What documentation is necessary to create a trust? Can notes on a filed land transfer document create a trust? These questions came up recently in the context of a bankruptcy. While the Court found that there was no need for "technical words or expressions" in trust documents, the manner in which the trust property was treated was essential in considering whether or not there was in fact a trust.

In the recent case, In the Matter of the Bankruptcy of Sung Fu Tong (aka James Tong) 2006 BCSC 962, the facts were as follows. In 1976, the bankrupt, his parents, and his two siblings became the registered owners of a commercial property in Burnaby. There was a note written in Chinese on the document transferring the property from a third party to the five family members. It read:

In 1977, the bankrupt, his parents, and one sibling became the registered owners of a residential property in Vancouver. Again, the land was transferred from a third party to the bankrupt and his family, and the transfer document had a note written in Chinese. It read:

Other than the notes on the transfer documents, no other trust documents were registered in the Land Title Office.

The parents were the only ones who contributed to the cost of the purchases, mortgages, and maintenance of the two properties.

In January 2003, two judgments were made against the bankrupt, totaling over one million dollars. Two days later, he transferred his interest in both properties to his mother. Less than six months later, he made an assignment into bankruptcy. At issue in the case was whether or not the bankrupt had any equitable interest in either of the properties. If so, then the transfer to his mother would be ineffective, due to the Bankruptcy and Insolvency Act. However, if he held the land in trust for his parents, then the properties would not form part of the bankrupt’s estate.

After a review of all of the circumstances, the Court found that the notes on the transfer documents were not enough to create a trust. The reasons for this finding were:

• the bankrupt declared rental income relating to the commercial property in his tax returns for 1999 through 2002,

• the tax returns filed by the mother indicated that the bankrupt was a co-owner of the commercial property, and attributed one-fifth of the rental income to him;

• the parents had asked Revenue Canada to refund certain taxes paid by the children from 2000 through 2004, which they indicated was paid in error, since the property belonged to the parents. The CRA rejected the request, and found that it was an attempt at "retroactive tax planning";

• the property was not transferred to the children by the parents, but rather from a third party at the same time that the parents obtained their respective interests;

• the requirements under the Land Title Act were not met; and

• there were no T3 Trust Tax Returns filed.

Although the Court found that there was no need for "technical words or expressions" in a document creating a trust, given the above noted factors, the Court found that the notes did not create a trust recognized in law, but rather merely created a moral obligation on the part of the children. The actions of the parties, and in particular, the tax filings made by the parties, indicated that they were not treating the lands as trust property. This is despite the fact that the parents were the only family members making payments relating to the lands.

The essential point to be taken from this case is that while the actual trust document must be clear on its face, the parties must treat the property as trust property or the Court may find that there was in fact no trust created.

When an individual decides to prepare or change his will, he will likely engage a lawyer. He may disclose to his lawyer confidential information about himself, his assets, the proposed beneficiaries and other various topics and will want to protect that information. Luckily, the confidentiality of the relationship between the lawyer and the client is ensured by the special "fiduciary" duties of loyalty, honesty and confidence that a lawyer owes to his client. It is also protected by "solicitor-client privilege", and with respect to wills and estates, the caselaw states that the solicitor-client privilege continues to exist after the death of the testator-client and attaches to his heirs, next of kin or successors in title.

Since the executor of the estate effectively "steps into the shoes" of the testator and acts as his surrogate once the will is probated, solicitor-client privilege will extend to the executor. As the deceased’s legal representative the executor has a variety of duties, obligations and powers with respect to the estate and the beneficiaries. In fulfilling these duties and obligations, the executor must be wary of issues and liabilities such as breach of confidence claims, privacy issues, claims of breach of duty in relation to any trust document preventing disclosure and allegations by beneficiaries of a failure to protect the assets of the estate.

When there is litigation over the estate, because the executor is the testator’s legal representative, he will appear as a party to the litigation and will have to produce and make available for inspection a list of documents in his possession relating to the estate actions. The original solicitor’s file pertaining to the will may be in his possession, but because this file and the documents and notes in it were created for the purpose of giving legal advice to a client, solicitor-client privilege protects them from being disclosed in court.

However, confidential documents in the executor’s possession that are normally protected by solicitor-client privilege may be subject to disclosure under the "wills exception" to solicitor-client privilege where the existence or contents of the will are in question, where the validity of the will is in dispute or where the executor and beneficiaries have a fractious relationship. In these circumstances, information about the testator’s intentions in the creation of his will might be relevant and therefore ordered to be disclosed. This disclosure is justified because the testator is no longer available to clarify his actual intentions. In other actions involving the estate where determining and giving effect to the testator’s intentions is not the issue, privileged material will not be disclosed because the ‘wills exception’ does not apply.

