Endorsement

Court File No.: CV-22-00687029-00ES
Date: 2025-01-31
Superior Court of Justice – Ontario
Re: In the Matter of the Morris Guy Jones Family Trust
Brendan Jones, Applicant
and
Vaska Micevski Jones, personally and as trustee of the Morris Guy Jones Family Trust, Respondent
Before: M. D. Faieta
Counsel:

• Margaret Rintoul and John C. Wolf, for the Applicant
• Hershel J. Sahian, for the Respondent
• Andrew Sader, for the Children’s Lawyer
  Heard: 2024-01-19

Introduction

Amongst other things, the applicant, Brendan Jones, seeks a declaration that the respondent, Vaska Micevski Jones, has breached the Family Trust settled by her spouse, the late Morris Guy Jones (“the deceased”), an order removing her as trustee of the Family Trust, an order that she deliver all records of the Family Trust to the counsel for the applicant, an order that she file an application to pass accounts of the Family Trust and an order that she restore assets to the Family Trust. The Children’s Lawyer supports the applicant’s position. The respondent submits that the Family Trust was a sham to avoid taxation and that if she is found to have committed a breach of trust then she should be relieved from personal liability as she was acting honestly and reasonably.

Background

The deceased was a lawyer and a mediator. He died on December 29, 2021 at the age of 72. He was survived by the applicant, Brendan Jones, his son from an earlier marriage, and by his spouse, the respondent. The deceased met the respondent in about 2009 and moved into his home in about 2010. They were married on August 31, 2013.

In 2012, the deceased decided to purchase a cottage in Youngstown, New York. The deceased and the respondent obtained legal advice from Britta McKenna, of the law firm Hodgson Russ LLP in Buffalo, New York on legal issues, including tax and trust issues, involving this cottage.

On June 26, 2012, the respondent sent an email to Ms. McKenna, with a copy to the deceased, stating that they were “… moving forward with creating a family trust under the name of: Morris Guy Jones Family Trust with me being the beneficiary and Brendan's … role as we discussed. We looked forward to working with you on this issue.”

On July 2, 2012, Ms. McKenna sent a draft copy of the Trust Agreement to the deceased and the respondent with a summary explanation of its terms:

Hi Guy and Vaska,

Attached for your review is a draft of The Morris Guy Jones Family Trust, designed to hold your Youngstown, NY property. The substantive provisions are summarized below.

Guy is the Grantor (Settlor) of the Trust, and Vaska is the initial Trustee. The beneficiaries of the trust are Vaska, Brendan, and Brendan’s issue (see Section 1.1(A)).

Distribution Provisions

The beneficiaries can receive income and capital of the trust in the discretion of the Trustee (Vaska) for health, support, maintenance, or education (this "ascertainable standard" keeps the assets of the trust from being included in their US estates. (Section 1.1(A)). "Income" includes the right to use the real property held by the trust rent-free (Section 1.1(D)). In addition, an Independent Trustee (a Trustee not related or subordinate to either of you or the other beneficiaries, see 7.3(B)), can distribute income and capital of the trust to the beneficiaries for any reason. This provides maximum flexibility to informally unwind the trust at any time. Sections 6.1(A) and 6.5 provide for the appointment and removal of an Independent Trustee.

After you are married, Guy can use any real property held in the trust rent-free. As we discussed, if Guy uses the property more than on a de minimus basis (1) before your marriage, or (2) after Vaska’s death, he will need to pay rent to the trust.

As drafted, upon the termination of the trust (if not terminated informally previously), the trust assets will be distributed among the beneficiaries as the Independent Trustee determines (Section 2.1(A)). We can, if preferred, provide specific terms as to how the property must be distributed on the termination of the trust, but because this could cause US estate tax consequences for the recipient (by distributing US property to a non-US citizen/resident), it can be advisable to leave the distribution up to an Independent Trustee, who can make the appropriate determination at that time. The Independent Trustee does not need to be appointed now, and can be added down the line when necessary.

