COURT FILE NO.: 05-64/14
DATE: 20141003
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Paul Stoor
Applicant
– and –
James Morris Dickson (Estate Trustee of the Estate of Lillie Muriel Stoor)
Respondent
Rob Levesque, for the Applicant
Ronald G. Chapman, for the Respondent
HEARD: September 19, 2014
Himel J.
[1] Paul Stoor brings this application under rule 14.05(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for an order declaring that the gift over of the assets of the Paul Stoor Trust in the will of Lillie Muriel Stoor fails for uncertainty of objects, for an order directing the estate trustee to pay the entire capital of the trust and any interest to Paul Stoor, and for costs. The estate trustee opposes the application and takes the position that the gift over is not void for uncertainty and, if this court should find it is, that before directing the monies to be paid to the trust, it should order an assessment of the capacity of Paul Stoor. The application for an order for an assessment is brought by the respondent under section 105 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”). No application has been made pursuant to the Substitute Decisions Act, S.O. 1992, c. 30 (“SDA”). The applicant opposes submitting to a capacity assessment.
Factual Background
[2] The applicant is the only child of Lillie Muriel Stoor, who died on October 17, 2012, leaving a will dated June 21, 2007, which appoints the respondent as estate trustee. The will divides the assets into two parts, “Part A” and “Part B.”
[3] Part A consists of the deceased’s investment portfolio with Investors Group and is bequeathed to the deceased’s nieces and nephews and to Paul in specified shares. Part B is the Paul Stoor Trust. It includes other investment and savings accounts, a house, and the residue of the deceased’s estate. The estate trustee is to invest the assets and pay amounts of the income or capital to Paul as the estate trustee considers advisable.
[4] On Paul’s death, Provision XI of the will directs the estate trustee to distribute the residue of the Paul Stoor Trust as follows:
UPON the premise [sic] of my said former Family Home becoming vacant upon the death of my said son, PAUL ERIC STOOR, or at any prior time, as my Trustees may in their absolute and unfettered discretion decide, my Trustees shall pay out of the capital of the PAUL STOOR TRUST, the burial expenses of my said son, PAUL ERIC STOOR and the expenses of his last illness to the extent that these items are not paid, or the responsibility for the payment is not assumed by any other person or institution, and subject thereto, the remainder of the PAUL STOOR TRUST is herein directed to be divided, distributed and disposed of in the following manner: following the payment of any outstanding debts, charges, taxes and expenses of the said PAUL STOOR TRUST, all the rest and residue of the said PAUL STOOR TRUST shall be paid to my Trustees for distribution to any and all worthy individuals and or causes who shall be alive or in existence at that time, as my Trustees may, from time to time, in their absolute and unfettered discretion consider advisable.
This provision constitutes the gift over.
[5] The will indicates that Lillie Muriel Stoor established the Paul Stoor Trust as she did to address concerns regarding Paul’s abilities. Provision II of the will states in part:
I wish it to be known that the persons whom I have appointed as Trustees are members of my Family, either by blood or by marriage. We are all well aware of the mental and physical challenges which my only child and son, PAUL ERIC STOOR has had to live with all through his life. My Trustees and I, along with my long-time Solicitor, Leonard A. Braithwaite, Q.C., have discussed, at length, the various ways that my said son, PAUL ERIC STOOR could be protected, guided and comforted for the rest of his days following my death. After much consideration and thought, I have decided to make this Will in the manner which follows.
No more specific information is provided in the will regarding the nature or extent of Paul’s alleged mental and physical challenges.
[6] There is a further provision in the will that indicates Paul must live in the Stoor family home alone. If he does not, or fails to abide by any of the other rules of occupation set out by the estate trustee, the trustee is to take “all steps required to have him vacate the premises.” The respondent submits that this provision was drafted to address Lillie’s concerns regarding Paul’s girlfriend, whom Lillie believed was a negative influence on Paul.
[7] Provision VII of Lillie’s will also suggests that the Paul Stoor Trust is intended to operate as a Henson trust. A Henson trust is so named after the case of Director of Income Maintenance (Ontario) v. Henson, (1987) 26 O.A.C. 332 (Ont. Div. Ct.), upheld by the Ontario Court of Appeal in (1989), 36 E.T.R. 192. A Henson trust is an absolute discretionary trust. The trust instrument leaves the distribution of the income and capital of the trust in the absolute discretion of the trustee. The trust funds are beyond the reach of the beneficiary, who has no ability to compel the trustee to make payments to him or her: Elliott (Litigation guardian of) v. Elliott Estate (2008), 2008 63993 (ON SC), 45 E.T.R. (3d) 84 (S.C.), at para. 35. The Henson trust, properly constituted, allows the beneficiary to retain entitlement to government benefits, while simultaneously deriving funds from the trust, at the trustee’s discretion. The trust funds do not interfere with beneficiary’s qualification for government benefits because no interest in the trust funds vests in the beneficiary. In order to prevent any such vesting, a Henson trust will include a gift over of any remainder of the trust fund capital, upon the death of the beneficiary of the life estate.
