WATERS' LAW OF TRUSTSIN CANADA

Third Edition

By

Editor-in-Chief

Donovan W.M. Waters, Q.C.M.A., D.C.L. (Oxon.), Ph. D. (London), LLD. (Hons.) Victoria, F.R.S.C.

Emeritus Professor, University of Victoria, B.C., of Lincoln's Inn, Barrister atLaw, Counsel, Horne Coupar, Barristers and Soliciìors, Victoria, B.C.

Contributing Editors

Mark R. GillenB.Comm. (Torontó), M.B.A. (York), LL.B. (Osgoode), LLM. (Toronto),

Faculty of Law, University of Victoria

\ Lionel D. Smith* * • ~~*. t - , • • • ' ' "

B:èc!,!Ll;.Ml(Gantab.)J D. Phil., M.A. (Oxon.),James McGill Professor of Law, McGill University,

of thè Bar of Alberta

T H O M S O N* -

CARSWELL

ContentsPreface vTable of Cases xxxiTable ofStatutes cxliii

Chapter 1 Introduction 1

I. THE TRUST IN PRACTICE 1II. THE NATURE OF THE TRUST 3III. THE GRÒ WTH OF THE TRUST 4IV. THE CHARACTERISTICS OF THE COMMON LAW TRUST 9V. THE TRUST: CIVIL LAW AND COMMON LAW 14

Chapter 2 Typesof Trust 19

I. EXPRESS, IMPLIED, RESULTING, AND CONSTRUCTIVE TRUSTS 19IL EXECUTED AND EXECUTORY TRUSTS 23HI. COMPLETELY AND INCOMPLETELY CONSTITUTED TRUSTS 26IV. LAWFUL AND UNLAWFUL TRUSTS 27V. PRIVATE AND PUBLIC TRUSTS 27VI. STATUTORY TRUSTS 28Vn. TRUST AND GOVERNMENTAL OBLIGATION 30Vili. BARE OR SIMPLE TRUSTS AND SPECIAL TRUSTS 32IX. OTHER TRUST TERMS 34

Chapter 3 Distinction Between thè Trust and Other Concepts 37

I. TRUST AND FIDUCIARY RELATIONSHIP 38A. Trustees as Fiduciaries 38B. Other Fiduciary Relationships 40C. Fiduciary Relationships Generally 41D. Trusts and Other Fiduciary Relationships Compared 43

II. TRUST AND THE ADMINISTRATION OF DECEASEDS' ESTATES 43A. Roles of Trustees and Personal Representatives Compared 43

1. The Role of thè Personal Representative 432. Similarity to thè Role of thè Trustee 443. Historical Reasons for thè Similarity 444. Both are Fiduciaries 455. Statute has Tended to Equate thè Two 456. Remaining Differences 45

B. Powers of Personal Representatives 46C. Appointment as Executor and Trustee 49D. The Present Position and Reform 50

HI. TRUST AND AGENCY 52A. Agency and Express Trusts 53

1. Agent Acts on Instructions; Trustee Acts According to Terms ofInstrument 53

2. Trustee Vested with Title and Contracts Directly with Third Parties 53

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3. Principal/Beneficiary Action is Personal but Trust is a Mode ofConveyance of Property 53

4. The Method of Varying thè Arrangement is Different 545. Agent Free from Constraint According to Terms of Contract; Trustee

Freedom from Constraint by Virtue of Status as Title Holder 556. Death of Agent Terminates Agency ; Death of Settlor, Trustee or

Beneficiary does not End Trust 557. Agency Born of Consent; Trustee and Beneficiary Need not Know of

Trust 55B. Agency and Trusts by Operation of Law 55C. Agents as Express Trustees of Principal's Property 56D. The Characterization of a Relationship as Trust or Agency 58

1. Trustee and Beneficiary 582. Settlor and Trustee 61

E. Agents for Trustees 61IV. TRUST AND CONTRACT 62

A. Trusts ofChoses in Action 641. Situation One: Promisee of Another' s Promise to Benefit a Third

Party as Trustee for that Third Party 64(a) Evidence of Intention to Create an Express Trust 65(b) The Ability of A and B to Vary thè Terms of thè Arrangement 69(e) Policy and Possible Reform 70(d) Promisee as Constructive Trustee 71(e) Performance Bonds, and Labour and Materials Payment Bonds .... 72

2. Situation Two: Person Promising to Act as Trustee for Third Party onReceipt of Property 75

3. Situation 3 : Trustee as Assignee of Contractual Rights 78B. Burdening Assignee of Property Which is Subject to Contractual Rights 78

V. TRUST AND BAILMENT 81VI. TRUST AND DEBT 85VII. TRUSTS AND POWERS 91

A. The Various Types of Trusts and Powers 91B. Evidence of a Power, and of a Power Followed by a Trust 96C. Certainty of Objects: Trust, Trust Powers, and Mere Powers 100

Vili. TRUST AND EQUITABLE CHARGE 102IX. TRUST, CONDITIONAL GIFT, AND PERSONAL OBLIGATION 106

Chapter 4 Capacity of theParties 109

I. SETTLOR 109A. Infants 110B. Mental Incapacity 112C. MarriedWomen 114D. Non-residents 114

IL TRUSTEE 114A. Trustees Generally 114

1. Infants 1142. Mentally Incapacitated Persons 1163. Non-residents 116

B. Public Trustee 116

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C. Trust Company 119D. Judicial Trustee 122E. Custodian Trustee 123

ni. BENEFICIARY 124IV. PROTECTORS 126

Chapter 5 The Three Certainties 131

I. INTRODUCTION 132II. CERTAINTY OF INTENTION 132

A. "Precatory Trusts" 1361. Generally 136

(a) Shift in Judicial Attitude Towards Trusts Based on PrecatoryLanguage 136

(b) Post Lambe v. Eames Examples 1382. Attempts to Constrain an Apparent Absolute Gift with Subsequent

Gifts or Trust Obligations 1393. Gifts for Maintenance and Support 1414. Canadian Cases Construing Trusts from Precatory Language 143

