Saskatchewan Estate Litigation Update: Armstrong v Lee Grant, 2023 SKKB 111

Factual background:

1. The application was brought by Ms. Lisa Armstrong (“Lisa”) to seek an order removing the respondent, Ms. Cheryl Lee Grant (“Cheryl”) as a trustee of the trusts created by the Last Will and Testament of her husband, the late Brent Patrick Gibson (“Deceased”).
2. As well, Lisa sought orders:

1. Vesting all of the property held by the Lisa Trust in Lisa absolutely;
2. Collapsing the trust and vesting its’ capital in her absolutely in accordance with the rule in Saunders v Vautier(1841), 41 ER 482;
3. Finally, in the alternative, Lisa asks for relief under TheDependants’ Relief Act, 1996, SS 1996, c D-25.01 (“DRA”), and particularly to have title in the family home given over to her absolutely.

3. The Deceased’s Will had created two trusts:

1. One was for Lisa (“Lisa Trust”);
2. One was for Emma (“Emma Trust”).

4. The Deceased designated in his Will that the trustees would be both Lisa, and his father, Mr. Brian Wayne Gibson (“Brian”). Should either of these individuals be unable or unwilling to act, then the Deceased designated his sister Cheryl to be the alternate trustee.
5. There was tension between Brian and Lisa, in relation to the administration of the Lisa Trust. Thus, in 2019, Brian resigned as trustee, and Cheryl took over as the second trustee. Lisa remained as a trustee.
6. Lisa brought this application with the object of obtaining the capital currently held by the Lisa Trust.
7. Since approximately 2008, Lisa had been unable to work due to her MS. She has been on disability from her employment with the Government of Saskatchewan.

Terms of the Lisa Trust:

8. The material terms of the Lisa Trust included the below:

1. During the lifetime of Lisa, the trustees shall pay to Lisa such portion of the net income derived from the assets held in the Lisa Trust, and may pay amounts of capital. Such payments shall be made in the absolute discretion of the trustees, as considered appropriate for Lisa’s support and benefit;
2. Any income not paid out or distributed by the Trustees shall be accumulated and added to the capital of the Lisa Trust.
3. Upon the death of Lisa, the remaining income and capital, if any, held in the Lisa Trust shall be paid or transferred to the Emma Trust.

9. The Emma trust provided, among other things, that on the twenty-first anniversary of Brent’s death, the trustees would pay and transfer the remainder of the Emma trust, to Emma for her own use.

Issues:

The below issues were before the Court:

1. Should Cheryl be removed as a co-trustee of the Lisa Trust?
2. Can Lisa trigger the application of the rule in Saunders v Vautier, and collapse the Lisa Trust?
3. Can Lisa obtain relief under The Dependants’ Relief Act, 1996, SS 1996, c D-25.01

Decision of the Court of King’s Bench:

1. Issue 1: Should Cheryl be removed as a co-trustee of the Lisa Trust?

The Court held that a trustee should not be removed and replaced unless it is demonstrated that such a drastic step is in the best interests of the trust and its beneficiaries.

The Court ultimately declined to remove Cheryl as trustee. It offered the below reasons:

1. Lisa had argued that Lisa and Cheryl were deadlocked. However, the Court did not conclude that Cheryl was ignoring the terms of the Will or refusing to fulfil her obligations as trustee. The affidavit evidence disclosed that Cheryl had ensured that Lisa receives monthly payments of $2,000 from the Lisa Trust, and $2,000 from the Emma Trust. These are net payments with the trusts paying all taxes owed by Lisa to the Canada Revenue Agency. As well, Cheryl had agreed to Lisa’s reasonable request for a lump sum payment of $150,000 for renovations to the family home.

   The Court concluded that when creating the Lisa Trust and the Emma Trust, Brent deliberately created a balance of power between the two trustees. To remove Cheryl because she disagrees with Lisa respecting transferring legal title to the family home to Lisa would, in my opinion, disrespect Brent’s wishes and disrupt the power balance he wanted. 

2. The Court did not conclude that Cheryl had failed to act in the best interests of Lisa. The Court noted that the language of the trust provided that the trustees had a broad discretion to decide when, if at all, to encroach upon the capital. Here, the evidence discloses that monthly payments from the trust continued to be paid to Lisa – $2,000 from the Lisa Trust, and $2,000 from the Emma Trust. There was no evidence, for example, which suggests that Lisa’s medical bills, equipment and other personal requirements remain unsatisfied.

