SUPERIOR COURT OF JUSTICE – ONTARIO

Court File No.: 08-13/13
Date: 2013-12-30

APPLICATION UNDER the Variation of Trusts Act, R.S.O. 1990, c. V.1, the Trustee Act, R.S.O. 1990, c. T.23, s. 60(1) and Rules 7 and 14.05(2) and (3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194

RE: ALAN FISHLEIGH-EATON, DIANA MARGARET EATON-KENT, GEOFFREY WAYNE FISHLEIGH, LEIGH GERALD FISHLEIGH and TIMOTHY HAROLD FISHLEIGH
Applicants

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MATTHEW GREGORY EATON-KENT, MICHAELA MARGARET EATON-KENT, ERIC ALAN EATON, ELIZA LINDA MARGARET KATHLEEN EATON, KAI TONI MACDONALD-FISHLEIGH, WAYNE FERGUSON FISHLEIGH and DIANA JANE EATON, as Trustees of a Trust made the 18th day of December 1992 by HAROLD F. FISHLEIGH and in their personal capacities, PAMELA ANN EATON-BOYCE, by her Guardian of Property, DIANA JANE EATON, BILLIE DAVEY FISHLEIGH, KASS DAVEY FISHLEIGH and SAHARA SKY CANHAM-FISHLEIGH, by their Litigation Guardian, the Children’s Lawyer and PAMELA ANN EATON-BOYCE, by her Litigation Guardian, the Public Guardian and Trustee
Respondents

BEFORE: MORAWETZ J.

COUNSEL:
Douglas D. Langley, for the Applicants

Clare Burns, for the Office of the Children’s Lawyer

Mary Louise Dickson, Q.C., for the Respondent, Diana Jane Eaton, Personally, as Estate Trustee and as Litigation Guardian for Pamela Ann Eaton-Boyce

David Rosenbaum, for Wayne Ferguson Fishleigh, as Trustee and Personally

HEARD & ENDORSED: December 6, 2013
REASONS: December 30, 2013

ENDORSEMENT

[1] This Application was heard on December 6, 2013. At the conclusion of the hearing, the Application was granted and the resulting Order was signed, with reasons to follow. These are the reasons.

[2] The Applicants, contingent beneficiaries of a trust settled on December 18, 1992 by Harold F. Fishleigh (the “Trust”) seek an Order approving the variation of the Trust.

[3] All of the adult Beneficiaries and the Trustees of the Trust consent to the variation of the Trust as set out in the Deed of Arrangement proposed by the Applicants.

[4] The Applicants are no longer proceeding with the relief under s. 60 (1) of the Trustee Act, R.S.O. 1990, c. T.23, set out in 1(e) of the Notice of Application.

[5] The Trust was settled by Harold F. Fishleigh to benefit his children, Diana Jane Eaton (“Diana”) and Wayne Ferguson Fishleigh (“Wayne”), with the net income of the Trust during their respective lifetimes. On the death of the survivor of Wayne and Diana, the Trust Fund is to be divided into two equal shares with one equal share to be divided between the issue of Diana then living, in equal shares per stirpes, and the other equal share to be divided between the issue of Wayne then living, in equal shares per stirpes.

[6] Diana is 84 years of age and has three children, two of full age and capacity. They are the Applicants Alan Fishleigh-Eaton and Diana Margaret Eaton-Kent. Pamela Ann Eaton-Boyce (“Pamela”), who is her third child, is a mentally incapable adult person. Diana is Pamela’s guardian of property pursuant to a Judgment dated October 27, 1998 and by Order of this Court dated November 15, 2013, Diana has also been appointed litigation guardian for Pamela for the purposes of this Application.

[7] Diana also has four grandchildren, all of whom are of full age and capacity. They are the Respondents Matthew Gregory Eaton-Kent, Michaela Margaret Eaton-Kent, Eric Alan Eaton, and Eliza Linda Margaret Kathleen Eaton.

[8] Wayne is now 80 years of age and has three children, all of whom are of full age and capacity. They are the Applicants Geoffrey Wayne Fishleigh, Leigh Gerald Fishleigh, and Timothy Harold Fishleigh.

[9] Wayne has four grandchildren, two of full age and capacity and two minors. His adult grandchildren are the Respondents Kai Toni MacDonald Fishleigh and Billie Davey Fishleigh. The two minors are Kass Davey Fishleigh and Sahara Sky Canham-Fishleigh, both of whom are represented in these proceedings by the Children’s Lawyer.

[10] The Trust has a significant capital gain accrued in respect of the shares and this capital gain will become taxable on the 21st anniversary of the Trust, being December 18, 2013, due to the application of subsection 104(4) of the Income Tax Act. That subsection of the Income Tax Act mandates that on the twenty-first anniversary of the settlement of the Trust, there shall be a deemed disposition of the capital property of the Trust for tax purposes.