B. Use of Pre-Lambe v. Eames Language 144C. "Sham" Trust 145

1. No Intention to Create a Trust 1452. An Intention but thè Trust is "Illusory" 1463. Incidental Issues Concerning "Sham" Trusts 1464. "Sham Trusts" in Canada 147

III. CERTAINTY OF SUBJECT-MATTER 149A. Relationship Between Certainty of Intention and Certainty of Subject-

matter 150B. Residuary Estates 151C. Use of Formula to Determine Quantum of Subject-matter 153D. Certainty of Beneficiai Shares 154E. Changes in thè Nature of thè Trust Property 155

IV. CERTAINTY OF OBJECTS 156A. Persons 156

1. Reason for Certainty of Objects 1572. Examples 1583. Community or Commerciai Settings - Re Bethel (Jones v. T.

Eaton Co.) 1604. Practical Implications 162

B. Purposes 163

Chapter 6 Constituting or Setting up thè Trust 165

I. INTRODUCTION 166IL VALUABLE CONSIDERATION 168

A. Generally 168B. Consideration of Marriage 169C. Specific Performance and thè Constitution of thè Trust 170

Hi. VOLUNTEERS 170IV. DISPOSINGOF PROPERTY IN FAVOUROF ANOTHER 171

A. Mode of Transfer 171

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B. Declaration of Trust 172C. Equitable Interests 173D. Volunteers and thè Importance of a Complete Transfer 174

V. IMPORTANCE OF THE DISTINCTION BETWEEN TRANSFER ANDDECLARATION OF TRUST 174

VI. GIFTS BY TRANSFER 175A. Gifts Inter Vivos and Donatio Mortis Causa 175

1. Gifts Inter Vivos 1752. Donatio Mortis Causa 176

B. Choses in Possession (Chattels), and Land 1771. Actual or Constructive Delivery 1772. Deed as Alternative to Delivery 177

C. Choses in Action 1781. Use of Mode of Transfer Appropriate to thè Chose in Action 1792. Donor has Done AH that thè Donor Can Do 1793. Contracts for thè Benefit of Third Parties as a Chose in Action 1814. Promise by Deed to Transfer Property to Trustees 182

(a) "Equity Will Not Assist thè Volunteer" 183(b) If A Covenants with B, Who is a Trustee for C, What is thè

Property ofWhich Bis Trustee? 184(e) The Present State of thè Law 188

VII. GIFTS BY DECLARATION OF TRUST 191A. The Applicable Principles 191B. The Evidentiary Difficulties 192

1. Examples of Sufficient Evidence 1922. Examples of Insufficient Evidence 193

Vili. THE SETTLEMENT MUST BE BINDING 194A. Must a Trust Involving a Voluntary Transfer or Declaration of Trust be

Irrevocable 194B. Position of Canadian Courts 195C. Is thè Canadian Position on Irrevocability Correct? 196D. AMatterof Construction 198

IX. EVALUATION OF DISTINCTION: GIFTS BY TRANSFER ANDDECLARATION OF TRUST 199A. The Difficulty with thè Distinction 200B. Problems with thè Formalistic Apposition of Imperfect Gift and

Declaration of Trust 201C. Is thè Constitution of thè Trust Concerned with thè Intention of thè

Donor toGive? 203X. WHENISAN INTER VIVOS TRUST TESTAMENTARY? 205

A. Requirements for Testamentary Dispositions 205B. Does a Power of Revocation in an Inter Vivos Trust Make thè Trust

Testamentary? 207C. Does thè Inter Vivos Trust Take "Immediate Effect"? 208D. RePfrimmer 209E. ModernTrends 211

XI. EXCEPTIONAL MODES WHEREBY THE TRUST BECOMESCOMPLETELY CONSTITUTED 213A. The Rule in Strong v. Bird 213

1. The Historical Basis of thè Rule 213

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2. What thè Donee Must Show 214(a) Intention to Give During Lifetime 214(b) Subject-matter Must be Specific 216(e) Donee Must be Appointed Executor 218

B. Donatio Mortis Causa 2211. The Distinction Between Gifts Mortis Causa and Inter Vivos 2222. Importance of thè Distinction 2233. Gifts Mortis Causa and Testamentary Dispositions Under thè

WillsActs 224C. Estoppel for Equity by Acquiescence 227

1. The Dillwyn v. Llewellyn Principle 2272. Canadian Courts and thè Dillwyn v. Llewellyn Principle 230

Chapter 1 Proving thè Trust 235

I. INTRODUCTION 236IL THE STATUTE OFFRAUDS IN CANADA 237

A. Contractsto Create a Trust ofLand 2381. Contract Unenforceable Not Void 2392. Meaning of "Contract or Sale ofLand . . . o r . . . Any Interest in or

Concerning Them" 239(a) Generally 239(b) Agreements Concerning Proceeds of Sale 240

3. Evidenced in Writing 242B. Declarations or Creations of Trusts of Land 243

1. Application of thè Section 2432. Interpretation of Section 7 2443. Effectof No Writing 245

C. Grants and Assignments of thè Equitable Interest 2461. Meaning of "Grants and Assignments" 2472. Interpretation of Section 9 of thè Statute 247

(a) Effect of Orai Disposition Confirmed by Subsequent WrìttenInstrument 248

(b) Constructive Trust in Favour of Purchaser 249(e) Direction to a Bare Trustee to Transfer Property to a Third

Party 251(d) Declaration of Trust by Trustee with thè Consent of thè

Equitable Beneficiary 252(e) Summary 253

HI. THE STATUTE OF FRAUDS AS INSTRUMENT OFFRAUD 254A. Use of thè Statute to Avoid Contract and Trust Obligations 254B. Contract Avoidance and thè Doctrine of Part Performance 255C. Avoidance of Trust Obligations and thè Doctrine of Fraud 255D. Comparison of thè Doctrine of Fraud and thè Doctrine of Part

Performance 257E. Meaning of Fraud in this Context 258F. What Typeof Trust islt? 260

1. Express Trust or Constructive Trust 2602. Resulting Trust Situations 2603. Express Trust vs. Trust by Operation of Law 261