[8] Provision VII states in full as follows:
I DECLARE that the capital of the PAUL STOOR TRUST and the income therefrom shall not vest in my said son, PAUL ERIC STOOR, and the only interest he shall have therein shall be the payments actually made to him or for his benefit therefrom. Without in any way binding the discretion of my Trustees I further declare that it is my wish that in exercising their discretion in accordance with the provisions of this paragraph, my Trustees shall use such amounts of capital and income from such shares as they consider advisable to provide comforts and amenities for my son, PAUL ERIC STOOR, while not substantially affecting the entitlement of my son, PAUL ERIC STOOR and that they take account of and in so far as they may consider it advisable, take such steps as will maximize the benefits which my said son, PAUL ERIC STOOR would receive from other sources including government sources if payments from the income and of such share of my estate were not paid to him, or if such payments were limited as to amount or time. In order to maximize such benefits, I specially authorize my Trustees to make payments varying in amount and at such time or times as my Trustees in the exercise of any absolute discretion consider advisable keeping in mind that the comfort and welfare of my said son is my first consideration.
[9] Support for the interpretation of the Paul Stoor Trust as a Henson trust is provided by the account of Lillie’s solicitor, Leonard A. Braithwaite, Q.C., who prepared the will. Mr. Braithwaite is now deceased, but a copy of the account, dated June 26, 2007, was filed by the estate trustee in his Responding Application Record. The account states that Mr. Braithwaite spent “some 18 to 20 hours” preparing the will of Lillie Muriel Stoor. The following are included in the itemized list of tasks that occupied those hours:
Researching “the best way that the sole survivor of the Stoor family, namely, Paul Stoor could be protected in light of various circumstances which you drew to our attention”;
“[R]esearching the law and other sources and to presenting you with our Report and much printed material on the subject of a ‘Hansen Trust’”; and
“[M]any individual meeting with your Attorneys, at various times, to discuss the matter of a Hansen Trust for your son, Paul Stoor.”
Mr. Braithwaite mistakenly spells Henson as “Hansen,” but the context makes clear that he intends to refer to a Henson trust.
[10] The final piece of evidence before this court regarding the testator’s intent is the estate trustee’s own belief, as set out in his affidavit filed, that it was always Lillie’s intention that her bequest to Paul be managed by the estate trustee for Paul’s benefit because of concerns regarding his capacity. The estate trustee cites the above-referenced provisions of the will as support for that assertion. He also states that he repeatedly heard both Paul’s parents, while alive, express concerns about Paul’s spending habits.
[11] The estate trustee further submits that it is his own belief that Paul, who is now 59 years old, is not able to manage financial matters on his own; that he lacks direction, social aptitude, and certain life skills; that he is unable to maintain employment; and that he hoards food and spends excessively on strange items. The estate trustee does concede that Paul succeeded in graduating from college, earning an Honours diploma, and that he has been employed in the computer industry in the past.
Issues
[12] The application raises the following issues:
Is the gift over of the residue of the Paul Stoor Trust to “any and all worthy individuals” void for uncertainty?
If the gift-over is found to be void, what is the effect of that finding? Does the residue pass to Paul on intestacy?
If the gift-over is void and the residue passes on intestacy, is Paul entitled to the entire beneficial interest of the Paul Stoor Trust, and, therefore, able to terminate the trust under the rule in Saunders v. Vautier (1841), 1 Cr. & Ph. 240, 41 E.R. 482 (Ch. Div.)?
Should this court order Paul to submit to a capacity assessment before terminating the trust under the rule in Saunders v. Vautier?
Law and Analysis
(i) The Gift Over
[13] For a trust to exist, it must have three essential characteristics: “(1) the language of the alleged settlor must be imperative; (2) the subject-matter or trust property must be certain; (3) the objects of the trust must be certain”: Donovan W.M. Waters, Waters’ Law of Trusts in Canada, 4th edition (Toronto: Thomson Carswell, 2012) at p. 140, citing Lord Langdale M.R. in Knight v. Knight (1840), 3 Beav. 148, 49 E.R. 58 (Eng. Ch.).
[14] The test for certainty of objects for a discretionary trust is the “individual ascertainability” test. It requires one to say with certainty whether any given individual is or is not a member of the class: Baden’s Deed Trusts (No. 2) (Re), [1973] Ch. 9, [1972] 2 All E.R. 1304 (C.A.).
[15] The principle behind the requirement for certainty of objects was examined by the Supreme Court in Brewer v. McCauley, 1954 63 (SCC), [1954] S.C.R. 645, at page 649:
The fundamental principle is that a testator must, by the terms of his will, himself dispose of the property with which the will proposes to deal. He may not depute that duty to his executors or trustees, save in the case of a gift for charitable purposes, when he may depute the selection of the charities.