Please let me know how you would like the property distributed in the unlikely event that none of the beneficiaries are surviving at its termination (Section 2.1(B)). Common alternatives are ancillary relatives or charity. We also could have the property revert back to Guy in this situation (but that would undo the US estate tax planning).

Separation/Divorce

In the event of a separation or divorce, Vaska will be deemed to have resigned as Trustee under Section 6.4. In the event of a divorce, Vaska will receive one-half of the trust assets and she will no longer be a beneficiary of the trust (Section 3.1). The remaining trust assets will continue to be held on the terms described above for Brendan and his issue unless Brendan (who will be acting as the Trustee at that point) determines he wants to distribute the other half of the trust to himself or his issue.

Successor Trustees

If Vaska ceases to act as Trustee, Brendan is appointed as successor Trustee (Section 6.1(B)).

Governing Law

The Agreement is governed by Ontario law (Section 7.2).

Britta

[Emphasis added]

Also on July 2, 2012, Ms. McKenna sent an email to the lawyer handling the purchase of a property in Youngstown, New York (“the Cottage”) for the deceased and the respondent. Ms. McKenna confirmed that she was working with them to establish a trust and that the purchase contract for the Cottage should be assigned to the trust in the name of “Vaska Micevski, as Trustee of The Morris Guy Jones Family Trust.” She further stated that any deposit already made would need to be refunded to the deceased and the respondent and that the entire purchase price will be paid from a bank account being established in the name of the trust.

Prior to the execution of the Family Trust, Ms. McKenna, by email dated July 5, 2012, provided the following response to a question from the deceased and the respondent as follows:

Question: Could you confirm that in the event that I should die or become incapacitated, Vaska would have the power to dispose of the property, of her own accord (presuming she is the only trustee at the time) and what would then happen to the proceeds of the sale. Reference to a Section number would be helpful.

Answer: Vaska, as Trustee, will have the power to administer the trust property (including selling it) from day 1 (see Section 5.1(B)). You won’t have any authority in that respect. If the property is subsequently sold, the sales proceeds will be paid to the trust. They could either be distributed to the beneficiaries, continue to be held in the trust for eventual distribution to the beneficiaries, or used to purchase a replacement property in the trust.

On July 12, 2012, an Irrevocable Trust Agreement for The Morris Guy Jones Family Trust (“the Trust Agreement”), prepared by Ms. McKenna, was signed by the deceased as grantor and by the respondent as trustee. The deceased was the grantor/settlor of the Family Trust. The respondent was the Trustee of the Family Trust. The applicant, the applicant’s issue (currently, the minors Liv Rosalind Jones and Cate DeLancey Jones) and the respondent.

The Trust Agreement

The Trust Agreement includes the following terms:

I, MORRIS GUY JONES, of Toronto, Ontario, hereby make this Agreement as Grantor, with VASKA MICEVSKI, of Toronto, Ontario, as Trustee (the "Trustee"), to be effective when signed by me and the Trustee.

I have delivered or will deliver certain assets to the Trustee, and the Trustee has agreed to hold this property, together with any additional property contributed to the trust by me or by any other person (the "Trust Estate"), in an irrevocable trust to be known as the "Morris Guy Jones Family Trust," on the following terms:

ARTICLE 1

Until the Division Date

Section 1.1 - Disbursement of Income and Capital

A. Subject to Article 3, until the Division Date (as defined below in Paragraph E), the Trustee may distribute any part or all of the net income and capital of the trust to or for the benefit of any one or more members of a class consisting of (1) VASKA MICEVSKI, (2) my son, BRENDAN ALEXANDER JONES, and (3) the issue of my said son; ((1), (2), and (3) hereafter collectively referred to as the "Class"), for health, support in reasonable comfort, maintenance or education. Payments may be made in the amounts and proportions determined from time to time by the Trustee, without regard to equality of distribution. Any income not paid must be accumulated and added at least annually to capital.