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G. Summary on thè Statate ofFrauds as an Instrument of Fraud 263H. LawReform 265

IV. SECRET TRUSTS 267A. Generally 267

1. WillsActs 2672. Devisee, Legatee or Interstate Successor as Trustee 2683. The Principles : Communication and Acceptance 2694. The Half-Secret Trust 2705. Questions Raised 270

B. Fully-Secret Trusts 2701. Intention to Create a Trust 2702. Independent Proof of Communication and Acceptance of Trust Objects

Required 2723. Both Trusteeship and Objects Must be Communicated and Accepted 2734. No Communication afterDeceased's Death 2745. Instructions Given in Sealed Envelope During Lifetime 2756. Property Left to Two or More Persons Subject to Trust Obligations ... 276

C. Half-Secret Trusts 2771. Communication and Acceptance Prior to or at thè Time of thè

MakingoftheWill 277(a) In thè English Courts 277(b) In Canadian Courts 278

2. Admission of Parol Evidence to Determine thè Objects of thè Trust ... 283D. The Nature of Secret Trusts 289

Chapter 8 Limitations on thè Settlor's Power of Disposition 295

I. INTRODUCTION 296II. TRUSTS CONTRARY TO PUBLIC POLICY 297

A. Public Policy and thè Courts 297B. Trusts for Illegitimate Children 299

1. Rule of Interpretation of "Child" or "Children" 2992. Historical Reason for thè Rule 3003. Application of thè Rule 3004. Public Policy Consideration 3015. Children BornBetween Date ofWill and Testator's Death 3016. Response of Courts to Changes in Public Policy Concerning

Illegitimate Children 302C. Disposition of Property Subject to Conditions 307

1. Generally 307(a) Conditions Contrary to Public Policy 307(b) Conditions Precedent and Subsequent 308(e) Effect of a Void Condition Precedent vs. a Void Condition

Subsequent 308(d) Condition vs. Determinable Interest 309(e) Failure of Condition for Uncertainty 310

2. Conditions in Restraint of Marriage 312(a) Question of Intention 312

(i) Condition Subsequent or Determinable Gift 312

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(ii) Purpose of Compelling Celibacy or to Provide for PersonDuring Unmarried Life 312

(b) Partial Restraint - Restraint on Class of Persons DoneecanMarry 313

(e) Constraint on Remarriage of Widow or Widower 3143. Conditions Interfering with Maritai Relationship 315

(a) Historically 315(b) Effectof Family Law Reform 316(e) Question of Intention tolnterfere 317

4. Conditions Interfering with thè Discharge of Parental Duties 3185. Conditions in Restraint of Religious Behaviour 320

(a) The General Position 320(b) Gifts to Minors 320(e) Interference in Maritai Relations 321

6. Conditions Intended or Tending to Discriminate Racially 323D. Reform of thè Law Concerning Public Policy in Property Law 324

III. TRUSTS TO DEFRAUD CREDITORS AND CLAIMANTS INBANKRUPTCY 327A. The Statutory Provisions 327

1. English Legislative Background 3272. Statutory Provisions in Canada 328

(a) Reception of English Fraudulent Conveyances Acts of 1571and 1584 328

(b) Conflict Between Fraudulent Preferences Acts and FraudulentConveyances Acts 329

(e) Constitutional Validity of thè Provincial Legislation 330B. Trusts and thè Statutory Provisions 330

1. Fraudulent Conveyances Acts (1571 (13 Eliz. 1), e. 5; or provincial) .. 3302. Fraudulent Preferences Acts (provincial) 3313. Bankruptcy and lnsolvencyAct (federai) 331

C. Interpretation of thè Fraudulent Conveyances Acts (British Columbia,Manitoba, Ontario, and Newfoundland) 3321. General 3322. The Intent to Defeat, Hinder, Delay or Defraud 3333. Who Can Bring Action to Have thè Settlement Set Aside? 3364. Position of Beneficiaries 337

D. Interpretation of thè Fraudulent Preferences Acts (provincial) 337E. Interpretation of thè Bankruptcy and lnsolvency Act 338

1. What is a "Settlement"? 3392. TheBurdenofProof 3403. The Scope of thè Good Faith Purchaser or Incumbrancer Exception ... 3414. Voidityof thè Settlement 342

F. Intention to Defraud Creditore and thè Right to Restitution 342IV. TRUSTS CONTRAVENING RULES OF LAW RESTRICTING CERTAIN

MODES OF DISPOSITION 344A. Perpetuity and Perpetuai Duration or Inalienability 344B. The Perpetuity Rule 346C. The Rule Against Perpetuai Duration 351

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Chapter 9 Revocation: Setting thè Trust Aside 353

I. REVOCATION 353II. SETTING THE TRUST ASIDE 356

A. Mistake by thè Settlor, or Duress, Fraud or Undue Influence Upon thèSettlor 356

B. Fraud by thè Settlor 358C. Trusts Based on Mistaken Assumptions 358

Chapter 10 The Resulting Trust 361

I. THE TERM "RESULTING TRUST" 362II. THE RESULTING TRUST SITUATIONS 364

A. Essential Characteristics of Resulting Trusts 365B. Purchase in thè Name of Another, or in thè Names of thè Purchaser and

Another 3671. Purchase or Loan 3682. Multiple Contributors 370

C. Voluntary Transfer into thè Name of Another, or into thè Joint Namesof thè Transferor and Another 3721. Presumption of Resulting Trust; Rebutting thè Presumption 3752. Presumption of Advancement: Husband and Wife 3773. Presumption of Advancement: Parent and Child 3814. Legai Effect of thè Presumptions 3835. Rebutting thè Presumption of Advancement 384

(a) Generally 384(b) Rebutting thè Presumption - Illegality and Fraud 386

(i) Inability to Rebut thè Presumption in Support of IllegalPurpose 386

(ii) Scheuerman v. Scheuerman 388(iii) Goodfriend v. Goodfriend 390(iv) Presumption of Resulting Trust Instead of Presumption of