[16] The cases are clear that trusts for “worthy causes” or “worthy objects” are not trusts for charitable purposes and are void for uncertainty. For example, in Planta Estate v. Greenshields, 1931 353 (BC CA), [1931] 2 D.L.R. 189, the British Columbia Court of Appeal held that the provision “The balance of my estate I leave entirely in the hands of my executor to aid and help any worthy cause or causes as he shall think fit” was too uncertain to create a valid charitable trust. See also Butler Estate (Re), 2007 NLTD 105, in which the court stated, at para. 27: “I have not been referred to any authority which has determined that a cause which is ‘worthwhile’ is also charitable as recognized by the law.”
[17] As explained by Professor Waters at page 796, supra,
If [the testator] uses the phrase “charitable purposes,” all is well because the adjective confines the scope of the intended purposes to what the courts are prepared to accept as charitable. However, he may have used other terms, such as “philanthropic,” “benevolent,” “worthy,” or “public” purposes, and these terms clearly embrace objects which, though no doubt commendable, are not charitable.
[18] In light of the above authorities, I conclude that the gift over to “any and all worthy individuals and or causes” is void for uncertainty.
(ii) Effect of the Gift Over Being Void
[19] The subject matter of the gift over is the residue of the estate. Where a residuary gift fails, an intestacy is created, absent evidence of the testator’s intention to the contrary. The question I must now determine is at what point in time that intestacy occurs: on the death of the testator, or on the death of Paul and the termination of his life interest in the Paul Stoor Trust. In other words, are Lillie’s next of kin to be determined as of the date of her death, or after Paul’s death?
[20] Lillie’s spouse had predeceased her, and Paul is her only child. If an intestacy with respect to the gift over takes effect on the testator’s death, therefore, Paul’s estate is entitled to the residue in accordance with section 47 of the Succession Law Reform Act, R.S.O. 1990, c. S.26. See also Daniels v. Daniels Estate, 1991 6555 (AB CA), 1991 ABCA 288, 85 D.L.R. (4th) 116 (leave to appeal refused, [1992] S.C.C.A. No. 47) at page 121.
[21] The general rule of construction is that gifts to a class, for example next of kin, following a bequest of the same property for life are determined at the date of the testator’s death, and vest immediately upon the death of the testator: National Trust Co. Ltd. v. Fleury et al., 1965 18 (SCC), [1965] S.C.R. 817, at 828, per Rand J., citing Lord Campbell L.C. in Bullock v. Downes (1860), 9 H.L.C. 1.
[22] That rule, like any rule of construction, operates only absent evidence of a contrary intention of the testator. Rand J., writing for the majority of the Supreme Court, explained in Fleury, supra, at 829:
In the construction of wills, the primary purpose is to determine the intention of the testator and it is only when such intention cannot be arrived at with reasonable certainty by giving the natural and ordinary meaning to the words which he has used that resort is to be had to the rules of construction.
[23] In the will before the Supreme Court in Fleury, the testator had directed that, upon the death of his daughter, the remainder of his estate was to be disposed of “to such persons as will be entitled thereto according to the Statute of Distribution in force in the Province of Ontario as if I had died intestate with respect thereto.” The issue was one of interpretation. Rand J. held that the testator’s intent, as demonstrated in the words of the will, was that the next of kin were to be determined as of the date of death of his daughter, the life tenant. Justice Rand looked at the whole scheme of the residuary clause, which gave the daughter a gift of the income of one half of the residue, and after her death gave the remaining capital to the next of kin. Rand J. held that interpreting the gift to those “entitled … as if I had died intestate” as meaning those so entitled on the testator’s own death, rather than on the death of his daughter, would be to attribute to the testator an intention to give his daughter a vested interest in the fund at his death. Such an intention would be contrary to the testator’s clear provision that the fund for his daughter was to be held by his trustees, who had express directions to pay a certain amount from the income each year, and if necessary from the capital, for her support and maintenance. Interpreting the daughter as one of the those entitled to the gift over would “enable her to obtain a substantial part of the fund for her own use absolutely without the exercise of any authority or discretion by the trustees,” and would defeat the carefully drawn provisions setting up the trust for her for life (at page 830).
[24] There is a general presumption that a testator does not intend intestacy when he or she has executed a will. Courts in the past have considered situations in which an intestacy of the residue would result in the beneficiary of the life interest also acquiring a vested interest in that residue. In such a situation, courts have considered the testator’s provision of a life interest as evidence that the testator either did not intend an intestacy, or intended that, should there be an intestacy, the intestacy distribution was to be suspended until the termination of the life interest.
[25] In Re McCallum, 1973 675 (ON SC), [1973] 1 O.R. 867 (H.C.), Donohue J. considered the testator’s provision of a life estate and some specific bequests to his wife as evidence that it was “improbable that he also intended to give her, and even less likely her estate, a further benefit by way of a partial intestacy” (at page 870). The testator had divided the residue of his estate into sixteen parts, but the will disposed of only eight of those parts. Donohue J. found that there was no intestacy of those eight parts of the residue; the testator had intended the residue to go to those named in the proportions specified, but had simply miscounted the shares. Donohue J. placed great weight on the specific bequests and life interest given to the wife, which weighed against an interpretation that he also intended her to obtain a substantial portion of the residue through intestacy.
