This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.
By Kimberly Gale and Aradhna Mahajan
A clause that is valid in some U.S. jurisdictions is being disputed in Canada as seen in the recent decision
Quinn Estate 2018 BCSC 365
This case discusses pour-over clauses in a will. A pour-over clause makes a gift under a will to an existing trust. The terms of that trust is not defined in the will. While in several the U.S. states the pour-over clauses have been held to be valid, case law in Canada suggests otherwise.
In this case, former NHL coach Pat Quinn passed away. Quinn was a Canadian and American citizen and his wife, Sandra Quinn, held a U.S green card and was a Canadian citizen. Pat and Sandra lived in British Columbia and the value of his estate was either nil or $750,000. His will was prepared by a U.S. attorney, executed in British Columbia, and stated that the residue of his estate would pour-over into the Quinn Family Trust. The Quinn Family Trust was settled prior to his execution of the will and could be amended and was revocable.
Issues with Pour-Over Clauses
The case Kellogg Estate 2013 BCSC 2292, summarizes issues with the pour-over clauses. In this case, the will was to “pour over” into a trust which was amended after the will was executed. The amendment removed one of the primary beneficiaries of the trust. Justice Victoria Gray held that a gift cannot “pour over” on terms which did not exist at the time the will was executed (para. 70) and that a pour-over clause to a revocable, amendable, inter vivos trust is to be invalid.
In Quinn Estate, Justice Gordon Funt held that assets could not “pour- over” into a trust that could be revoked or amended because this violates the testamentary compliance rules provided in B.C.’s Wills, Estate and Succession Act (WESA). The definition of a will is testamentary disposition (s. 1 of the WESA) and the possible use of a revocable or amenable trust creates “uncertainty the Legislature sought to avoid” (Para 49).
The court pondered whether s. 58 of WESA, which allows the court to cure deficiencies in a will, can save the pour-over clause.
Can the clause be saved?
According to Justice Funt, the answer was no. The pour-over clause was invalid and could not be cured by s.58. The residue of the estate was to be distributed on intestacy.
The policy reason behind s. 58 was to enable the court to step in where there is “formal invalidity” in circumstances where a person has taken steps to a “deliberate or fixed and final intention” to dispose of his or her property. This legislation does not exist to enable the court to permit structures that circumvent the formalities all together. In this case, the pour-over clause attached to an amendable trust which was designed to be flexible and “left matters in flux” (para. 62). This arrangement made the very structure of the will inconsistent with the formal requirements of a will and could not be cured by application of s. 58.
Practitioners should be aware that pour-over trust clauses may not be valid in Canada and should not be employed without further consideration of the legal issues involved. That is not to say that estate planners must avoid pour-over clauses altogether. For example, if the Quinn Family Trust was irrevocable, there would have been more likelihood that the pour-over clause would be valid.
A will must be final and certain.
If a pour-over clause is able to defeat a testator’s wishes by having a trust whose terms can be later amended, it will be deemed invalid.
Aradhna Mahajan is a recent master of law graduate from University of Toronto.