Advancement 391(v) Conclusion and Synthesis 395

6. Joint Bank Accounts; Legai Title and Beneficiai Interests 400(a) Legai Analysis of Joint Accounts 401(b) Resulting Trust of Legai Interest in Joint Account 402(e) The Operation of thè Presumptions 404(d) Nature of Gift of Survivorship 406(e) Conclusion 410

D. The Disposition of Matrimoniai and Cohabitation Property Disputes 4111. Legislative Intervention 4112. Scope of Legislation 4123. The Role of Resulting Trusts 4144. Historical Perspective; thè Heyday and thè Eclipse of thè Resulting

Trust 418(a) England 419(b) Canada 422

(i) Before 1980 422(ii) Becker v. Pettkus and Its Aftermath 428

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5. The Resulting Trust and "Common Intention" 4306. The Exceptional Retention of Presumptions in thè Matrimoniai

Property Legislation 435E. Exhaustion or Failure of Express Trust Objects 437

1. Failure of Settlor to Dispose of thè Whole Equitable Interest 4382. Total or Partial Failure of thè Trust toTakeEffect 442

(a) Vitiated Intention to Create Trust 442(b) Uncertainty of Objects 443(e) Impossibility of Objects 443(d) Improvidence 446(e) Non-Compliance with Rules of Law 446(f) Conclusion 447

3. The Rule in Hancock v. Watson 448III. CONCLUSION 450

Chapter 11 The Constructive Trust 453

I. NATURE OF THE TRUST 454A. Historical Background 455B. The Twentieth Century 460C. Developments in thè Law of Unjust Enrichment 465D. Tests for thè Imposition of thè Constructive Trust 470E. The Way Forward 473

1. Differentiation 4742. Unity and Disunity 4763. Motivations for Seeking a Constructive Trust 4784. Paths for Development of thè Law 481

IL SITUATIONSINWHICHTRUSTEESHIPHASBEENIMPOSED 489A. Strangers Intermeddling in thè Trust: Personal Liabilities 490

1. Trustees de son tort or defacto Trustees 4902. Personal Liability for Involvement in a Breach of Trust or Fiduciary

Obligation 492(a) Knowing Assistance 492(b) Knowing Receipt 494(e) Liability Without an Express Trust 498(d) The Position of Banks 499

B. The Profiteering Fiduciary 500C. Breach ofConfidence 504D. OtherWrongs 505E. Unjust Enrichment 507F. Acquisition Through an Agreement to Hold for Others 509

1. Orai Agreements Concerning Land 5102. Joint and Mutual Wills 511

(a) Whether There is an Agreement 513(b) WhatKindofTrustArises? 517(e) When Does thè Trust Arise? 518(d) The Property Subject to thè Trust 521(e) The Role of thè Trust Which Enforces thè Agreement 523

3. Avoiding this Constructive Trust 526G. Miscellaneous Instances of Constructive Trusts 526

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1. Estate Contracts 5272. Restrictions on Use 5283. Mortgages 5294. Indemnity Insurers 5305. Other Obligations 530

Chapter 12 Uses of thè Trust Device 533

I. INTRODUCTION 534IL PERSONAL TRUSTS 534

A. Tax Considerations 5351. Income Splitting 5352. TaxDeferral 535

B. Insurance Trusts 536C. Testamentary Trusts 537D. Discretionary Trusts 539E. Marriage Settlements 539F. Separation or Divorce Trusts 540G. Cemetery or Perpetuai Care Trusts 541H. Prepaid Funeral Arrangements Trusts 541I. Charitable Purpose Trusts 541J. Blind or Frozen Trusts 542K. Asset Protection Trusts 543

III. BUSINESS TRUSTS 544A. Business Trusts in Furtherance of Personal Purposes 545

1. Pension Trusts 5452. Profit-Sharing Trusts 5473. Registered Retirement Savings Pian Trusts 5474. Pooled Investment Trusts 5485. Employer as Trustee for Employees 549

(a) C.P.P. and E.I. Contributions 549(b) Union Dues, Charitable Donations or Vacation Pay 549

6. Health and Welfare Benefits 5497. Condominium Insurance Trusts 550

B. Business Trusts in Furtherance of Personal Business or Small BusinessArrangements 5501. Partnership Buy-Sell Agreement 5502. Stock Purchase Agreement 5513. Stock Voting Trust 5514. Business Sale Trusts 552

C. Business Trusts in Furtherance of Commerce at Large 5521. Trusts Employed as an Alternative for Incorporati on - thè "Business

Trust" 553(a) Advantages 553(b) Uses 553

(i) Real Estate Investment 553(ii) MutualFunds 554(iii) Real Estate Investment Trusts 555(iv) Oil and Gas Royalty Trusts 557(v) Business Income Trusts 558

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2. Trusts as a Vehicle for Pre-incorporation Financial Holding 5603. Trusts as a Security Device 560

(a) Debenture Trusts 561(b) Mortgage Trusts 562(e) Construction Lien Trusts 563(d) Stock Escrow Trusts 564(e) Trusts for Payment on Sale of Goods 564(f) Equipment Trusts 564(g) Quistclose Trusts 565(h) Securitization - thè Trust as thè "Special Purpose Vehicle" 565

IV. ENVIRONMENTAL TRUSTS 566A. The American Public Trust Doctrine 567B. Statutory Environmental Trust 567C. Trusteed Environmental Fund 568

V. INTERNATIONAL TRUSTS 569

Chapter 13 Trusts and Tax Planning 573

I. THE EMERGENCE OF TAXATION 574A. Modification or Revocation of Terms of Existing Trusts 575B. Modifications in thè Form of New Trusts 577C. Estate Planning to Minimize Tax i 577

IL THE CONTEMPORARY CANADIAN SCHEMEOF TAXATION 578A. Income Tax (Including Capital Gains Tax) 579

1. Taxation and thè Law of Trusts 5792. The Extent to Which a "Trust" is Recognized as a Legai Persona

for Tax Purposes 5823. The Recognition of Beneficiai Interests 5854. Non-resident Trusts 5895. Transferof Beneficiai Interest by a Beneficiary 5916. The Use of Trusts as an Income-Splitting Device and thè Attribution