[26] In the case of Kotula Estate v. Kotula (1995), 7 E.T.R. (2d) 262, Koenigsberg J. of the British Columbia Supreme Court considered a similar situation. The testator, following some specific bequests, left the remainder of his estate in trust for his wife during her lifetime. She was entitled to all of the income from the trust, and the trustees had discretion to encroach upon the capital for her benefit. The testator then provided that the residue of that trust would be divided between his son and daughter, with the son to receive sixty percent and the daughter forty percent. A later codicil, however, revoked all gifts to his daughter, without specifying who was then to receive the forty percent of the residue. The issue before the court was whether there was a partial intestacy with respect to the forty percent, and if so, whether that intestacy was subject to the life estate to the widow, such that the intestacy was postponed until after the termination of the life estate.
[27] Justice Koenigsberg relied upon the analysis of Donohue J. in Re McCallum, supra, and found that a careful reading of the will demonstrated there was no intestacy. There was a clear intention on the part of the testator to have the daughter’s revoked gift of the residue benefit the remaining residual beneficiary (the son). Koenigsberg J. quoted T. G. Feeney, The Canadian Law of Wills, 3rd Ed., Vol. 2, 1987, for the general rule that “a Court will make every effort to reconcile two apparently conflicting provisions of a will, rather than absolutely ignore one or the other of them, or call either or both of them void for uncertainty” (at para. 14). The codicil indicated the testator did not wish his daughter to benefit from the estate. In contrast, as Koenigsberg J. explained at para. 18:
A partial intestacy … would have the effect of providing a substantial portion of the residue of the estate to go outright to the widow – a result inconsistent with the provision of a life interest with power to encroach.
[28] Because counsel for both parties had assumed there was an intestacy with respect to the forty percent of the residue, Koenigsberg J. went on to consider, if there was a partial intestacy, whether that intestacy was postponed until termination of the life estate. She found, at para. 20, that in order to give effect to those parts of the will not affected by the intestacy, the distribution must be postponed until what was to constitute the content of the intestacy could be determined upon termination of the life estate.
[29] Justice Koenigsberg cited the Supreme Court’s decision in Fleury, supra, as authority for giving effect to a testator’s intention and postponing distribution (at para. 24). Residue that passes on intestacy still “bears the impress of residue,” she found (at para. 27). She also found that the argument that the forty percent should be distributed on intestacy immediately failed for two reasons, as follows:
28 … First, at what point does one say a failed gift becomes subject to the statutory regime and thus overrides the intentions of the testator? Before one can say what becomes the subject of the partial intestacy, the provisions of the will must be given effect. Thus, if it is a reasonable construction of the will that, in fact, the 40 percent residue is ‘disposed of’ by the will, then the statutory regime does not come into play.
29 Second, to give effect to this submission in this case would require that the statutory distribution take precedence over and change or rewrite the valid parts of the will. For a statutory provision to so change the common law - i.e. all of the principles with which this decision began - it must clearly say so. S.106 [of the Estate Administration Act, RSBC 1979, c.114, which provided that “All the estate not disposed of shall be distributed as if the Testator had died intestate”] does not, in my view say so at all, much less clearly.
[30] Although the facts in Fleury, Re McCallum, and Kotula are not identical to those before me, the principles they rely on apply equally to this case. The court’s role in interpreting the will is to give effect as much as possible to the intentions of the testator. When a testator makes careful and detailed provision of a discretionary trust for a beneficiary for life, and there is evidence the trustee did not intend the immediate vesting of any of the capital in the beneficiary, any provision for the residue must be interpreted accordingly. When an intestacy does result, contrary to the testator’s efforts to dispose of his or her property, the testator’s intentions remain relevant to the interpretative exercise.
[31] In her will, Lillie made a specific bequest to Paul, of five shares of Part “A” of her estate. That bequest was for his own use absolutely and to take effect immediately (Provision III, clause xviii). In establishing Paul’s rights to a life interest in the property of the Paul Stoor Trust, Lillie was clear that she did not intend for any right to the income or capital of that trust to vest in her son, and that the only interest he was to obtain was in the payments actually made to him. Provision VII, as quoted above, states unequivocally that “the capital of the PAUL STOOR TRUST and the income therefrom shall not vest in my said son, PAUL ERIC STOOR, and the only interest he shall have therein shall be the payments actually made to him or for his benefit therefrom.” The will makes reference repeatedly to the trustees’ “absolute discretion” (Provision VII), their “unfettered and sole discretion” (Provision X), and their “absolute and unfettered discretion” (Provision XI) to manage the property of the Paul Stoor Trust and to provide for Paul. Paul is to have no interest in the trust property except what the trustees in their absolute discretion give him.
