Creating a Trust in a Will post-death
The are a number of situations where a PWD recipient’s parent’s will needs to be modified, for example:
- The will doesn’t contain a trust and the PWD recipient’s share is large enough to justify needing the tax benefits of a QDT; and/or
- The will doesn’t contain a trust and the PWD recipient does not have the requisite mental capacity to create an inter vivos trust; and/or
- There is a trust clause, but it requires the trustee to pay a monthly stipend to the beneficiary (ie. it requires the PWD recipient to receive unearned income).
In each of these cases an application under s. 60 of the Wills and Estates Succession Act, within 180 days of granting probate, will often give the relief needed.
The ITA’s definition of a testamentary trust includes trusts created by court order pursuant to wills variation legislation.
I’ve done many of these applications. The secret for success is educating the judge that trusts are a perfectly legal way to bypass the PWD Regs. Due to ignorance, many judges are skeptical that a person on PWD should be allowed to place large amounts of money into a trust to enhance their eligibility for disability assistance. I always provide a copy of s. 12 of the EAAPD Regs and well as Henson v. Ontario to the judge. Once they realize it’s allowable under both statute and common law, and not some kind of scam, judges seem completely happy to assist.
Probate Issues – Notice to Public Guardian and Trustee
Under Rule 25-2 (10), of the BC Supreme Court rules, when applying for probate or Letters of Admin, if you need to give notice to a person who has a Committee or may be mentally incompetent (very subjective) you need to give notice to the PGT.
The PGT gets upset if you forget.
Collapsing the Trust
The Ministry does not permit discretionary trusts to be collapsible by a beneficiary receiving PWD. However, there are many times when a beneficiary has legitimate reasons to collapse a trust. As a result, for virtually every trust that I review, an automatic question is: “Can this trust be collapsed? If so, how?”
The basic law for collapsing a trust comes from Saunders v. Vautier (1841) 4 Beav 115. In a nutshell, it holds that if the beneficiaries are all adults and not under any legal disability, they can require the trustee to transfer the trust assets to them outright.
If one of the beneficiaries has a legal disability, and the remaining beneficiaries consent to a trust’s collapse, the BC Supreme Court can grant permission on behalf of the beneficiary who cannot consent under the Trust and Settlement Variation Act.
Common law also extends the doctrine of Saunders v. Vautier to permit a trustee to vary the terms of a trust if all beneficiaries are in agreement.
NOTE: Neither Saunders v. Vautier nor the Trust and Settlement Variation Act permit the collapsing of a trust when only a majority of beneficiaries agree. It must be unanimous.
When creating an inter vivos trust for a PWD recipient who simply needs the trust to qualify for benefits, consider putting I often put an explicit clause permitting the trust’s collapse if the beneficiary ceases to qualify for PWD. For example:
Should the Beneficiary cease to qualify for provincial disability assistance pursuant to the Employment and Assistance for Persons with Disabilities Act, SBC 2002, c. 41, or subsequent legislation, and/or turn 65 years of age, upon the Beneficiary’s request, the assets remaining in trust shall be paid or transferred to the Beneficiary.
If all beneficiaries are legally competent, there’s no need to go to court to collapse a trust.
Even-handed rule
An issue that needs to be considered in most disability-related trusts is the “even handed rule”.
One of the key requirements for a discretionary trust under PWD rules is that it can’t be unilaterally collapsible by the beneficiary. As a result, as per Saunders v. Vautier, the trust needs to have a residual beneficiary.
This creates a problem in that the common law “even handed rule” states that a trustee is obliged to treat the interests of vested and contingent beneficiaries equally. As a result, while the trust is intended to provide for the PWD recipient, the trustee is inadvertently required to also protect the interests of the residual beneficiary, meaning they can only use half the funds in the trust for the PWD recipient. This is typically not the intention of the Settlor.
The simplest way to avoid this problem is to insert a clause in the trust deed, clarifying a right to deplete the trust when assisting the PWD recipient. A typical clause states:
In administering this Trust, the Trustee shall be guided exclusively by what he or she believes is in the Beneficiary’s best interests. The Trustee is not required to consider more remote interests, including the rights of residual beneficiaries. The Trustee shall not be held liable for depleting the Trust.