The executor may also be required to disclose otherwise-confidential documents in non-litigation contexts. Generally, all beneficiaries have a right to ask the trustee for access to trust documents but whether access to such documents is granted will depend on the particular circumstances and perhaps ultimately upon the court’s discretion. Documents to be disclosed to beneficiaries usually include those pertaining to the management of trust assets and investments but do not include documents relating to the exercise of the trustee’s discretion.

It is clear that the solicitor-client privilege enjoyed by the testator while he was alive extends to the executor in respect of the confidential information and documents he receives in his capacity as legal representative, but that privilege is not absolute. The executor should not disclose confidential documents and should be careful about disclosing documents which could prejudice or compromise the rights of third parties. The executor himself may claim a right of confidentiality because certain communications he has with the estate’s solicitor fall under the solicitor-client privilege. To avoid personal liability for the costs of a disclosure action, as well as to maintain good relations with beneficiaries, executors should consider each request for disclosure in a comprehensive, reasonable and systematic manner.

Dying "intestate" is the legal term for dying without a valid will. Most often, an intestacy occurs because the person who died never made a will, or because the will cannot be found after their death. An intestacy can also result from a will that is invalid, for example because it was not properly executed or because it was made by a person who did not have legal capacity. In some circumstances, a valid will does not completely dispose of the estate of the deceased, resulting in a partial intestacy.

Whatever the cause, dying intestate means problems for surviving family members left to sort out the estate. Here are 10 common problems encountered with intestate estates:

1. No executor. An executor named in a will has immediate powers to deal with the estate of the deceased. In an intestacy, no one has the power to deal with the property until a court appoints someone as the administrator of the estate.

2. Increased potential for disputes. A person applying to be the administrator of an intestate estate must obtain the consent of every person with an equal or prior right to apply. For example, a child of the deceased must obtain the consent of his siblings to be appointed as the administrator. If the consent is withheld, the matter may have to be settled in court.

3. Bonding requirement. The administrator must be bonded unless all of the beneficiaries consent to dispense with the bonding requirement. The Court may also dispense with the requirement in certain low-risk situations. A bond may be obtained for a fee from a commercial bonding company, as long as the applicant is bondable.

4. No guardian. A will can be used to designate guardians for minor children. In an intestacy, a guardian must be appointed by the court. Delays are to be expected and disputes over guardianship are much more likely to arise.

5. Inadequate provision. The distribution of an intestate estate follows a scheme mandated by law, which may leave some beneficiaries poorly provided for. For example, where a person dies leaving a spouse and two or more children, the spouse is entitled to the first $65,000 of the estate, a life interest in the matrimonial home, and one-third of the balance of the estate. Depending on the circumstances, this may not leave the spouse enough to survive on.

6. Increased taxes. An easy way to defer income taxes on death is to leave appreciated property to a spouse. On an intestacy, a large portion of the estate may be left to children, resulting in a higher tax liability to the estate.

7. Early vesting in children. Many parents who make wills use trusts to defer distribution of property to children until an age at which they are likely to have the maturity to handle the money well. A child of a parent who dies intestate is entitled to receive his or her entire share when he or she turns 19.

8. Problems with multiple deaths. The intestate distribution scheme often leads to inequitable results where more than one family member dies at the same time. For example, A and B are married and have no children. If they both die in a car accident, A, being the older spouse, will be considered to have died first, leaving everything to B. The entire estate will be distributed to the family of B, and the family of A will receive nothing.

9. Problems with multiple marriages and blended families. Intestacies in cases of multiple marriages and blended families can also lead to unfair treatment. For example, A’s marriage to B is A’s second marriage. A and B have two children together, and also raise A’s one child from A’s prior marriage. A and B have their home and bank accounts in joint tenancy. When A dies, B takes the assets by right of survivorship. When B subsequently dies without a will, her estate goes to her two children. A’s child receives nothing.

10. Problems with common law spouses. British Columbia’s intestate laws affords the same rights to a common law spouse as it does to a married spouse, if the couple lived together in a marriage-like relationship for a period of at least two years before the death of one of them. Depending on the facts, a common law spouse of a person who died intestate may end up in an awkward dispute with other family members over whether they have any claim to the estate.

This list shows that dying without a will causes a myriad of problems. The resulting uncertainties and legal complexities invariably increase the delay, effort and expense involved in settling the estate. All of these problems can be prevented with relative ease by taking care of your estate planning during your lifetime.