Rules 5927. "Alter Ego Trusts" and "Joint Spousal or Common-law Partner

Trusts" 593(a) Alter Ego Trusts 593(b) Joint Spousal or Common-law Partner Trust 595

8. "Self-Benefit" Trusts and Qualifying Dispositions to a Trust 595(a) "Self-Benefit" Trust 595(b) Qualifying Dispositions to a Trust 597

9. General Observations on thè Policy of thè Act 597B. Succession Duty 600C. GiftTax 603

III. ESTATE PLANNING 603A. Toolsof Estate Planning 605B. Estate Planning Other Than by Way of a "Freeze" 607

1. Revocable Trusts 6072. Irrevocable Trusts 608

(a) Spousal or Common-law Partner Trusts 608(b) Uses of Alter Ego, or Joint Spousal or Common-law Partner

Trusts 610

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(c) Discretionary Trusts 610(d) Accumulation Trusts 612

C. Succession Duty and Gift Tax 612D. Estate Freezing 613E. Application of thè Private Law of Trusts 616

Chapter 14 Charitable Trusts 621

I. INTRODUCTION 623II. PURPOSE TRUSTS AND CHARITY 625

A. The General Invalidity of Non-Charitable Purpose Trusts 625B. Limited Exceptions 627C. Gifts to Unincorporated Associations 628

1. Leahy v. Attorney General for New South Wales 6302. Legislative Treatment of Non-Charitable Purpose Trusts as Powers ... 6323. Construing thè Gift as a Trust for Persons 6334. Association Offices as Agents for thè Donor Principal 635

D. Status of Non-Charitable Purpose Trusts in Canada 636E. The Exigibility to Satisfy Creditors of Special Purpose Trust Funds 638

III. THE ADVANTAGES ATTACHING TO A CHARITABLE TRUST 640A. Certainty of Objects 640

1. Exclusive Charitable Intent is Sufficient 6402. Inherent Jurisdiction of Courts to Supply a Scheme that Provides

Specificity to Charitable Purposes, or Special Purposes 6413. The Differences Between an Administrative Scheme and a Cy-Près

Scheme 6414. Is a Minimum Degree of Certainty Required? 643

B. Perpetuity 6441. Two Elements 645

(a) Remoteness of Vesting 645(b) Rule Against Inalienability 646

2. Charitable Trusts Exemption from thè Rule Against Inalienability 6473. The Application of Remoteness of Vesting to Charitable Purpose

Trusts 649(a) Exception for Conditional Gift to Charity with Gift Over to

Another Charity 649(b) Cessation of a Charitable Purpose 651(e) Legislative Anomalies 651(d) Condition Precedent 652(e) Use of thè Perpetuity Rule as a Means of Controlling Charitable

Gifts 6554. The Rule Against Accumulations 656

C. The Relationship Between thè Rule Against Inalienability and thè RuleAgainst Accumulation 658

D. Taxation 6601. Introduction 660

(a) Background 660(b) Overview of thè Tax Treatment of Charities and Charitable

Donations 6622. The Tax Treatment of Charities Themselves 664

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(a) Income Tax 664(b) Municipal Real Property Taxation 672

3. Tax ReliefonDonationsto Charity 675(a) Income Tax 677

IV. LEGAL MEANING OF CHARITY 679A. Subject-Matter and Public Benefit 681

1. TheReliefofPoverty 681(a) NatureofPoverty 681

(i) WhatFormsofNeed 682(ii) Required Degree of Financial Need 683

(b) Public Benefit 6892. The Advancement of Education 694

(a) Nature of Education 694(i) Attempts to Describe What is Included in Advancement of

Education 694(ii) Education Institutions 696(iii) Education Outside Schools, Colleges and Formai Centres of

Learning 697(iv) Professional Training 698(v) The Quality of Education Required for Public Benefit 699(vi) Education and Politicai Purposes 700

(b) Public Benefit 7013. The Advancement of Religion 704

(a) Nature of Religious Acti vity 704(i) Development from thè Repair of Churches 704(ii) Upkeep of Burial Places and Grave Sites 706(iii) Support of Ministers of Religion, Active and Retired 707(iv) Missions 708(v) Training of Ministers of Religion and Religious Instruction

oftheYoung 709(vi) Gifts to a Minister of Religion in thè Name of thè

Minister 710(vii) Private Masses or Other Private Religious Practices 712(viii) Closed Religious Orders 715(ix) Limits of thè Scope of Religion 715

(b) Public Benefit 717(e) Presumption of Public Benefit 719

4. Other Purposes Beneficiai to thè Community 720(a) Reliefof Distress and Suffering 721(b) The Support and Care of Ex-Service Personnel 723(e) Social and Recreational Purposes 724(d) The Promotion of Sport 725(e) The Benefit of thè Community at Large 728(f) The General Approach to Determining What Falls Under Other

Purposes Beneficiai to thè Community 731B. Conclusion 735

V. LIMITS ON CHARITABILITY 743A. Trusts for, or Involving, Politicai Purposes 744B. Severance: Where Trust Not Restricted to Legally Charitable Purposes 750

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1. Situations in Which Mixed Charitable and Non-Charitable PurposesMay Arise 750

2. Severing Charitable from Non-Charitable Purposes 753(a) Gifts on Trust for Purposes 753(b) Gifts on Trust for Institutions 754(e) The Uncertain State of thè Law on Severance and Legislative

Responses 7553. The Canadian Reform Jurisdictions: The Perpetuity Legislation 760

VI. "THE SCHEME MAKING POWER": ADMINISTRATIVE AND CY-PRÈSSCHEMES 762A. Administrative Schemes 762B. Cy-Près Schemes 765

1. Remedy Without Need of Cy-Près 7652. Cy-Près Itself 7673. Initial Impracticability or Impossibility 7734. Supervening Impracticability or Impossibility 781

