L . J . 195; W.D. MacDonald, Fraud on the  Wife's Share, (Ann Arbor: U n i v e r s i t y of Michigan Law School, 1960), ch. 5. 15. K u l z e r , I b i d . , at 201. 16. B r i t i s h Columbia Law Reform Commission Paper #70, S t a t u t o r y Succession Rights, note 2 at 46. 17. J.H. Baker, An I n t r o d u c t i o n to E n g l i s h Legal H i s t o r y (London: Butterworth"s, 197TT, at 210-11. 18. see MacDonald, supra, footnote 14 at 24 - 29. 19. K u l z e r , supra, footnote 14 at 199 - 200, 202 - 205. 20. MacDonald, supra, footnote 14. 21. I b i d . , at 24. - 175 -22. K u l z e r , supra, footnote 14 at 214. 23. Supra, footnote 16 at 75. 24. For a d e t a i l e d review, a l b e i t dated, of such r i g h t s i n the United S t a t e s , see Oval A. Phipps, " M a r i t a l Property Rights" (1955), 27 Rocky Mtn L.R. 180; and more r e c e n t l y , concerning New York, and Pennsylvania only, E l i a s C l a r k , "The Recapture of Testamentary S u b s t i t u t e s to Preserve the Spouse's E l e c t i v e Share: An A p p r a i s a l of Recent S t a t u t o r y Reforms" (1970), 2 Conn. L.R. 513. 25. Rahe H. Von Hoene, "Fraud on Spouses' Rights" (1961), 100 Trus t s & E s t a t e s 1186 at 1186. 26. Smyth v. Cleveland T r u s t Company, 10 Ohio Ops. 2d 448, 81 Ohio L. Abs. 581, 16"3 N.E. 2d 702 at 705; a p p l . a l l w d . 179 N.E. 2d. 889. 27. N a t i o n a l Shawmut Bank of Boston v. Joy, 315 Mass. 457, 53 N.E. 2d 113. 28. I b i d . , at 122. 29. Kerwin v. Donaghy (1945), 317 Mass. 559, 59 N.E. 2d 299. 30. I b i d . , at 306. 31. For example, the s t a t e s of I l l i n o i s , C o n n e c t i c u t t , Indiana, Michigan, Montana, Vermount, Wisconsin, and Ohio, cases c i t e d i n Aust i n Wakeman S c o t t , The Law of T r u s t s , (Boston: L i t t l e , Brown & Co., 1956), V o l . I at ph 57.5, note 4. 32. Supra, footnote 26. 33. I b i d . , at 67. 3 4 « In Re P a u l i n , [1950] V i c . L.R. 462. 35. I b i d . , at 464. 36. Thomson v. Thomson, [1933] N.Z.L.R. s.59. 37. I b i d . , at s. 62. 3 8 - C o l l i e r v. Yonkers e t . a l . ( 1967), 61 W.W.R. 761, 65 D.L.R. 2d 223. 39. C o r l e t v. I s l e of Man Bank, [1937] 2 W.W.R. 209, 4 I.L.R. - 176 -40. Kerslake v. Gray, [19571 S.C.R. 516. 41 . I b i d . at 519. 42. Dower v. P u b l i c Trustee e t . a l . (1962), 35 D.L.R. 2d 29, 38 W.W.R. 129. 43. I b i d . , at 141-2. 44. S u l l i v a n v. Burkin, 390 Mass. 864, 460 N.E. 2d.572 (1984 S . J . C . T " 45. I b i d . , at 577. 46. Newman v. Pore, 275 N.Y. 371, 9 N.E. 2d 966 ( 1937); see a l s o Smith v. Northern T r u s t Company, 322 111. App. 283, 54 N.E. 2d 75 (1944) . 47. I b i d . , at 970. 48. W i l l i a m E. Carr, Revocable T r u s t s , (Englewood C l i f f s , N.J.: P r e n t i c e - H a l l TncTTT9BTjl , at 54. 49. John C o r n e l i u s Hayes, " I l l i n o i s Power and the " I l l u s i o n a r y " T r u s t : The New York I n f l u e n c e " (1952), 2 dePaul Review 1, at 16; MacDonald has r e f e r r e d to these t r a n s f e r s as "quasi testamentary", supra, footnote 14 at 87. 50. In Newman v. Pore, supra, footnote 46 at 969, the court found the t r u s t was v a l i d "except f o r the p r o v i s i o n s o f " of the s t a t u t e g r a n t i n g a f o r c e d share; see a l s o Merz v. Tower Grove Bank & T r u s t Co., 344 Mo. 1 150, 130 S.W. 2d 611 at 616 ( 1939 S.C. of Mo.7. 51. C l a r k , supra, footnote 24, at 519. 42. Robert C. Bensing, " I n t e r Vivos T r u s t s and the E l e c t i o n Rights of A S u r v i v i n g Spouse" (1954), 42 Kentucky L . J . 618, at 626. 53. Newman v. Pore, supra, footnote 46 at 969 54. Black" s Law P i c t i o n a r y , 5th ed. , ( S t . Paul, Minn: West P u b l i s h i n g Co., 1979) at 623. 55. I b i d . , at 623-4. 