Wills – Diminished Capacity
In this practice, I often got contacted by families of persons with down syndrome and other developmental disabilities to assist with wills. Doing a will is often an important part of being “independent.” While I always followed common law rules respect to testamentary capacity, when it was a “grey area,” I would consider the following:
- Who is going to challenge the will? (I was once asked to help a guy with down syndrome draft a will which excluded his two brothers. Both brothers were represented by the PGT. I declined to assist.)
- Do the gifts seem reasonable in the circumstances? (Ie. a woman with down syndrome whom parents had died wanted to share her estate between her six friends. With no siblings, it made perfectly good sense.)
- Is the proposed distribution scheme coming from the person with disabilities, or are they being coached?
- How much is involved? When the person had diminished capacity and was giving away their stuffy collection, their CD collection, and their clothes, I had less concerns than if it’s their $400,000 RDSP.
Power of Attorneys – Capacity Issues
Parents will often ask for assistance in preparing POAs for their intellectually disabled sons/daughters. Given the fairly stringent capacity test found in s. 12(2) of the Power of Attorney Act, I typically wouldn’t to a POA for someone with diminished mental capacity.
A section 7 Representation Agreement will often accomplish everything that is needed – EXCEPT deal with real estate.
Representation Agreements – Capacity for Section 7 Agreements
Standard Representation Agreements, as defined under s. 7 of the Representation Agreement Act, permit someone with diminished capacity to appoint someone to help them make decisions related to:
- personal care;
- giving or refusing consent for all major and minor health care;
- management of routine financial affairs; and
- handling of legal affairs.
Standard RAs are really important in that they enable folks with diminished capacity to have a say in who helps them with day-to-day decision-making. This can be very empowering.
The Act explicitly permits folks with diminished capacity to make rep agreements. As there is no caselaw defining what the requisite level of capacity is, it’s a bit of a crap shoot. Many parents of disabled sons/daughters and their advocacy organizations argue that “anything goes.” This is concerning – I’ve had parents bring in their sons who are totally catatonic and argue that they’re “capable.”
My practice was always to look for: a) a history of a long term, supportive relationship, and b) evidence (usually body language) that the Adult trusts the person that they “want” to appoint. Unlike wills and POAs, where you meet with the person separately, with an RA, this often doesn’t work. I’ll often sit for 15-20 minutes, and ask the Adult questions about “life”. Typically, as the questions get more difficult, if there’s trust, they’ll start turning to their intended representative for help. Not perfect, but it often works.
Homeownership
The question of homeownership – putting the property in a disabled person’s name – comes up a lot. The EAAPD Regs consider the PWD recipient’s primary residence an exempt asset, but is that the only factor – no! Capacity, tax issues, and vulnerability all need to be considered. Appendix “A” is a paper I wrote on options for homeownership.
Finding a Trustee
A fairly common issue that comes up is finding a trustee for their son’s/daughter’s trust.
There’s no magic answer.
Many parents want to use their other kids as trustees. Occasionally this works, but in many cases, particularly when the beneficiary has mental health issues, it ends up destroying the sibling relationship. By placing one or more siblings in financial control of another, it often gets very messy.
Some sources that people use:
- Coast Mental Health Foundation’s Trust Program – restricted to beneficiaries with mental health issues. Only manages cash in high interest accounts – no investing, and will not manage real estate. Severely understaffed, so many people have complained about slow response times.
- Concentra Trust/EQ Bank – based in Saskatoon, with a regional office in Nanaimo. Problems with distance, and I found that they occasionally misplace documents.
- Solus Trust – a Vancouver-based private trust company. They do a lot of work for the PGT and manage a number of disability-trusts. While odd that they’ve remained relatively small over the past 15 years, I’ve always been impressed with their work. Will work with trusts of $250K, but prefer higher.
- Scotia Trust – medium-sized trust company. They manage a number of disability trusts. I’ve been impressed with their work. Won’t touch trusts under $750K.
- Royal Trust – largest trust company in Canada, hence lots of resources, but strict, unbending policies. Will sometimes take trusts of $500K, typically don’t like trusts under $750K. Does decent work.
Problem is, no one in the Vancouver-area is willing to competently manage smaller trusts.