VII. ADMINISTRATION OF CHARITIES 788

Chapter 15 The Appointment of Trustees 799

I. APPOINTMENT BY THE SETTLOR 800II. APPOINTMENT UNDER AN EXPRESS POWER 802

A. A Matter of Construction 802B. CaseExamples 802

1. Saunders v. Bradley 8022. ReRobertson 803

C. The Relationship Between a Valid Exercise of an Express Power and thèUse of thè Statutory Power to Replace Trustees 804

D. Power of Appointment: a Personal Power or a Power Attached to thèOffice of Trustee 805

ffl. APPOINTMENT UNDER STATUTORY POWER 805A. New (or Substitute) Trustees 806

1. When thè Section can be Exercised 8062. Who can Exercise thè Power 809

(a) Meaning of "Surviving or Continuing Trustees or Trustee" 809(b) Personal Representative of Last Surviving or Continuing

Trustee 810(e) Express Power of Appointment vs. Statutory Power of

Appointment 812(d) Trustees of an Unconstituted Trust 813

3. The Mode of Appointment 814B. The Appointment of Additional Trustees 815C. Revocation of an Appointment 816

IV. APPOINTMENT BY THE COURT 818A. Under Inherent Jurisdiction 818B. Under Statutory Jurisdiction 818

V. NUMBER OF TRUSTEES 824VI. VESTING OF TRUST PROPERTY IN THE TRUSTEES 827

A. Rules of Common Law and Equity 827B. Statutory Declaration of Vesting 827

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C. Form of Declaration 828D. Words Sufficient to Constitute a Declaration 828E. Assets Excepted from thè Statutory Declaration 829F. Summary as to Vesting of Assets 830

VII. ACCEPTANCE AND REFUSAL OF THE OFFICE OF TRUSTEE 831

Chapter 16 Death, Retirement, and Removal of Trustees 835

I. DEATH OF TRUSTEE 835A. Trustee Power to Appoint or Personal Power? 835B. Death of Sole or Last Surviving Trustee 837

IL RETIREMENT OF TRUSTEE 838A. The Legislative Provisions 838B. Issues Arising in thè Context of Retirement 841

III. REMOVAL OF TRUSTEE 843A. Statutory Powers of Replacement 843B. Circumstances Justifying Removal 845

Chapter 17 Distinction Between thè Powers and Duties of Trustees 851

I. POWERS AND DUTIES 851II. ADMINISTRATIVE POWERS AND DUTIES 852III. DISPOSITIVE POWERS AND DUTIES 853

Chapter 18 Duties Underlying thè Office of Trustee 857

I. DELEGATIONBY TRUSTEE 858A. Introduction 858B. Delegation Between Trustees 864C. Delegation of Ministerial Acts 865

1. Background to thè Legislation 8652. Legislative Intervention 8673. Liability ofDelegating Trustee 871

D. Delegation of Investment Powers 874E. Conclusion 876

IL CONFLICTOF INTEREST AND DUTY 877A. Introduction 877B. Who is a Fiduciary? 880C. Application of thè Rule 886D. Circumstances in Which thè Rule has been Invoked 888

1. A Trustee Must Act Gratuitously 8882. Purchase of thè Trust Property 890

(a) Introduction 890(b) Transactional Structures 891(e) ProtectionofThirdParties 892

3. Trustee Selling or Loaning his Own Assets to thè Trust 8954. Trustee Borrowing from Trust 8985. Trustee Purchasing from Beneficiary 9006. Acquisition of Benefits From thè Trust Office 902

(a) Acquisition of Profits Through Use of Trust Property or thèFiduciary's Office 903

XXÌV TABLE OF CONTENTS

(b) Acquisition of Gain Through Exploitation of OpportunityArising Outof thè Trust Office 904(i) Different Approaches 904(ii) Examples of Gain 905(iii) LeadingCases 908

E. The Nature of thè Rule 9141. Is thè Fiduciary Always Forbidden from being in a Conflict? 9142. When Does a Conflict Exist? 917

III. THE STANDARD OF CARE 919A. The General Law 919B. Indemnity or Exculpatory Clauses 925

IV. LIABILITY OF TRUSTEES IN THE EXERCISE OR NON- EXERCISE OFDISCRETION 929

Chapter 19 Conduct of thè Day-to-Day Business of thè Trust 937

I. DUTIES OF TRUSTEE UPON ACCEPTANCE 938II. INVESTMENT OF TRUST FUNDS 940

A. Introduction 940B. History of Trust Investments 941

1. InEngland 9422. InCanada 9473. The Prudent Investor Rule 950

C. What Is an "Investment"? 9531. Land for Occupation By a Beneficiary 9532. Unsecured Loans 9543. Going Concerns 955

D. Express Powers of Investment 9561. Mandatory Directions as to Investment 9562. The Property Subject to an Express Investment Clause 9573. Investments Subject to Consents 958

E. Standard of Care Required of thè Trustee 959F. The Principles Governing Good Trustee Investment Practice 963

III. DUTY TO ACT IMPARTIALLY BETWEEN BENEFICIARIES 966A. Principle of Holding an Even Hand 966B. Enjoyment of thè Trust Property by Successive Beneficiaries 970

1. The Handlingof Originai Assets 972(a) The Duty to Convert 972

(i) Rationale and Scope of thè Rule 972(ii) Application of thè Rule 974(iii) Relation to Investment Power 977(iv) What are Successive Interests? 979(v) To What Property Does thè Rule Apply? 980

(b) The Duty to Apportion Receipts Pending Conversion, or thèProceeds upon Conversion 985(i) Relationship to thè First Branch of thè Rule in Howe v. Lord

Dartmouth 985(ii) Examples of thè Operation of thè Second Branch 987(iii) Exclusion of thè Duty to Apportion 991(iv) To What Property Does thè Duty to Apportion Apply? 995

TABLE OF CONTENTS XXV

(c) The Manner of Conversion and Apportionment 997(d) The Howe v. Lord Dartmouth Rules Today 1001

(i) Now Commonly Excluded by thè Instrument 1001(ii) Effect of Widening of Authorized Investments 1003