56. Krause v. Krause, 285 N.Y. 315, 32 N.E. 2d 779 ( 1941, N.Y.C.A.). 57. MacPonald, supra, footnote 14 at 123; Hayes, supra, footnote 49 at 19-20. - 177 -58. Re HalperrTs E s t a t e , 100 N.E. 2d 120 ( 1951) 59. I b i d . , at 122. 60. I b i d . ; s i n c e followed i n : Re Hayden's E s t a t e , 107 N.Y.S.2d 701; Re Prokaskey's W i l l , 109 N.Y.S. 2d 888; Re Leiman's  Estate"; 116 N.Y.S. 2d 658, a f f d . without o p i n i o n 281 App. Div. 764, 118 N.Y.S. 2d 750; Re Zern's E s t a t e , 138 N.Y.S. 2d 894. 61. See, f o r example, the case of Smith v. Northern Trust  Company, supra, footnote 46; S h e r i l l e v. M a l l i c o t e , 417 S.W. 2d 798"T1967 C.A.); Mushaw v Mushaw, 39 A. 2d 465 (1944 C.A.);Ackers v F i r s t N a t i o n a l Bank of Topeka, 387 P. 2d 840 (Kansas S.C. 1964). 62. Richard v. James, 133 Colo. 180, 292 P. 2d 977 (1956). 63. I b i d . 64. see MacDonald, supra, footnote 14, at 135-7, f o r a review of what the Colorado c o u r t s have meant by the term " c o l o u r a b l e " . 65. Toman v. Svoboda, 39 111. App. 3d 394, 349 N.E. 2d 668 (1976). 66. I b i d . , at 673-67. I b i d . , at 677. 68. A l l e n d e r v. A l l e n d e r , 199 Md. 541, 87 A. 2d 608 at 611 (1952). 69. Kerr on the Law of Fraud and Mistake (7th ed.), e d i t e d by Denis Lane McDonnell and John George Monroe, (London: Sweet and Maxwell L i m i t e d , 1986) at 4. 70. see C.E.D. (Western) 15 ( 3 r d ) , T i t l e 67: Fraud and M i s r e p r e s e n t a t i o n . 7 1 . Nocton v. Lord Asburton, [1914] A.C. 932 (H.L.). 72. I b i d . , at 951-2,954. 73. Whittington v. Whittington, 205 Md. 1, 106 A. 2d 72 at 72 ( 1954) . 74. I b i d . 75. Windsor v. Leonard e t . a l . , 154 App. D.C. 348, 475 F. 2d 932 (1973) U.S.C.A.) - 178 -76. Supra, footnote 61. 77. I b i d . 78. Casenote, 36 Tenn. L . R . 604 at 608. 79. Supra, footnote 50. 80. Potter v. Winter, 280 S.W. 2d 27 ( 1955 S . C . of Mo.); In Re Estate of Sides, 119 Neb. 314, 228 N.W. 619 (1930). 81. Supra, footnote 71 at 955. 82. See, for example, Dunnett v. Shields and Conant, 97 Ve. 419, 123 A. 626 (1923T. 83- Bi lan et . a l . v. Canadian Fish ing Company Limited , [1938] 3 W.W.R. 123 ( B . C . C . A . T . 84. Wolfson v. O l d f i e l d (1911), 18 W.L.R. 449, a f f d . 2 D . L . R . 110 (Man C . A T T : 85. Milne v. Yorkshire Guarantee Corp. (1906), 37 S .C .R . 331. 86. Halsbury N s Laws of England, 4th e d . , V o l . 16, at 1232. 87. Ibid . , note 3. 88. Pettkus v. Becker (1981), 19 R . F . L . 165. 89. Ibid . , at 180. 90. Supra, footnote 38. 91. Supra, footnote 40. 92. Supra, footnote 42. 93. I b i d . , at 39. 94. I b i d . , at 35. 95. Supra, footnote 44 at 578. - 179 -CHAPTER 7 CONCLUSION The purpose of t h i s t h e s i s has been to study the revocable t r u s t , t h a t i s , an i n t e r v i v o s t r u s t c o n t a i n i n g a power of r e v o c a t i o n . The p a r t i c u l a r i n t e r e s t has been to determine i t s s u i t a b i l i t y as an a l t e r n a t i v e to the w i l l i n the j u r i s d i c t i o n of B r i t i s h Columbia. The genesis of t h i s study was a concern about the e f f e c t i v e n e s s of the w i l l to f r e e l y dispose of property upon death, i n l i g h t of the j u d i c i a r y ' s i n t e r p r e t a t i o n and a p p l i c a t i o n of the W i l l s V a r i a t i o n Act of B r i t i s h Columbia. The recent i m p o s i t i o n of h e f t y probate fees i n t h i s province c r e a t e s a s u b s i d i a r y reason to consid e r a l t e r n a t i v e s to the t r a d i t i o n a l w i l l . There are numerous methods of d i s p o s i n g p r o p e r t y upon death o u t s i d e the ambit of a w i l l . Depending upon the nature of the pro p e r t y and the b e n