2. Issue 2: Can Lisa trigger the application of the rule in Saunders v Vautier?

Next, Lisa alternatively invoked the rule in Saunders v Vautierand asserts that as the sole beneficiary of the Lisa Trust the rule permits the Lisa Trust to be collapsed and the property given over to Lisa.

The rule in Saunders provides that if a trust beneficiary has an absolute indefeasible interest in trust property, the trust beneficiary is not bound to wait until the expiration of any future period, but may require payment of the trust property, the moment they become a capacitated adult.

Put simply, the common law rule in Saunders v. Vautier allows 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.

Here, however, the Court held that Saunders did not apply. The Court held that Lisa was not the sole absolute beneficiary. Brent directed that Lisa would be entitled only to “the net income derived from the assets held in trust” under the Lisa Trust. Moreover, and crucially, the Will provided for a “gift over” to the Emma Trust should Lisa die before the Emma Trust is collapsed. The Emma Trust shall be collapsed on the twenty-first anniversary of Brent’s death so as to avoid the operation of the rule against perpetuities. Consequently, any capital remaining in that trust must be given over to Emma “for her own use absolutely”, and thus Lisa was not the sole absolute beneficiary. In other words, so long as the Emma Trust is existing, Lisa cannot dispose of the Lisa Trust in the manner she wishes.

Additionally, Article VI, the final provision of the Will entitled “Wishes”, explicitly set out Brent’s intention. This intention was that “the income, including capital gains, and the appreciation of capital which arises from any interest in trust for any beneficiary under my Will, and specially any benefit under either the Lisa Trust or the [Emma] Trust…shall not be the property of the beneficiary or beneficiaries unless actually paid out by my Trustee to that person”

In the Court’s view, for all of the above reasons, Lisa did not have an absolute interest in the property of the Lisa Trust. Thus, the rule in Saunders could not be invoked.

3. Issue 3: Can Lisa obtain relief under The Dependants’ Relief Act, 1996, SS 1996, c D-25.01

The final ground Lisa advanced was that she is entitled to relief under the DRA, including but not limited to the transfer to her of title to the family home.

The Court declined to make any award on this basis either. It relied on the below grounds:

1. First, Lisa had waited in excess of 15 years to bring her DRA application. That was too long of a delay;
2. Second, in his Will, Brent had in fact adequately provided for Lisa by creating the Lisa Trust. The capital in the Lisa Trust includes real property such as the family home, and the fourplex rental property. Indeed, Lisa has resided in the family home since Brent’s death and continues to do so to the present. Additionally, she receives a monthly net income of $4,000 which is comprised of $2,000 from the Lisa Trust, and $2,000 from the Emma Trust.

The Court found that Brent had permissibly divided his assets in a manner that was within the realm of what was reasonable. Thus, there was no need to make an order for Lisa’s future maintenance. Given that his existing bequest was reasonable, Brent’s freedom to distribute his property in a manner of his choosing, should not be interfered with.

Conclusion:

For the above reasons, the Court declined to make any of the orders that Lisa had sought. The facts in Armstrong were certainly sympathetic, and one entirely understands why Lisa wished to seek the relief she did. However, Armstrong offers a reminder that the remedy of collapsing a trust will simply not be available, where the applicant does not have an absolute indefeasible interest in the trust property.

One interesting order which was made, was that Cheryl (the trustee) was permitted by the Court to receive a costs award from the Lisa Trust. However, the costs order was only in the amount of $2,000.

This award bears note, as it would mean that Cheryl (in her role of trustee) was likely required to pay her lawyer the remaining legal fees incurred by Cheryl, which likely exceeded the sum of $2,000 (given the large amount of work this application would have put both sides to).

Typically, when a trustee is acting solely as trustee (i.e. here, Cheryl had no personal interest at stake), and they are successful in a legal position, a court will often ensure that the trustee is not left out of pocket for any measure of their legal fees. Such makes sense, as few people would wish to take on the role of trustee, if they had to spend their personal monies on legal fees which were solely required by virtue of their role as trustee.