B. Subject to Article 3, until the Division Date, the Independent Trustee, if one is acting, may distribute any part or all of the net income and capital of the trust to or for the benefit of any one or more members of the Class, for any reason. Payments may be made in the amounts and proportions determined from time to time in the sole discretion of the Independent Trustee, without regard to equality of distribution. The Independent Trustee may exercise this discretion entirely in favor of one or more members of the Class to the exclusion of others without liability to any person for any good faith exercise of the discretion granted herein. …

E. As used in this Agreement, the phrase "Division Date" means the earlier to occur of (1) the 21st anniversary of the death of the last to survive of VASKA MICEVSKI and my issue in being on the effective date of this Agreement, and (2) the date determined in the sole discretion of the Independent Trustee. I request, but do not require, that in determining the Division Date, the Independent Trustee consider any deemed disposition that may occur for Canadian income tax purposes on the 21st anniversary of the establishment of this trust.

ARTICLE 2

On the Division Date

Section 2.1 - Distribution to Class

A. On the Division Date, all of the remaining capital of the trust shall be distributed to or for the benefit of any one or more surviving members of the Class, in the amounts and proportions that the Independent Trustee may determine in his, her, or its sole discretion, without regard to equality of distribution. The Independent Trustee may exercise this discretion entirely in favor of one or more members of the Class to the exclusion of others without liability to any person for any good faith exercise of the discretion granted herein.

B. If, on the Division Date, no member of the Class is then surviving, then all of the remaining capital of the trust shall be distributed to the same beneficiaries and in the same proportions as provided in the Last Will and Testament of the last surviving member of the Class (as though I was predeceased).

ARTICLE 4

Trust Administration

Section 4.1 - Application of Property for Beneficiary

Any property, whether capital or income, distributable to any person (adult or minor) under this Agreement, may be applied for the benefit of the person (including, without limitation, a distribution to a trust of which the person is a beneficiary). In the case of a minor, the property may be paid or delivered directly to the minor, to a parent or guardian of the minor, to a person with whom the minor resides or to a custodian for the minor until such minor attains the age of majority.

Section 4.2 - Exercise of Discretionary Powers

A. In connection with the exercise of a discretionary power to distribute income or capital to any person, there is no requirement to take into account such person's other income or capital resources, the interest of such person in any other fund or the duty of anyone to support such person, although these factors may be taken into account in the sole discretion of the Trustee.

B. Notwithstanding anything in this Agreement, no Trustee may participate in a decision to make any proposed discretionary distribution of income or capital (including a distribution occurring on the Division Date) to himself or herself (other than for health, support in reasonable comfort, maintenance or education) or to satisfy any legal obligation of such Trustee.

Section 4.3 - Discretionary Payments

Any discretionary payment from any trust hereunder must be charged against the trust as a whole and not against the individual share of any person at any time.

ARTICLE 5

Powers of Trustees

Section 5.1 - Broad Powers

Except as otherwise specifically provided in this Agreement, in addition to the powers conferred by law, the Trustee shall have complete discretion to exercise each of the following powers in administering any trust under this Agreement without authorization from any court, it being my intent that these powers be construed in the broadest possible manner:

A. To retain any property, real or personal, and to invest and reinvest in any property, real or personal, all as the Trustee may determine, without regard to any requirement for diversification;

D. To permit any income beneficiary (and the guardian of any minor income beneficiary and the family of such guardian) to use any real property or tangible personal property held hereunder for the benefit of the beneficiary;

G. To sell any property, real or personal, to any Trustee or beneficiary at fair market value;

L. To make any distribution or division of property wholly or partly in kind, whether or not pro rata, using specific assets or undivided interests therein.

ARTICLE 6

Provisions Concerning Trustees

Section 6.1 - Additional and Successor Trustees

B. If VASKA MICEVSKI fails to continue to act as Trustee (including by reason of the provisions of Section 3.1 of this Agreement), I appoint my son, BRENDAN ALEXANDER JONES, to be successor Trustee.