e f i c i a r i e s , an i n d i v i d u a l can conside r an i n t e s t a c y , j o i n t t e n a n c i e s , and d e s i g n a t i o n s under pension p l a n s , insurance plans or employee b e n e f i t plans. However, none of these methods s e p a r a t e l y or c o l l e c t i v e l y can provide a comprehensive c o n t r o l over d i s p o s i t i o n of a l l of one's property upon death. Nor do they provide the b e n e f i t s p e r c e i v e d to d e r i v e from using a w i l l . These b e n e f i t s i n c l u d e the ongoing personal c o n t r o l of the property during l i f e , the - 180 -a b i l i t y to choose and change b e n e f i c i a r i e s at whim, and to impose c o n d i t i o n s upon g i f t s , the a b i l i t y to appoint and change guardians and executors, and the e n t i r e l y p r i v a t e nature of the w i l l . The revocable t r u s t , on the other hand, can not only comprehensively dispose of a l l of one's pr o p e r t y upon death, but can a l s o provide many of the perc e i v e d b e n e f i t s of the w i l l . Such a t r u s t would g e n e r a l l y i n c l u d e a l i f e i n t e r e s t i n the t r u s t p roperty i n favour of the s e t t l o r , a power by the t r u s t e e to encroach upon c a p i t a l f o r the b e n e f i t of the s e t t l o r , and some powers of a d m i n i s t r a t i o n and a l t e r a t i o n granted to the s e t t l o r . With c a r e f u l d r a f t i n g , the s e t t l o r can maintain c o n t r o l over the t r u s t p roperty, can impose c o n d i t i o n s upon g i f t s , and can change b e n e f i c i a r i e s or t r u s t e e s with ease. The t r u s t can be as p r i v a t e as a w i l l , and with the power of r e v o c a t i o n , the s e t t l o r has the u l t i m a t e freedom of changing h i s or her mind at any time. The one f e a t u r e of a w i l l t h a t a revocable t r u s t cannot provide i s i t s ambulatory nature. While a w i l l has no fo r c e and e f f e c t u n t i l death, a t r u s t i s e n f o r c e a b l e immediately upon i t s c r e a t i o n , t h at i s , when the t r u s t p roperty has been t r a n s f e r r e d to the t r u s t e e and the three c e r t a i n t i e s are a s c e r t a i n a b l e . - 181 -This d i s t i n c t i o n i s an extremely important one i n s t udying the v i a b i l i t y of the revocable t r u s t as a s u b s t i t u t e f o r the w i l l . Indeed, the f a i l u r e to recognize the d i s t i n c t i o n has r e s u l t e d i n s u b s t a n t i a l l i t i g a t i o n i n the United States over the years, i n cases where the t r u s t has been used as an a l t e r n a t e to the w i l l . The i s s u e r a i s e d i s the testamentary nature of the t r u s t . I t i s argued that the s e t t l o r , by r e t a i n i n g a l a r g e degree of c o n t r o l over the t r u s t property, and p r o v i d i n g f o r d i s t r i b u t i o n to r e s i d u a l b e n e f i c i a r i e s only upon the s e t t l o r ' s death, has e f f e c t i v e l y created only a testamentary instrument. In the e a r l y part of t h i s century, the American j u d i c i a r y accepted t h i s argument, and found that i n such circumstances the t r u s t e e was merely an agent of the s e t t l o r . T h i s was the e s t a b l i s h e d view u n t i l the 1940s, when the c o u r t s began to accept that a revocable t r u s t , whatever i t s r e s u l t s , t r a n s f e r r e d an i n t e r e s t i n p roperty i n t e r v i v o s , and was not testamentary. I t was t h i s r e c o g n i t i o n of the d i s t i n c t i o n between a revocable t r u s t and a w i l l that permitted the revocable t r u s t to become popular as a w i l l s s u b s t i t