2. The Choiceof Investments 10053. Depreciation Reserves, and Income Tax Allowances 1010

(a) Depreciation Reserves 1010(b) Capital Cost and Depletion Allowances 1017

4. Benefits Issuing from Corporations to Their Shareholders 1019(a) Income or Capital? 1019

(i) The Form Test 1019(ii) Later Experience 1022(iii) Summary 1025

(b) Apportionment Between Income and Capital Accounts 1028(e) The Trustees as Majority Shareholders or Corporate Directors ... 1031

C. Responsibility as Between Successive Beneficiaries for Financial BurdensImposed upon thè Trust Property 10331. Introduction 10332. Debts, Administrative Expenses, Taxes and Duties 1035

(a) The R\s\e in Allhusenv.Whittell 1035(b) Criticism of thè Rule in Allhusen v. Whittell 1040

3. Annuities 10424. Losses on Secured Investments, and in Business Endeavours 10455. Amortization of Premiums and Discounts on Bond Purchases 10476. Insurance 10487. Repairs 10508. Taxes y 1052

D. Conclusion: The Drafter and The Even Hand Rule 10521. Power ofEncroachment upon Capital 10542. Discretionary Allocation Power 10553. The Unitrust (or Percentage Trust) 1058

IV. DUTY TO DISCLOSE: ACCOUNTS AND INFORMATION 1063A. Duty to Account 1063B. Duty to Provide Information 1068

1. The Existence and Terms of a Trust 10692. The Trust Accounts 10703. Other Information 1071

C. What Course Should Trustees Now Follow? 10751. Information Concerning a Corporation Owned Wholly or In Part by

thè Trust 10762. The Trust Instrument Instructs or Authorizes thè Withholding of

Information 1077

Chapter 20 Administrative Powers and Discretions of Trustees 1079

I. SCHEME OFSUCH POWERS 1079A. Express Powers 1081B. Statutory Powers 1083

H. DESCRIPTION OF STATUTORY POWERS 1086A. ToSell 1 0 8 6

XXVÌ TABLE OF CONTENTS

B. To Postpone Sale or Conversion of Any Property 1091C. ToLeaseLand 1091D. To Grant Options to Purchase or Renew Leases of Trust Land 1091E. To Repair and Make Improvements to Real Estate 1091F. To Insure Buildings or Other Insurable Property 1092G. To Dedicate Land for Highway Purposes 1092H. To Issue Receipts 1093I. To Compound Liabilities and Compromise Claims 1093J. To Employ Agents 1093K. To Delegate During Absence 1094L. To Obtain thè Passing of Their Accounts 1095M. To Pay into Court 1095N. To Seek thè Opinion, Advice or Direction of thè Court 1096

1. Application Under thè Trustee Act 10982. Application Under Rules of Court 1106

in. ROLE OF THE COURT 1108

Chapter 21 Dispositive Powers and Discretions of Trustees 1115

I. INTRODUCTION 1115IL POWER OFMAINTENANCE 1119

A. Inherent Jurisdiction of thè Court 1119B. Express Power of Maintenance 1124C. Statutory Powers of Maintenance 1127

1. InEngland 11272. InCanada 1131

III. POWER OF ADVANCEMENT 1134A. Inherent Jurisdiction of thè Court 1136B. Express Power of Advancement 1137C. Statutory Power of Advancement 1141

1. InEngland 11412. InCanada 1142

IV. POWERS OF APPOINTMENT 1143V. RESETTLEMENT UNDER A POWER 1144VI. DISCRETIONARY TRUSTS 1145

Chapter 22 Indemnification and Remuneration of Trustees 1149

I. INDEMNIFICATION 1149A. Principle of Indemnification 1149

1. Generally 11492. LegalCosts 1155

B. Lien on thè Trust Property 1157C. Indemnification by thè Beneficiaries 1158

IL REMUNERATION 1162A. Principle of Remuneration 1162B. Trustee Remuneration in Canada 1162

1. Calculation of thè Statutory Compensation 11672. Provision by thè Trust Instrument for Remuneration ; 11693. Judicial Trustees 11714. Public Trustee 1172

TABLE OF CONTENTS XXV11

Chapter 23 Termination of thè Trust 1173

I. INTRODUCTION 1173II. THE RULE IN SAUNDERSv.VAUTIER 1175

A. Postponement to a Certain Age 1179B. Postponement to a Date 1182C. Instalment Gifts 1185D. Discretionary Trusts and Powers 1186E. TheBarfordv. Street Principle 1188F. Charities 1191

III. TRUST TERMINATION IN THE UNITED STATES 1195IV. TRUST TERMINATION IN ALBERTA AND MANITOBA 1197

Chapter 24 Rights of Intervention in thè Administration of thè Trust 1203

Chapter 25 Breach of Trust: Remedy of thè Beneficiary Against thè TrusteePersonally 1207

I. GENERAL PRINCIPLES OF TRUSTEE LIABILITY 1208A. "Technical" Breach 1208B. Principle of Compensation 1211C. Liability is Personal 1212D. Liability of Trustee of Trust Arising by Operation of Law 1213E. Liability of Non-Trustees 1214F. Discretionary Equitable Remedies 1215

II. THE MEASURE OF DAMAGE SUSTAINED BY THE BENEFICIARY 1215A. Principle of Compensation 1215B. The Outer Limits of thè Principle 1216

1. Special Rules for Breach of Trust 12172. Non-Application of Special Rules 12203. Reinvigoration and Refinement of thè Special Rules 12214. Conclusion 1224

C. Punitive Damages 1225D. Recovery by thè Trust ofLost Capital 1225E. Interest Payments on Capital Owed to thè Trust, and on Uninvested

Property 12281. Introduction 12282. Rate of Interest 1228

F. Election Between Interest and Actual Trustee Gain 1230III. LIABILITY OF TRUSTEES AMONG THEMSELVES 1232

A. To thè Trust Beneficiaries 1232B. ToEach Other 1234

IV. PROTECTION FROM LIABILITY AVAILABLE TO THE TRUSTEE 1236A. Consent or Acquiescence of Trust Beneficiary 1236B. Impounding thè Beneficiary's Interest 1240C. Limitation 1242