[32] There are no words in the will indicating a disposition of the residue of the Paul Stoor Trust in the event that the intended gift over failed. However, the specific wording of Provision XI evinces an intention that the amount of the Paul Stoor Trust residue be determined and distributed following Paul’s death, to those entitled at that time.
[33] Provision XI indicates that upon the “former Family Home becoming vacant upon the death of my said son, PAUL ERIC STOOR, or at any prior time” the trustees “may in their absolute and unfettered discretion” pay the expenses of Paul’s burial and last illness out of the capital of the trust. This wording is not ideal in that the triggering event for the payment of these final expenses is not well stated. This sentence seems to suggest that expenses related to Paul’s death can somehow be paid prior to his death. Further confusion arises when one considers Provisions IX and X, which deal with the trustee’s powers to remove Paul from the family home and sell it before his death. Under these provisions, it is evident that the home may become vacant long before Paul’s death. Nevertheless, the only logical interpretation of Provision XI is that the testator’s intent was for these final burial and illness expenses to be paid following Paul’s death, not at any time prior, given that it is impossible for those expenses to be known in advance. Other provisions in the will also indicate that the purpose of the trust is to provide for Paul for his life. Provision VI directs the trustee to keep the trust property invested “[d]uring the lifetime of my said son”; Provision VII specifies that “the comfort and welfare of my said son is my first consideration.” It would be inconsistent to interpret Provision XI as providing for the life interest to terminate sooner.
[34] On the most straightforward interpretation of Provision XI, then, Paul’s life interest continues until his death, at which point the estate trustee is directed, at his discretion, to pay Paul’s final expenses. Because the trustee has absolute discretion to pay out as much of, or the entirety of, the capital to Paul at any time, a situation could arise in which the trustee exhausts the trust in caring for Paul’s needs while alive, and cannot cover his burial or final illness expenses. Nevertheless, in exercising his duties and giving effect to the testator’s wishes to the extent possible, the trustee is to keep in mind the testator’s desire that the trust pay those final expenses, and, if possible, budget accordingly.
[35] Upon payment of the burial and final illness expenses, the testator then directs that the remainder of the Paul Stoor Trust be divided as follows: first, all trust expenses are to be paid; then, the remnants are to be distributed to worthy individuals or causes as the trustees consider advisable. It is this final provision of Provision XI that is void for uncertainty.
[36] Based on the wording of the will and the evidence provided in the will and in the account of Mr. Braithwaite that Lillie intended a Henson trust, the sole purpose of the gift over provision was evidently to prevent the vesting of any property in Paul in his lifetime. Lillie did not want her son to have unfettered access to the trust income or capital. The absence of clear direction regarding the gift over, which is left almost entirely to the discretion of the estate trustee, further supports such a reading. Lillie was not concerned with what should be done with the residue of the Paul Stoor Trust, if in fact any capital remained at the end of Paul’s life. Unfortunately, her lack of direction with respect to the gift over is also the cause of its failure for lack of certainty of objects.
[37] It is the court’s task to give effect to the testator’s intentions, as expressed in the will, to the extent possible. The entirety of the will, considered as a whole, demonstrates that it was never Lille’s intention that Paul obtain any part of the Paul Stoor Trust without the exercise of the discretion of the estate trustee. Nor was it her intention that his estate should obtain any entitlement to the trust property. The will, read in its entirety, manifests an intention on the part of the testator that the gift over not operate until after Paul’s death. Provision XI, despite its occasionally convoluted wording, makes it clear that the residue of the Paul Stoor Trust is not to be determined until Paul’s final expenses are paid. It is only at that point that the residue is to be divided into: (1) the portion necessary to satisfy the trust’s own expenses, and (2) the ultimate residue, to be distributed to “worthy individuals and or causes.”
[38] In summary, I find that it was Lillie’s intention that the amount of and entitlement to the gift over not be determined until after Paul’s death. Given the absolute discretion of the estate trustee, and the primary purpose of the trust fund as to benefit Paul, it is quite likely that no trust property, or almost none, will remain after Paul’s final expenses are paid. Only if property remains is there to be a gift over.
[39] I find, therefore, that, to the extent the testator could have foreseen an intestacy, it was Lillie’s intention that any intestacy with respect to the gift over would not operate until the termination of the Paul Stoor Trust on Paul’s death and the payment of his final expenses. Lillie’s next of kin, entitled to the residue on intestacy, are to be determined after Paul’s death. A contrary reading, which entitles Paul’s estate to the residue of the Paul Stoor trust on intestacy, would conflict with the operation of the Paul Stoor Trust itself.
[40] In the event that I have erred, and Paul’s estate would be entitled to the gift over on intestacy, I will proceed to consider the next issue, which is the termination of the trust under the rule in Saunders v. Vautier.
(iii) Termination of the Trust under the Rule in Saunders v. Vautier
[41] Under the terms of the Paul Stoor Trust, Paul is entitled during his lifetime to payments of the income and capital as the estate trustee deems advisable. If I were to find that the void gift over passes to Paul on intestacy, Paul would then be entitled to any residue of that trust.