u t e i n the United S t a t e s . The Canadian experience with revocable t r u s t s has been l a r g e l y c o n f i n e d to employee b e n e f i t p lans, pension plans, and b l i n d t r u s t s . There i s a dearth of a u t h o r i t y , academic or - 182 -j u d i c i a l , d e a l i n g with revocable t r u s t s as s u b s t i t u t e s f o r w i l l s . While t h i s would appear to open the door to r e l i a n c e upon the modern American a u t h o r i t i e s when c o n s i d e r i n g the revocable t r u s t as a w i l l s s u b s t i t u t e , the cau t i o u s should be aware of c e r t a i n p r i n c i p l e s i n Canadian caselaw which might a f f e c t such use. In p a r t i c u l a r , there i s a l i n e of cases which review the testamentary nature of g i f t s and t r u s t s . The t e s t enunciated i s whether the instrument c o n t a i n i n g the g i f t or t r u s t i s "dependent upon death f o r i t s vigour and e f f e c t " . Some cases have a p p l i e d t h i s t e s t to the r e s u l t s or performance of the instrument, r e p e a t i n g the mistake made i n the e a r l y American d e c i s i o n s which f a i l e d to d i s t i n g u i s h the nature of the t r u s t and the nature of the w i l l . However, t h i s approach has been c r i t i c i z e d i n other cases, and the b e t t e r view i s that the t e s t should be a p p l i e d to the instrument i t s e l f . For t r u s t s , t h i s means that i f there i s a t r a n s f e r of pro p e r t y to a t r u s t e e i n t e r v i v o s , the instrument c r e a t e s a present i n t e r e s t and does not r e l y upon death f o r i t s vigour and e f f e c t . The f a c t t h a t the instrument may c o n t a i n testamentary i n t e n t i o n s does not n e c e s s a r i l y make i t testamentary per se. While the revocable t r u s t may not be testamentary under t h i s t e s t , i t may n e v e r t h e l e s s be attacked on other grounds. There are v i r t u a l l y no Canadian cases which review a revocable t r u s t d r a f t e d s p e c i f i c a l l y f o r the purpose of r e p l a c i n g a w i l l . There i s some a u t h o r i t y f o r the - 183 -p e r m i s s i b i l i t y o f p o w e r s o f r e v o c a t i o n o r m o d i f i c a t i o n c o m b i n e d w i t h l i f e i n t e r e s t s i n t r u s t s w h i c h c o n t a i n t e s t a m e n t a r y i n t e n t i o n s . H o w e v e r , t h e d e t a i l e d p o w e r s o f c o n t r o l w h i c h w o u l d b e r e q u i r e d t o i m i t a t e a w i l l h a v e n o t b e e n e x a m i n e d b y t h e C a n a d i a n j u d i c i a r y , a n d i t i s n e c e s s a r y t o r e l y u p o n t h e A m e r i c a n c a s e s w h i c h p e r m i t v e r y b r o a d p o w e r s o f c o n t r o l . I t s h o u l d b e k e p t i n m i n d , h o w e v e r , t h a t a l l p o w e r s o f c o n t r o l a r e s u b s i d i a r y t o t h e p o w e r o f r e v o c a t i o n , w h i c h i s t h e u l t i m a t e c o n t r o l o f a l l . I t c a n t h u s b e a r g u e d , u s i n g t h e C a n a d i a n a u t h o r i t i e s a p p r o v i n g p o w e r s o f r e v o c a t i o n , t h a t p o w e r s o f c o n t r o l a r e e q u a l l y p e r m i s s i b l e . T h e i m p o r t a n c e o f t h e C a n a d i a n c a s e s w h i c h d i s c u s s t e s t a m e n t a r y m a t t e r s , a n d t h e A m e r i c a n c a s e s w h i c h f i n d t h a t t h e r e i s m e r e l y a n a g e n c y r a t h e r t h a n a t r u s t , l i e s i n d r a f t i n g c o n s i d e r a t i o n s . No m a t t e r how many c a s e s a r e c i t e d i n s u p p o r t o f t h e v a l i d i t y o f a p o w e r o f r e v o c a t i o n , p o w e r s o f c o n t r o