Variation of Trust

  • What is variation of trust?
    • As the title implies, variation of trust is the alteration of the provisions of an inter vivos or testamentary trust.  Generally, there are three ways a trust can be varied:

      •  By the trustee, where the trust documents provides explicit authority to the trustee (this is quite rare);

      •  By the beneficiaries themselves; and  

      •  By the Court under its statutory and/or inherent jurisdiction.

      Should a trustee vary the terms of the trust without the requisite authority, he or she will be in breach of trust even if the trustee is acting in the best interest of the beneficiaries.

  • Who can apply for variation of trust?
    • One or more of the adult beneficiaries can apply to the court to vary a trust.  In some cases, the settlor or trustee(s) can apply as well.

  • What are some of the situations when variation of trust is requested?
    • Variation of trust can be requested in a wide variety of situations.  For instance, these situations may relate to changing the trustee’s power of investment and management of the trust, effective administration of the trust, readjustment of beneficial interests, acceleration of beneficial interests, tax planning and in some cases even addition of beneficiaries.  Examples of some of the applications made in the courts are as follows:

      •  The proposed variation resulting in substantial tax advantages for trust and its beneficiaries.

      •  The proposed variation allowing encroachment on the capital of the trust property.

      •  Delaying the distribution of capital to beneficiaries at the age of 35 rather than 19 for their best interests.

      •  Borrowing money against the house held in trust to effect repairs in order to sell the house.

      •  Variation application by all beneficiaries to include another child of the settlor as beneficiary and remove some of the discretionary powers of the trustees.

      •  Acceleration of interests of the beneficiaries in the remainder property after the life interest fails.

      •  Enabling administration of trust in a more tax-effective manner.

      •  Terminating the trust early and securing the interest of contingent beneficiaries through life insurance.

      •  Adding beneficial interest and expanding trustees’ power of investment.

      Selling the trust property with proceeds to be held in trust in substitution for lands when the value of land was likely to decrease than increase.

  • What are the criteria for variation of trust?
    • There are three fundamental criteria which must be met in order for a court to approve the requested variation.

      •  The proposed variation must be within the ambit of the intention of the testator/settlor.

      •  The proposed variation must demonstrate the benefit to each member of a class of beneficiaries on whose behalf the court is being asked to give its consent.

      •  A prudent adult with intelligent self-interest should agree with the requested variation.

      The court’s power to approve the variation is discretionary.  The court will only approve variation on behalf of minors, unborn or incapable beneficiaries.  Therefore, all other beneficiaries (i.e. beneficiaries who are sui juris, that is, adults who are capable, must consent to the proposed variation application.

  • What is the process of applying for variation of trust?
    • While each variation application would differ in its specificity, the following general steps are helpful to understand the process for variation of trust application:

      •  Fully understand all of the provisions of the existing trust.

      •  Identify all of the actual and potential beneficiaries of the existing trust.

      •  Identify all of necessary parties to the proposed Deed of Arrangement.

      •  All sui juris beneficiaries must consent to the Deed of Arrangement.

      •  Identify who will require representation before the court.

      •  Identify who will be affected by the variation of trust and how.

      •  Contact The Children’s Lawyer for its agreement to the proposed variation, if applicable.

      •  Commence the originating process by way of application to obtain court’s approval.