[42] Professor Waters clarified the rule that would apply as follows, at page 1235, supra:
It is a simple, almost pragmatic conclusion that, if one person has all the rights of enjoyment in the trust property, and he is of age and capacitated, he should be able to say what he wants done with the property over which he alone has and will have, rights of enjoyment. The intention of the settlor, who after all had alienated the property by way of trust, thus gives way to the wishes of the “owner” of all the rights of enjoyment of the property.
[43] In the recent case of Buschau v. Rogers Communication Inc., 2006 SCC 28, [2006] 1 S.C.R. 973, at para. 21, the Supreme Court summarized the common law rule in Saunders v. Vautier, as follows:
The common law rule in Saunders v. Vautier can be concisely stated as allowing beneficiaries of a trust to depart from the settlor’s original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property.
In such a situation, the trust can be modified or extinguished by the beneficiary or beneficiaries, regardless of the wishes of the settlor or the trustee.
[44] The Supreme Court went on to explain the reasoning behind the rule (at para. 21):
[T]he rule was developed in the 19th century and originated as an implicit understanding of Chancery judges that the significance of property lay in the right of enjoyment. The idea was that, since the beneficiaries of a trust would eventually receive the property, they should decide how they intended to enjoy it.
[45] The two essential requirements for the termination of a trust under Saunders v. Vautier are stated more explicitly by Professor Waters, at page 1239, supra:
[F]irst, that the beneficiary, or all beneficiaries … are fully capacitated, in the sense of being adult and of sound mind; second, that the person or persons seeking to terminate the trust do indeed represent the full beneficial interests, actual and possible, in the trust property.
(a) Requirement of the full beneficial interest
[46] I turn first to the second requirement, of the full beneficial interest. Paul is the beneficiary during his lifetime of the income and capital of the Paul Stoor Trust, which is a discretionary trust. If the residue of the Paul Stoor Trust passes to Paul’s estate on intestacy, he would also be the beneficiary of any residue of the trust by operation of the laws of intestacy. Accordingly, as Paul argues in his application, he would be the only person actually and possibly entitled to the Paul Stoor Trust property, and he would represent the full beneficial interest in it.
[47] At this point it is useful to consider the origin of the rule in Saunders v. Vautier, and its subsequent applications. As Professor Waters indicates at page 1235, supra, the rule and the actual decision in Saunders v. Vautier differ in scope:
The rule is broader than the decision, and consequently the rule has been expressed both in a narrow and in a broader form. The narrow statement of the rule is this: where there is an absolute vested gift made payable at a future event, with a direction to accumulate income in the meantime and pay it with the principal, the court will not enforce the trust for accumulation, in which no person has any interest but the legatee.
[48] The rule has been extended in a variety of situations that correspond to the broader principles set out above. For example, the principle “has been extended to trusts for more than one beneficiary, whether entitled successively or concurrently, or both, so long as together all beneficiaries account for the full beneficial interest”: see Eileen E. Gillese, The Law of Trusts, Third Edition (Toronto: Irwin Law, 2014) at page 85. If there is a life interest to A with the remainder to B, A and B can together call for the termination of the trust (provided they are both of capacity). The rule can also apply in the case of discretionary trusts, provided the trustees do not have it within their power to withhold part of the trust property from the class of beneficiaries (Waters at page 1247, supra).
[49] The rule has even been applied to a situation in which the beneficiary has a life interest with a general power of appointment over the residue, by deed or by will, with a gift over in failure of appointment. The beneficiary can then exercise that power of appointment in favour of herself, and thereby become owner of the entirety of the beneficial interest. See, for example, Robinson v. Royal Trust Co., 1938 25 (SCC), [1939] S.C.R. 75; Re Johnston (1964), 1964 567 (BC SC), 48 D.L.R. (2d) 573 (B.C.S.C.); and Re Jones, 1949 339 (MB CA), [1949] 3 D.L.R. 604 (Man. C.A.). This application of the Saunders v. Vautier rule is sometimes referred to as the rule in Barford v. Street (1809), 16 Ves. 135, after the case in which it was first applied (see Re Jones at para. 30). This application was recently upheld by this court in the case of Guest v. Guest Estate, 2013 ONSC 7781 (see paras. 33-34), in which the beneficiary of the life interest had a power to appoint the remainder by will, and executed a will appointing herself.
[50] The application of the rule in Saunders v. Vautier has been wide, but not unlimited. For example, in Rogers Communications, supra, the majority of the Supreme Court held that in the context of a statutorily regulated pension plan, the rule in Saunders v. Vautier had no application (at para. 33).
[51] Counsel have not referred me to any case, nor have I been able to find one, in which the rule in Saunders v. Vautier was held to apply in a situation like that at issue here, that is, where there is an absolute discretionary trust over the income and capital to a beneficiary for life, with a gift over of the remainder. That gift over is clearly intended to support the testator’s intent to prevent the interest in the income and capital from vesting in the beneficiary. However, as a result of the failure of the gift over of the residue, the beneficiary applies to have the intestacy determined immediately, before the expiration of the life interest, thereby making him the sole potential beneficiary of any trust property.