l , o r l i f e i n t e r e s t s , t h e s u c c e s s o f a p a r t i c u l a r r e v o c a b l e t r u s t w i l l a l w a y s d e p e n d u p o n i t s own t e r m s , a n d how t h e y a r e u s e d . P o o r d r a f t i n g o r p o o r o p e r a t i o n o f t h e t r u s t w i l l e x p o s e i t t o a t t a c k s b a s e d o n t e s t a m e n t a r y a n d a g e n c y c o n s i d e r a t i o n s . A c c o r d i n g t o t h e A m e r i c a n a u t h o r i t i e s , a p r o p e r l y d r a w n r e v o c a b l e t r u s t c a n n o t o n l y e m u l a t e a w i l l b u t c a n p r o v i d e a d d i t i o n a l b e n e f i t s n o t a v a i l a b l e when u s i n g a w i l l . F o r e x a m p l e , b y u s i n g t h e r e v o c a b l e t r u s t , i t i s p o s s i b l e t o - 184 -see one's trustee in action, and to determine the effectiveness of trust terms. The revocable trust can also provide uninterrupted management of one's a f f a i r s not only during any physical or mental i n f i r m i t y , but also upon one's death. The revocable trust i s not revoked by marriage or divorce, and i t is d i f f i c u l t to argue that the s e t t l o r was mentally incompetent or unduly influenced when i t was created, i f he or she was involved in i t s operation. There are, of course, some disadvantages in using a revocable trust as a substitute for the w i l l . Because i t does e n t a i l a present transfer of trust property from the s e t t l o r to the trustee, the revocable trust may trigger tax consequences at both the federal and prov i n c i a l l e v e l . Federal and prov i n c i a l income taxes may result from any taxable c a p i t a l gains, and a provincial purchase property tax may have to be paid. Income tax returns w i l l have to be f i l e d for the trust each year, notwithstanding that the income and taxable c a p i t a l gains or losses of the trust are attributable to the s e t t l o r . While the income tax consequences may be b e n e f i c i a l in some circumstances, they must be examined c a r e f u l l y before committing assets to the revocable t r u s t . Problems may also arise during the operation of the revocable tru s t , i f the s e t t l o r acts as the sole trustee. - It may be d i f f i c u l t to maintain the standard of care required by a - 185 -t r u s t e e i n d e a l i n g w i t h p r o p e r t y which i s s t i l l c o n s i d e r e d by the s e t t l o r t o be h i s or her own. However, f a i l u r e t o do so may r e s u l t i n a l l e g a t i o n s o f b r e a c h o f t r u s t by b e n e f i c i a r i e s a g a i n s t not o n l y subsequent t r u s t e e s but a l s o the s e t t l o r ' s e s t a t e . I t may be wise t o a p p o i n t the s u c c e e d i n g t r u s t e e t o a p o s i t i o n o f c o - t r u s t e e d u r i n g the s e t t l o r ' s l i f e t i m e , or even c o n s i d e r an i n s t i t u t i o n as a c o - t r u s t e e , t o m a i n t a i n proper r e c o r d s and p r a c t i c e s . In any e vent, i t i s c r u c i a l t h a t the s e t t l o r u n d e r s t a n d h i s or her r o l e as t r u s t e e as opposed t o t r u s t b e n e f i c i a r y . Another area o f concern w i l l be when the r e v o c a b l e t r u s t i s used s p e c i f i c a l l y t o a v o i d c l a i m s by s u r v i v i n g spouses or c h i l d r e n under the W i l l s V a r i a t i o n A c t . A l t h o u g h the p r o v i s i o n s o f t h a t Act o s t e n s i b l y a p p l y o n l y t o the e s t a t e o f the t e s t a t o r , i t i s p o s s i b l e t h a t the c o u r t s w i l l extend i t s a p p l i c a t i o n t o p r o p e r t y h e l d i n a r e v o c a b l e t r u s t . A s t r o n g argument can be m a r s h a