1. Introduction 12422. History 12433. Modern Law: Unreformed 12464. Reform 1251

D. Laches 1253

XXVÌii TABLE OF CONTENTS

E. Statutory Power of thè Court to Excuse thè Trustee 12561. Introduction 12562. Elements 1258

(a) Honestly and Reasonably 1258(b) Ought Fairly to be Excused 1261

Chapter 26 Breach of Trust: The Remedies of thè Beneficiary for Recovering thèTrust Property 1265

I. INTRODUCTION 1266A. Proprietary Remedies 1266B. Tracing, Following and Claiming 1266C. Motivations for Proprietary Claims 1269

IL CLAIMS AVAILABLEAT LAW AND IN EQUITY 1270A. Common Law Claims 1270

1. Claims to Originai Assets 12702. Claims to Traceable Proceeds 1271

B. Equitable Claims 12721. Claims to Originai Trust Property 12722. Claims to Traceable Proceeds 1273

(a) Trust or Equitable Lien 1273(b) Subrogation 1273

C. Requirements for Proprietary Claims 12741. Credit Risk Not Taken: Trust and Debt 1274

(a) Originai Asset was a Personal Claim: The UnintendedRecipient 1275

(b) Avoidance of a Contract 1275(e) Promise to Create a Trust was Ne ver Fulfilled 1276(d) Originai Asset was a Security Interest 1277

2. Fiduciary Obligation: Is it Necessary for Tracing? 1277III. THE PRINCIPLES OF TRACING 1278

A. MixruresofValue 12791. The Interests of a Wrongdoer are Subordinated 12792. The Subordination of thè Wrongdoer' s Interest Must be Consistent

with thè Evidence 12803. Innocent Contributors to a Mixture are Treated Equally 1281

B. The End of Tracing 12831. Improvements 12842. Sona Fide Purchase 12843. Tracing into thè Payment of a Debt 1285

Chapter 27 Variation of Trusts 1287

I. THE BACKGROUND TO THE VARIATION OF TRUSTSLEGISLATION 1288

IL THE INHERENT JURISDICTION OF THE COURT 1293A. Salvage and Emergency Jurisdiction 1295B. Maintenance Jurisdiction 1296C. Compromise Jurisdiction 1297D. Release of Capital Not Needed to Secure Annuities 1298

TABLE OF CONTENTS XXÌX

III. STATUTORY POWERS OF THE COURT TO VARY TRUSTS OTHERTHAN UNDER THE VARIATION OF TRUSTS LEGISLATION 1299A. Enlarging thè Management or Administrative Powers of Trustees 1299B. Variation of Marriage Settlements 1301C. Variation ofWills Legislation 1302

IV. VARIATION OF TRUSTS LEGISLATION 1302A. Introduction 1302B. Persons Who May Apply Under this Legislation 1307C. Persons on Whose Behalf thè Court Can Approve an Arrangement 1308

1. Introduction 13082. Infants and Mentally Incompetent Persons 13093. Persons Whose Interest is Uncertain 13094. Can thè Court Consent on Behalf of Fully Capacitated

Beneficiaries? 13115. Unborn and Untraceable Persons 13146. Objects of a Discretion 13157. Purpose Trusts 1316

D. Proposals (Arrangements) Within thè Court's Jurisdiction 1317E. Criteria to be Satisfied by thè Arrangement 1322

1. Benefit 1323(a) Introduction 1323(b) Non-Financial Benefit 1324(e) Summary 1325

2. Overall Satisfactory Character of thè Arrangement 1327(a) Generally ..." 1327(b) Intention of Settlor or Testator 1329(e) Exercise or Release of a Power to Benefit Oneself 1330

V. CONCLUSION 1331

Chapter 28 The Trust in Quebec 1335

I. THE TRUST IN A CIVIL LAW SETTING 1335A. Historical Background 1335B. The Trust and thè Modern Civil Law Tradition 1339

II. DEVICES AVAILABLE IN QUEBEC OTHER THAN THE TRUST 1347A. TheUsufruct 1347B. Substitution 1349C. Foundation 1352

UI. THE QUEBEC TRUST 1353A. Conceptual Strucrure 1353B. TypesofTrusts 1356C. Creationof thè Trust 1357

1. Constitution 13572. Requirements of Form and Publicity 13583. Trusts Arising by Operation of Law 1360

D. Administration of thè Trust 13611. Trustees 13612. Powers and Obligations of Trustees 13613. Rights of Beneficiaries and Settlor 1362

XXX TABLE OF CONTENTS

E. Variation and Termination 1365F. Conflict ofLaws 1366

IV. THE TRUST IN PRACTICE 1367

Chapter 29 Trusts and thè Conflict of Laws 1369

I. FOREGN ELEMENTS AND THE TRUST 1369A. Context and Analytical Structure 1369B. The Development of Choice of Law Rules for Trusts 1373C. Validity Issues and Administration Issues 1379

II. CHOICE OF LAW RULES FOR TRUSTS 1383A. Choice of Law for Validity Issues 1383

1. Capacity 13832. Formai Validity 13843. Essential Validity 1384

(a) Common Law Rules 1385(b) The Convention and thè Statutes 1387

B. Choice of Law for thè Administration of Trusts 13911. Common Law Rules 1391

(a) Generally 1391(b) Variation of Trusts 1393

2. The Convention and thè Statutes 1395III. CONSTRUCTIVE AND RESULTING TRUSTS, EQUITABLE WRONGS

AND TRACING 1395A. Constructive and Resulting Trusts 1395B. Equitable Wrongs 1397C. Tracing 1398

IV. CONCLUSION 1401

Chapter 30 The Future of thè Trust 1403

Appendices 1407

Appendix A: Statutory Provisions Regarding Trustee Investment Powers in thèCommon Law Provinces and thè Territories 1408

Appendix B: Statutory Powers of Trustees in thè Common Law Provinces and thèTerritories 1410

Appendix C: Statutory Powers of thè Courts in thè Common Law Provincesand thè Territories 1412

Appendix D: The Hague Convention on thè Law Applicable to Trusts andon their Recognition 1417

Index 1427