[52] Even if I were convinced that the intestacy of the residue should take effect immediately, such that Paul is the next of kin entitled, as per section 47 of the Succession Law Reform Act, to the residue, I am not convinced, in light of all the circumstances of this case, that this is an appropriate situation in which to extend the application of the rule in Saunders v. Vautier.
(b) Requirement of capacity
[53] The more contentious issue between the parties in this case relates to the first requirement under Saunders v. Vautier, that the beneficiary be an adult of full legal capacity.
[54] Under s. 2 of the Substitute Decisions Act, there is a general presumption of capacity. As a general principle, where capacity is in doubt or challenged, the moving party bears the onus of establishing that a party is a person under a disability: 626381 Ontario Ltd. v. Kagan, Shastri, Barristers & Solicitors, 2013 ONSC 4114, 116 O.R. (3d) 202, at para. 23.
[55] While the rule in Saunders v. Vautier requires a beneficiary to be of full legal capacity, this does not dispel the general presumption of capacity. A beneficiary seeking to collapse a trust is not required in each and every case to first prove capacity. Indeed, the requirement of capacity under the rule in Saunders v. Vautier is often recited merely as a matter of course, and is rarely the subject of any extended examination.
[56] In this case, the estate trustee has questioned Paul’s capacity to manage his property, and filed evidence that Paul has been known to make what are, in the eyes of the estate trustee and members of Paul’s family, unfortunate financial decisions. However, as stated by this court in C.C. v. Children’s Aid Society of Toronto, [2007] O.J. No. 5613, at para. 39:
[W]hat is in one’s best interests must not be confused with one’s cognitive capacity. It is mental capacity and not wisdom that is the subject of the Substitute Decisions Act, 1992, supra. It is immaterial whether one’s words, deeds and choices appear reasonable to others. Reasonableness in the eyes of others is not the test.
See also Kagan, supra, at para. 24.
[57] Paul is 59 years old. He is a college graduate. He has lived on his own and has managed his own affairs to date. He has held down two short jobs in the computer industry and was dismissed from both of them.
[58] It may indeed be more prudent for Paul to have the assistance of an expert in managing his finances. While one may wish that Paul obtain professional advice to assist him in making financial decisions, this is an entirely separate issue from that of Paul’s capacity to make decisions and his entitlement to terminate the trust. Further, it is not a requirement that the court is capable of imposing: see Hubbard v. Hubbard, 2005 20811 (ON SC), [2005] O.J. No. 2405 (S.C.) at para. 32.
[59] I find that, on the evidence he has submitted, the respondent has not succeeded in demonstrating on a balance of probabilities that Paul lacks capacity to manage his property.
[60] Despite my finding that the applicant is not entitled to collapse the trust under the rule in Saunders v. Vautier, I will now address the respondent’s request that I order a capacity assessment. The request raises significant issues relating to the law of capacity, the court’s jurisdiction, and the rules of procedure.
(iv) Capacity Assessment
[61] Although there is presently insufficient evidence before the court to rebut the presumption that Paul is capable, should I nevertheless order an assessment of Paul, for the purpose of potentially uncovering evidence that would assist the estate trustee in challenging Paul’s capacity?
[62] This court has acknowledged that the appointment of an assessor to conduct a psychiatric examination “is a substantial intervention into the privacy and security of the individual”: see Abrams v. Abrams, [2008] O.J. No. 5207 (S.C.), at para. 50.
[63] In his factum, the estate trustee asks this court to order an assessment of Paul’s “capacity to look after the assets of the Estate.” The respondent seeks an assessment not under the SDA but under s. 105 of the CJA. The respondent submits that the court has jurisdiction to order an assessment under s. 105(2) of the CJA. Section 105(2) provides as follows:
Where the physical or mental condition of a party to a proceeding is in question, the court, on motion, may order the party to undergo a physical or mental examination by one or more health practitioners.
[64] Where the examination is sought by another party, s. 105(3) specifies that the court shall not order an examination unless the allegation regarding the party’s physical and mental condition is “relevant to a material issue in the proceeding and there is good reason to believe that there is substance to the allegation.” The respondent submits that capacity has been put in issue by the nature of the Saunders v. Vautier requirement that the beneficiary seeking to collapse the trust be of full legal capacity.
[65] The court’s jurisdiction to order an assessment under s. 79 of the SDA is clearly set out in s. 79(1). In Neill v. Pellolio, 2001 6452 (ON CA), [2001] O.J. No. 4639 (C.A.), at para. 14-18, the Court of Appeal confirmed that the court may only have recourse to s. 79 in the context of a SDA proceeding. The purpose of the SDA is to protect the vulnerable: see Abrams, supra, at para. 47. The various types of proceedings possible under the SDA include proceedings to appoint a guardian of property or of personal care, to review a finding of incapacity, or to terminate or vary a guardianship. The estate trustee has not commenced any of these proceedings. Whatever concerns he may have regarding Paul’s ability to manage the property that is the subject of the Paul Stoor Trust have not prompted him to commence proceedings to have a guardian of property appointed for Paul.