l l e d t h a t i t would be c o n t r a r y t o p u b l i c p o l i c y t o d e p r i v e a s u r v i v i n g spouse or c h i l d r e n o f a share i n the t e s t a t o r ' s a s s e t s , whether h e l d i n a r e v o c a b l e t r u s t or an e s t a t e . In s u pport of the argument can be c i t e d a number of American cases which s e t a s i d e i n t e r v i v o s t r u s t s i n whole or i n p a r t t o s a t i s f y s u c c e s s i o n c l a i m s o f the s u r v i v i n g spouse. These cases f a l l i n t o two broad c a t e g o r i e s d e s c r i b e d as the " i l l u s i o n a r y t r a n s f e r " d o c t r i n e and the " f r a u d on m a r i t a l r i g h t s " d o c t r i n e . The f i r s t i s a h y b r i d o f the o l d e r t h e o r y - 186 -that a revocable t r u s t was testamentary i n nature. The courts f i n d that the t r u s t i s testamentary and i n e f f e c t i v e , but only i n s o f a r as the s u r v i v i n g spouse i s concerned. The doctr i n e i s not e a s i l y r e c o n c i l a b l e with t r a d i t i o n a l t r u s t p r i n c i p l e s , but i s nevertheless popular i n some American j u r i s d i c t i o n s . The fraud on m a r i t a l r i g h t s d o c t r i n e i s s i m i l a r to the p r i n c i p l e of equitable or c o n s t r u c t i v e fraud found i n B r i t i s h Columbia jurisprudence. I t i s unnecessary to f i n d an a c t u a l fraudulent i n t e n t , the focus being rather upon the i n e q u i t a b l e r e s u l t s which may occur when moral o b l i g a t i o n s are ignored. The American d o c t r i n e takes a pragmatic approach to the r i g h t s of the s u r v i v i n g spouse, and reviews the f a c t s of each case to determine whether i t would be equitable to set aside the t r u s t . The d i f f i c u l t y with t h i s approach i s that i t i s somewhat s u b j e c t i v e , and makes the law unp r e d i c t a b l e . There i s no evidence that e i t h e r d o c t r i n e s would be adopted by the courts i n B r i t i s h Columbia. Indeed, the trend here and i n other Canadian j u r i s d i c t i o n s i s more akin to another American d o c t r i n e known as the " l i b e r a l l e g a l " or "Massachusetts" theory. The focus i s upon whether the l e g a l requirements of a t r u s t have been f u l f i l l e d . I f so, the courts w i l l not set i t aside notwithstanding p o s s i b l e i n e q u i t a b l e r e s u l t s f o r the s u r v i v i n g spouse or c h i l d r e n . This view favours the free a l i e n a b i l i t y of property over moral claims - 187 -upon that p r o p e r t y . Although the i n d i c a t i o n i s that our own c o u r t s p r e f e r the l i b e r a l l e g a l d o c t r i n e , the more e q u i t a b l e approach found i n the m a r i t a l fraud and i l l u s i o n a r y t r a n s f e r d o c t r i n e s should not be ignored when d r a f t i n g a revocable t r u s t which i s intended to defeat claims under the W i l l s V a r i a t i o n Act. A small bequest f o r the p o t e n t i a l claimant i n a w i l l , coupled with a d e c l a r a t i o n under the Act, should be c o n s i d e r e d . Nothwithstanding the p o s s i b l e drawbacks to using the revocable t r u s t as a s u b s t i t u t e f o r the w i l l , i t has c o n s i d e r a b l e p o t e n t i a l i n the r i g h t circumstances. I t behooves p r a c t i t i o n e r s to c o n s i d e r i n n o v a t i v e methods of s a t i s f y i n g a c l i e n t ' s needs. In the case of the revocable t r u s t , there i s l i t t l e reason to ignore i t s a p p l i c a t i o n i n e s t a t e planning as developed by our American c o l l e a g u e s . 

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