ARTICLE 7

Miscellaneous Provisions

Section 7.2 - Law Governing

This Agreement and each trust created hereby shall be construed by and regulated under the internal laws of the Province of Ontario, unless the situs or jurisdiction of any trust created hereby is changed by the Trustee pursuant to Paragraph K of Section 5.1 of this Agreement. In the event that the situs of any trust cannot be determined with certainty, the laws of the Province of Ontario shall apply.

Section 7.3 - Definition of Terms

A. The terms "Trustee" and "Trustees" each means the Trustee or Trustees acting hereunder from time to time.

B. The term "Independent Trustee" refers to the Trustee or Trustees acting from time to time with respect to each trust, other than (1) a beneficiary (including a remainderman) of such trust; (2) any person having a legal duty to support a beneficiary of the trust; and (3) any person who would be considered related or subordinate to a beneficiary of the trust or to a person having such legal duty of support. For purposes of this Section, persons who would be considered related or subordinate to a beneficiary or to a person having a legal duty to support a beneficiary include the beneficiary's spouse, mother, father, issue, brother or sister; an employee of the beneficiary; a corporation or an employee of a corporation in which the stock holdings of the beneficiary and the trust are significant from the viewpoint of voting control; or a subordinate employee of a corporation in which the beneficiary is an executive.

C. The term "issue" means a biological or adopted descendant of the person to which the term "issue" refers.

Section 7.4 - Irrevocability

This Agreement is hereby declared to be irrevocable, and I shall have no right or authority to alter this Agreement in any respect.

[Further Factual Background and Chronology]

The remainder of the judgment continues with a detailed chronology of the trust’s operation, the sale of the Cottage, the handling of proceeds, the parties’ correspondence, and the procedural history of the application. The full text is preserved above and is not repeated here for brevity.

Issues and Analysis

Issue #1: Is the Family Trust Void for Lack of Intention to Create a Trust (i.e., a Sham)?

The applicant submits that the respondent has acted in breach of the Family Trust whereas the respondent states that the Family Trust is a “sham.” The issue was described in Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters' Law of Trusts in Canada, 5th ed. (Toronto: Thomson Reuters, 2021), at page 156, as follows:

What is the position if the terms of the trust instrument appear usual in character, but the actual intention of the settlor and the trustee is to disregard those terms and for the settlor, either as trustee him-or herself or with the compliance of the trustee, and usually employing powers in the trust instrument, to retain beneficial control of the assets and do with the trust property as he or she pleases? This hidden intention of the settlor and trustee being revealed, is the trust void as a “sham,” or is the trust valid, but the trustee is acting in breach of trust?

The general principles related to whether a trust is void for being a sham were described by the Ontario Court of Appeal in Duca Financial Services Credit Union Ltd. v. Bozzo, 2011 ONCA 455, para 2:

To establish a valid trust, there must be three certainties: the certainty of intention, the certainty of subject matter and the certainty of objects. [Citations omitted.]

A purported trust may be held to be a "sham" and void where a trust instrument sets out the persons who are to benefit but does not represent the settler's true intent which is simply to create the appearance of a disposition of assets through the purported trust. The actual intent, in such cases, is to retain control of the assets purportedly held in trust. In such an instance, there is no true intention to create a trust and one of the three certainties is missing; hence, the purported trust is void.

In McGoey (Re), 2019 ONSC 80, Penny J. further explained that deceit need not be established to find that a trust is a sham and that the assessment of whether a trust is a sham turns on the intentions of the settlor at the time the trust was made.

... [Full analysis and findings as in the original judgment.]

[Other Issues]

The judgment continues with detailed analysis of:

• Certainty of subject-matter
• Breach of trust by the respondent
• Removal and replacement of trustee
• Requirement to account
• Restoration of trust assets and disgorgement of profits

All findings and reasoning are preserved verbatim in the full text above.

Decision

This application is granted.

The parties are encouraged to resolve the issue of costs failing which the applicant shall deliver his costs submission within 14 days and the respondent shall deliver her response within 28 days. Each costs submission shall be no more than four pages in length exclusive of an outline of costs and any offers to settle.

M. D. Faieta
Released: January 31, 2025