[66] The CJA contains a more general provision allowing the court to order a “physical or mental examination.” The Ontario Divisional Court held in LaForme v. Paul Revere Life Insurance Co. (2006), 2006 81803 (ON SCDC), 84 O.R. (3d) 634, that s. 105 serves to “level the playing field” between the plaintiff and the defendant and promotes fairness in litigation (at para. 14). Section 105 is commonly invoked by an adverse party seeking a medical examination and report under Rule 33. In Tsegay v. Maguire (2000), 2000 50968 (ON SC), 1 C.P.C. (5th) 311 (Ont. S.C.), Gillese J. (as she then was) described the purpose of s. 105 of the CJA and Rule 33 as to ensure “that if a party puts his or her medical condition in issue in a civil proceeding, the opposing party can test that allegation under fair conditions” (at para. 4).
[67] Courts have also ordered a mental examination under s. 105 of the CJA for the purposes of determining whether a party is a person under a disability for whom a litigation guardian is required pursuant to rule 7.01(1) of the Rules of Civil Procedure. See Kagan, supra, at para. 41 and Rishi v. Kakoutis, 2011 ONSC 7184, at para. 5. Rule 1.03(1) defines “disability,” where used in respect of a person, as a person who is:
a) a minor,
b) mentally incapable within the meaning of section 6 [incapacity to manage property] or 45 [incapacity for personal care] of the Substitute Decisions Act, 1992 in respect of an issue in the proceeding, whether the person has a guardian or not, or
c) an absentee within the meaning of the Absentees Act.
[68] The SDA represents a different legislative regime from that of the CJA and the Rules, and serves a different purpose. The focus of the SDA is on the protection of the individual. “The interests that [SDA] proceedings seek to balance are not the interest[s] of litigants, but the interests of the person alleged to be incapable as against the interest and duty of the state to protect the vulnerable”: Abrams, supra, at para. 48. The focus of the Rules and of the CJA, in contrast, is the fairness and integrity of the court process and the interests of the litigants as against one another.
[69] As already indicated, this court lacks jurisdiction to order an assessment under the SDA, given that no proceeding has been commenced under that Act. Further, there must be evidence before the court to satisfy it that there are reasonable grounds to believe that Paul is incapable. That condition is also absent.
[70] In my view, it is not appropriate in these circumstances for the court to proceed under s. 105 of the CJA to order a mental examination of Paul, against his will. The concerns that s. 105 seeks to address, such as levelling the playing field between opposing litigants, should not be at issue in a proceeding of this nature (see Abrams at para. 59). There have also been no concerns raised that Paul is a party under a disability, and therefore in need of a litigation guardian. To order an evaluation would unduly violate Paul’s autonomy.
[71] Even if I were of the opinion that it might be appropriate to order an assessment under s. 105 of the CJA, where a party’s mental or physical condition is first raised by another party there must be evidence before the court to satisfy it that there is “good reason to believe that there is substance to the allegation” questioning the party’s physical or mental condition. That condition has not been met.
[72] If the respondent is concerned that Paul is incapable of managing his property, he has the option of proceeding with an application under the SDA and submitting to the court adequate evidence to support his position that the applicant is incapable of managing property and requires a guardian of property. He may also apply to the court for an order for an assessment, and the judge may decide whether a capacity assessment should be ordered in the circumstances.
Decision
[73] In conclusion, the gift over of the residue of the Paul Stoor Trust to “any and all worthy individuals,” as contained in the will of Lillie Muriel Stoor, is void for uncertainty. The intestacy that results will take effect after the termination of the applicant’s life interest in the Paul Stoor Trust. After Paul’s death and the payment of his final expenses, any residue of the Paul Stoor Trust will pass to Lillie’s next of kin entitled at that time, in accordance with section 47 of the Succession Law Reform Act.
[74] If I have erred in this conclusion, and those entitled to the residue on intestacy are to be determined as of the date of Lillie’s death, such that Paul’s estate will be entitled to the residue, I nevertheless find that Paul has not succeeded in establishing that this a situation in which the rule in Saunders v. Vautier applies to enable him to collapse the trust.
[75] Finally, for the reasons outlined, I decline to order an assessment of Paul’s capacity under s. 105 of the CJA.
[76] If the parties are unable to agree on the issue of costs, they may file brief written submissions according to the following timetable: the respondent within 30 days of this decision, and the applicant within 15 days of receipt of the respondent’s submissions.
Himel J.
Released: November 3, 2014
COURT FILE NO.: 05-64/14
DATE: 20141003
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Paul Stoor
Applicant
– and –
James Morris Dickson (Estate Trustee of the Estate of Lillie Muriel Stoor)
Respondent
REASONS FOR JUDGMENT
Himel J.
Released: November 3, 2014