Stopping the Flow – A Look at Pour-Over Trusts In Canada

What is a Pour-Over Trust

A pour-over trust in a Will occurs when a testator creates a trust during their lifetime and then, in their Will, includes a clause that names that trust as a beneficiary. The legal issue is created when this trust is amendable and revocable. For example, let’s say a testator creates a trust (ex. it names A and B as beneficiaries) and then signs a Will naming the trust as the beneficiary of their Estate (effectively making A and B beneficiaries of their Estate). Later, a testator amends the beneficiaries of that trust (so A and B are no longer beneficiaries) and names new beneficiaries (C and D). This, in turn, means the Estate beneficiaries through the Will are now, effectively, different (they are now C and D). In several Canadian jurisdictions, you can only amend a Will through certain formalities defined under the legislation. In Alberta, unless a Will is holographic (i.e., handwritten by the Testator), two witnesses must be present when there is an amendment.[1] Therefore, the issue with using a pour-over trust in a Will is that it may effectively allow a person to alter their Will by altering their trust without complying with the required formalities, like making that alteration in the presence of witnesses.

Currently, the Alberta Courts have not considered this issue yet. However, the Courts in British Columbia (“BC”), Nova Scotia, and Ontario, have all considered the validity of pour-over Trusts and their decisions are likely to be influential in Alberta.

Pour-Over Trusts in Canada

Quinn Estate v Rydland: “pour-over” clauses in a Will are invalid in BC.[2]

In Quinn Estate, the clause at issue granted the residue of Mr. Quinn’s Estate to an inter vivos family Trust (the “Trust”). The Trust was amendable and revocable, and it was settled before the execution of the Will. However, it was subsequently amended three years after its creation without following the formalities set out in the BC Wills Act.[3]

The first issue the court identified was that a pour-over clause allowed Mr. Quinn to make “a testamentary disposition in the future without complying with the formalities” of the BC legislation.[4] The second issue was that there could be amendments without knowing with certainty that it was “the actual disposition purported to be made by Mr. Quinn” since it was not governed by terms in the Will itself.[5]

The parties seeking to uphold the pour-over clause made appeals to the following: (1) the doctrine of incorporation by reference; (2) the doctrine of facts of independent significance; and (3) the saving provision under BC’s legislation[6] (“WESA”).

The court denied all three arguments, holding the clause invalid. First, Mr. Quinn had no intention of incorporating the Trust into the Will; Mr. Quinn intended to make a gift to the Trust. Second, the Trust, as amended, was not a “presently existing document” when signing the Will. Despite American legislation permitting pour-over Trusts, and similar reform suggestions in Canada, BC legislators had not adopted the doctrine of independent significance. The court held that pour over-clauses were therefore adverse and contrary to legislative intent – they permit Testators to circumvent legislative formalities to amend their Will. For that reason, the court also denied the applicability of the saving clause in the WESA.

Waslenchuk Estate: pour-over clauses in revocable or amendable Trusts are invalid even if the testator has not amended their Trust.[7]

The court in Waslenchuk Estate furthered the Quinn Estate decision, holding that pour-over clauses are invalid even where the Testator has not amended the Trust instrument and where the pour-over goes to a Trust rather than Trustees. Pour-over clauses to amendable, revocable Trusts are invalid in BC based on the mere possibility of amendment or revocation.[8]

MacCallum Estate: pour-over clauses are valid if the testator has not revoked or amended their Trust.[9]

Nova Scotia courts have distinguished Quinn Estate. Without considering Waslenchuk Estate, the court upheld the pour-over clause. The court referenced Manitoba decisions regarding the duties of a fiduciary and upholding testamentary gifts as valid.[10] The evidence then supported the following findings: the same solicitor drafted the Trust and the Will; the parties signed the Trust first; the Trust contained significant assets such that it was fully constituted; the Trust was never revoked or amended; and the Trust was intended to operate within the Will as part of one Estate plan.[11] Based on these findings, the Trustee had a fiduciary duty to administer the gift as promised.[12] Further, the court found that presumptions against intestacy, upholding the “obvious intentions” of the Testator, and the leniency provided for holographic Wills and testamentary writings all supported upholding the clause.[13]

Vilenski v Weinrib-Wolfman: “pour-over” clauses in a Will, involving a revocable, amendable Trust, are invalid in Ontario.[14]

The Ontario courts recently considered the competing authorities in Canada on pour-over clauses: in BC, they are invalid if the trust are amendable, regardless if an amendment actually occurred; in Nova Scotia, they may be valid if there has been no amendment based on the fiduciary duty of the trustee. The court acknowledged that, in this case, the parties made no amendments to the Trust after the execution of the Will and the parties did not offend any formality requirements. However, the clause was ultimately held as invalid. The court stated that a “retrospective consideration” of “loosening… the restrictions after the fact does not serve the intended objectives of the formalities;” the exceptions relied on in MacCallum Estate were statutory and not after the fact and “ad-hoc.”[15]

Notwithstanding all parties involved consenting to the pour-over clause, the court intended their decision of invalidating the clause to form precedent.[16] The court stated that the beneficiaries on intestacy were free to distribute the residue of the Estate in a manner consistent with the Trust conditions, if they chose to, after the fact.

Where Does This Leave Alberta?

Courts in Alberta have not issued a definitive ruling on pour-over clauses. Tensions exist between giving effect to the intentions of the Testator as set out in their Will and upholding the formalities required by legislation.

Competing authorities across Canada suggest upholding pour-over clauses is an open question, particularly when dealing with revocable, amendable Trusts. Quinn Estate suggests that an amendment to a Trust invalidates the pour-over clause within the Will. Waslenchuk Estate and Vilenski further support that even without an amendment, the mere presence of a revocable, amendable Trust undermines the validity of a pour-over clause. In contrast, in MacCallum Estate, the Nova Scotia court suggested that pour-over clauses are valid if the Testator has not amended the Trust after making the Will. The 2019 report from the Uniform Law Conference of Canada (“ULCC”) supports the decision in MacCallum Estate. The ULCC recommended model legislation to allow pour-over Trusts in the 2019 report, “Uniform Testamentary Additions to Trusts Act.”[17]

The Vilenski and Quinn Estate decisions leave the door open for legislation, similar to that which the ULCC suggested, to validate such clauses. However, without a formal adoption of legislation allowing for pour-over clauses, it is likely that the authorities from both BC and Ontario would be more persuasive on Alberta courts than the Nova Scotia decision.

If you have questions regarding this article or regarding your estate plans, please do not hesitate to contact a member of our Estates & Trusts practice group for advice.