To Vary a Trust
A trust may be created within a Will, commonly known as testamentary trusts, or outside of a will, which are referred to as inter vivos trusts.
There may be instances where the Court ought to step in and change the terms of the trust, which occurred in the case Janke Estate (Re), 2020 ABQB 668 [Janke Estate]. This case involved an application to vary specific trusts created in the Will.
Three problems were identified. The Will (1) did not specify the appointment of a trustee for the funds of two of the trusts, (2) created the potential that funds from a trust to grandchildren could remain unused until each grandchild dies, (3) and created the potential that funds from one of the trusts would remain in limbo forever if a condition precedent was not satisfied. One of the options available to the Court to rectify these types of problems is to vary the terms of the trust pursuant to section 42 of the Trustee Act.
The Court at paragraph 5 summarized section 42 of the Trustee Act as follows:
The section is titled “Variation of trusts:”
Subsection (2) provides that a trust cannot be varied or terminated during it natural duration, except with Court approval.
Subsection (4) states that Court approval of a proposed “arrangement” under subsection (2) [the word “arrangement”, in this context, appears for the first time in this subsection] shall be made by means of an Order approving:
- The variation or revocation of the whole or part of a trust or trusts;
- The resettling of any interest under a trust; or
- The enlargement of the powers of the trustees to manage or administer any of the property subject to the trusts.
Subsection (5) provides that in approving any arrangement, the Court may consent to the arrangement on behalf of incapacitated persons, including minors.
Subsection (6) states that Court approval is contingent upon consent to the arrangement of all persons who are beneficially interested under the trust and who have capacity to consent.
Finally, subsection (7) stipulates that the Court cannot approve an arrangement unless it is satisfied that the carrying out of it appears to be:
For the benefit of each person from whom the Court may consent under subsection (5), and
In all the circumstances, otherwise of a justifiable character.
Court Exercises Authority to Vary the Trust
Upon consideration of this section, the Court approved of the variation for the following reasons:
- The Applicant had obtained consent from all persons beneficially interested.
- The Court noted that although the parents of minor beneficiaries approved of the proposals, the consent of the Court was what mattered as per subsection (5).
- The proposal was justifiable in nature.
- The Court considered the proposals were a benefit to each minor beneficiary as per subsection (7) because in consideration of the arrangement as a whole:
- Designating parents as trustee of each respective minor simplified trustee administration and encourages discussion between minor and trustee.
- The imposition that the funds for college must be used by age 30 introduces certainty.
This case demonstrates the ability of the Court to alter the terms of a trust in very specific circumstances. If you require assistance varying the terms of a trust, contact one of the experienced estate litigation lawyers at Kantor LLP. We are happy to be of assistance.