February 17, 2015

In a recent Ontario case, the Applicant, a beneficiary of a testamentary trust, sought an order declaring that the gift over of the trust was voided for uncertainty.  He also sought an order that the entire trust be paid out to him immediately.  The estate trustee took the position that the gift over clause was not void.

The Applicant was the testator’s only son.  In her will, the testator made an outright gift to the Applicant but also established a testamentary trust for his benefit.  The trust provided for the trustee’s full discretion when it came to payments from the trust.  The gift over clause in the trust provided that upon the Applicant’s death, the residue of the trust would be paid out by the trustees for distribution to “any and all worthy individuals or causes who shall be alive or in existence at the time.”

The court agreed with the Applicant that the gift over provision of the trust was void for uncertainty.  “Worthy individuals or causes” was not enough to establish that this was a charitable trust.  As such, the residue of the estate would be distributed in accordance with intestacy.

The court then looked at when the intestacy was created.  Was the intestacy created at the time of the testator’s death? If so, the Applicant took the position that he was entitled the residue of the trust.  As the sole beneficiary of the trust, the Applicant argued that payment of the trust ought to be made to him outright by applying the Saunders v. Vautier principle. However, if the court decided that intestacy was created at the Applicant’s death, then the residue of the trust would be distributed to his issue.

The court, recognizing the general presumption that a testator who executes a will does not intend intestacy, looked at the will as a whole.  The court found that the testator never intended to have the assets of the trust immediately vest in the Applicant and intended that those trust assets be distributed through the discretion of a trustee.

The court found that intestacy would not operate until after the Applicant’s death.  Since the Applicant did not have a full beneficiary interest in the trust, the Saunders v. Vautier principle did not apply and the trust could not be collapsed.

This case is a reminder that when creating gift over clauses, the class of beneficiaries must be clearly identifiable.