[11] A significant portion of this capital gain can be deferred by distributing the shares of Realty, or other shares exchanged for the shares, to the capital beneficiaries of the Trust in partial or full satisfaction of their respective interests in the Trust pursuant to subsection 107(2) of the Income Tax Act.

[12] In order to be certain that the reorganization of the capital of Realty and the making of the contemplated distributions can be made on a tax deferred basis as permitted by subsection 107(2) of the Income Tax Act, it was necessary to apply to the Canada Revenue Agency (the “CRA”), for an advance ruling.

[13] The existing Trust does not give the Trustees the power to encroach on the capital before the Trust terminates on the death of the survivor of Wayne and Diana (the “Date of Distribution”), and, accordingly, if the date of distribution has not occurred by December 18, 2013, there will be significant capital gains arising in the Trust which will be taxed.

[14] While there is a power to amend the terms of the Trust in paragraph 18 of the Deed of Settlement and, although under that provision, the Deed of Settlement could be amended to allow for capital encroachment in favour of all or any of the capital beneficiaries of the Trust, (provided that all such payments and distributions be completed by the date of distribution), the Trustees have decided to proceed by Deed of Arrangement and to make this Application to vary the Trust with court approval on behalf of the minor, unborn, unascertained and incapable beneficiaries rather than to rely on this power to amend.

[15] The proposed reorganization and distributions require an amendment to the Deed of Settlement dated December 18, 1992.

[16] A number of changes to the draft Deed of Arrangement and the draft Shareholders Agreement were made after the date of the issuance of the Notice of Application (being September 6, 2013), as a result of ongoing negotiations with the CRA.

[17] Further, the Children’s Lawyer, who acts in this proceeding on behalf of the minor, unascertained, and unborn contingent beneficiaries of the Trust, had indicated that it would not oppose the proposed variation provided that the sum of $370,750.00 was paid to the Accountant of the Ontario Superior Court for the benefit of the great grandchildren of Harold F. Fishleigh who were alive on the date of the death of the survivor of Wayne and Diana with each such great grandchild to receive an equal share.

[18] The final versions of the Deed of Arrangement and the Shareholders Agreement are attached as Appendix “A” and Appendix “B”.

[19] Counsel to the Applicants also submits that the Trust will also benefit Pamela, the incapacitated adult beneficiary. Once the Deed of Arrangement and the Shareholders Agreement have been approved on her behalf and the reorganization of the share capital of Realty takes place, she will receive an immediate direct benefit when 1/6th of the common shares of the Trust are distributed to her guardian on a tax deferred basis.

[20] CRA has provided the accountants of the Trust with an advance ruling stating that the reorganization and distribution of the assets of the Trust and the reorganization of the capital of Realty, if approved, will defer the taxation of the assets of the Trust beyond December 18, 2013 in accordance with section 107 (2) of the Income Tax Act.

[21] The issue to be determined on this Application is whether the variation of the Trust pursuant to the Deed of Arrangement proposed by the Applicants is for the benefit of the minor, unborn, unascertained, and incapable beneficiaries of the Trust.

[22] The Court will approve the variation of the Trust where:

(a) the basic intention of the testator will be kept alive by the proposed variation;

(b) the proposed variation is for the benefit of the minor, unborn, unascertained and incapable beneficiaries; and where

(c) a prudent adult motivated by intelligent self-interest, and a sustained consideration of the expectancies and risk of the proposal made, would be likely to accept the benefit to be obtained on behalf of those for whom the court is acting.

(See: Finnell v. Schumacher Estate (1990), 1990 6766 (ON CA), 74 O.R. (2d) 583 (C.A.) at p. 589 and Re Irving (1976), 1975 714 (ON SC), 11 O.R. (2d) 443 (H.C.J.).)

[23] Counsel to the Applicants submitted that when Harold F. Fishleigh settled this Trust in 1992, by making his son Wayne and daughter Diana income beneficiaries for life, with no power to encroach on capital, and with the capital to be distributed after their deaths to his grandchildren or their issue, he evinced an intention to preserve the capital for the benefit of the third and subsequent generations and it was therefore reasonable to assume that if the settlor were alive today he would want the relief afforded by subsection 107 (2) of the Income Tax Act to be utilized to preserve the capital of the Trust for his grandchildren, rather than have the assets of the Trust depleted by a huge windfall to CRA.

[24] Counsel to the Applicants further submitted that the proposed Deed of Arrangement is for the financial benefit of the minor, unborn, unascertained and incapable beneficiaries of the Trust.

[25] Counsel to the Applicants further submitted that a prudent adult motivated by intelligent self-interest and a sustained consideration of the expectancies and risk of the proposal made, would be likely to accept this variation of Trust.

[26] Having reviewed the record and, also having the benefit of submissions from counsel and taking into account the non-opposition from any party, I accept the position put forth by the Applicants.

[27] The application is granted and I have signed the resulting order in the form submitted.

MORAWETZ J.

Date: December 30, 2013