Did a recent Court of Appeal decision ‘water down’ discretionary trusts?

A discretionary trust is an important estate planning tool for many purposes.  One purpose is to protect an inheritance for a person with a disability, and to ensure the continuing availability of social assistance for that person.  The Court of Appeal recently considered a discretionary trust in the context of an applicant for rental assistance (SA v. MVHC 2017 BCCA 2).

A lower court decision had found that applicant, who was also a beneficiary of a discretionary trust, was required to provide the “value of the discretionary trust” in her application to be eligible for rental assistance.  However, discretionary trusts usually don’t affect eligibility because they don’t have a ‘value’ for a beneficiary.

Our firm acted at the Court of Appeal for a leading advocacy society for persons with disabilities to provide perspective about these trusts. The Court agreed that a beneficiary’s interest in a discretionary trust does not have value, and that such trusts are important to protect independence and full citizenship.  However, the Court referred to difficult public policy choices and also found that the rental assistance program is different from other assistance programs.  Rental assistance is not available for all eligible applicants. Rather, limited funds require a selection among eligible applicants.  In that context, even though a trust interest has no value, the potential benefit of a trust may be considered when selecting between applicants.

Helpfully, this decision confirms the existing law about discretionary trusts and their importance.  It also confirms that trusts will not affect social programs that provide assistance for all eligible applicants.   However, it will have serious implications for: persons with disabilities who rely upon rental assistance, family members who would like support those persons, and housing providers who must evaluate their applications.

There are strategies that can assist these persons.  For more information see the the full article.

Executor Granted Disclosure of Legal Advice Given to Deceased Will-maker

Solicitor-client privilege is a legal principle that protects, or “privileges”, communications that involve the provision of legal advice between a lawyer and their client, and requires the lawyer to hold the content of those communications strictly confidential. Unless one of the narrow exceptions to the rule applies, only the  client has the right to divulge the information protected by the privilege; this flows, in the words of the Supreme Court of Canada, from the idea that our justice system depends on “full, free and frank communication between those who need legal advice, and those who are best able to provide it”.

Courts have repeatedly affirmed that the privilege is permanent, and persists even after the death of the client who owns it. This, however, raises an interesting legal question: what happens to the right to divulge the solicitor-client communications the privilege protects (this is known as “waiving” the privilege), when that client dies?

This is the issue the court was asked to determine in the 2017 BC case of Haas Estate v. Jane Doe. There, the plaintiff was both the executor of and the sole beneficiary under the deceased’s will. A year before before his death, the will-maker met with an insurance advisor and changed the designated beneficiary of his life insurance policy, from the plaintiff to an unknown beneficiary.  Then, two months before his death, the will-maker met with his solicitor on two occasions to discuss estate planning, and, possibly, the aforementioned beneficiary change.

The plaintiff, in her role as executor, had requested that the insurance company disclose the details of the beneficiary change, but only received a form with the new beneficiary’s name redacted. She then requested production of the deceased’s solicitor’s file, and was informed that it was protected by solicitor-client privilege. After this occurred, she commenced the current action, which alleged, among other things, that the deceased did not have legal capacity at the time of the beneficiary change, and that, as a result, the unknown beneficiary or beneficiaries held the proceeds of the life insurance policy in trust for the deceased’s estate.

During the litigation, she then brought a court application for production of the solicitor’s file, claiming that, as the personal representative (i.e., the executor) of the deceased, she had inherited the authority of the deceased to waive his privilege over the communications between him and his solicitor that were recorded in the file. She claimed this right under section 142 of the Wills Estates and Succession Act, which grants an executor “the same authority over the estate” as the deceased person would have if living.

The court agreed, finding that the plaintiff, as executor, had the right to waive the deceased’s privilege over the file. Moreover, the court also explicitly stated that this right of waiver was not limited to situations where the assets in dispute passed through the estate (since life insurance proceeds do not form part of a deceased’s estate).

Court Rejects Disinheritance of Children based on “Invalid” Reasons

“Testamentary freedom” is the notion that a will-maker (or “testator”) is entitled to divide her property upon death however, and to whoever, he or she sees fit. In certain circumstances, however, statutes and courts in British Columbia and other jurisdictions have limited this freedom, by requiring the will-maker to provide for certain beneficiaries in the will. In the case of the will-maker’s spouse and children, the will must make “adequate provision for the proper maintenance and support of the will-maker’s spouse or child” , or, if requested to do so after the will-maker’s death, the court can “vary” that will, if it considers it just and equitable to do so. Such claims are now brought under section 60 of the British Columbia Wills, Estates and Succession Act, and, in the case of children, can be initiated by a child of any age, as the courts have determined that a parent may still have a legal or moral obligation to provide for their adult independent child.

However, these obligations of the will-maker are not absolute. Even if a court finds that a will-maker had an apparent “moral duty” to provide for their spouse or child, and did not do so, that obligation can be negated if the will-maker is found to have had sufficiently “valid and rational” reasons to disinherit or reduce that beneficiary’s gift in the will, as this blog has covered in the past.

Conversely, the 2016 decision of Sharma v. Sharma Estate provides an instructive example of a situation where a will-maker’s stated reasons for disinheriting adult children were deemed not to be “valid”, i.e., not based on true facts, and, therefore, could not be used to negate the will-maker’s moral duty. In this case, the specific reason relied upon to disinherit was that the excluded children were said to have already received sufficient gifts during the will-maker’s lifetime, and, accordingly, did not deserve any further gifts from the estate.

The deceased had an estate of approximately 1.75 million and three living adult children at the time of her death, two sons and a daughter. She had made three wills over her life; the first two left 90% of the “residue” of her estate (i.e., the money remaining in an estate after the debts and specific gifts have been removed) to her daughter, 10% to her youngest son, and minimal specific gifts to her oldest son. The third and final will instead granted the youngest son the entire residue, and left nothing to her other two children. The will-maker’s reason for disinheriting her two children, as stated in the will, was that they had already received “plenty of monies” during her life, while her youngest son had not.

The court found that declaration to be factually incorrect. The evidence indicated that the youngest son had actually received significant financial assistance over the course of the will-maker’s life, being given: a monthly living allowance, rent-free accommodation at the will-maker’s home whenever he was not incarcerated, legal fees for several of his convictions, and, after her death, sole ownership of a joint bank account that he had formerly shared with the will-maker worth over $100,000. The other two children, conversely, had received relatively minor gifts over the course of the will-maker’s life – $15,000 for the daughter, and nothing at all for the oldest son.

Given the finding that the will-maker’s reasons were not based in fact, they were deemed “invalid” by the court, and disregarded. Then, the court assessed whether the will-maker had a moral duty to provide for the excluded children, by looking at what a “judicious parent”, informed by “contemporary moral norms”, would do under the circumstances. It found that a judicious parent in the place of the will-maker would have shared her estate amongst her children, and so the court elected to vary the will, granting 34% of the residue of the estate to the deceased’s daughter and 33% to each son.

This case reaffirms that, even when a will-maker has clearly outlined her reasons for disinheritance in the will, a court may still order the will varied if it finds, on the evidence, that the facts underlying those reasons were not true.