So, here is a scenario:
A loving father dies, and leaves a hefty sum to a younger son in his Will. However, the sum is not simply accessible to the younger son. Instead, it has been placed in a trust, with an older son as trustee. The stipulation is that the trust will remain in place till the younger son reaches the age of 40. In the interim, the older son will manage the sum, and pay amounts out of the interest generated by the sum to the younger son, as the older son deems warranted.
You guessed it. The younger son is chafing at all of this. He is 22, he wants out of the restrictions, and he wants out now. Eighteen years of getting droplets is driving him up his living room wall. Does he have any hope of getting his money early?
The Reasons
First, it must be highlighted that there are likely valid reasons for the arrangement put in place by the father.
The younger son might be inclined to spend the entirety of his inheritance, even though he might also be unwilling, in his youth, to recognize that tendency in himself.
It might also be that the younger son is in a shaky relationship, and the father wants to buy some time for the relationship to stabilize or disintegrate before putting a large sum of money in the mix.
A third possibility is that the younger son might well be on his way to bankruptcy, and the father would rather not see his inheritance simply go to pay creditors.
The Words
Beyond the reasons, the younger son's first "port of call" must be the words on the pages establishing the trust.
Some trusts are more flexible than others.
For example, the trust document may stipulate that if the amount in the trust gets very small, it can be collapsed. That is unlikely to happen in this scenario, since the amount used to "settle" the trust is large, and the trustee is limited to paying out solely the interest on that amount.
Also, the trust document might empower the trustee to pay out the full amount in the trust if the trustee feels it is warranted. That, also, is clearly not the case here.
Thirdly, the trust might contain wording as to the principal reason it was set up. For example, to fund the younger son's very expensive educational ambitions. If the younger son has gone through the desired schools, there is some room to argue that the trust, by and large, has done what it was intended to do.
The Battle
Beyond the words, what looms if the younger son insists on turning his thinking into action is an uncertain court battle.
The starting point of that battle is, in law, called "testamentary freedom". In this case, it is the freedom of the father to decide on how his assets are to be distributed after his death. As a rule, testamentary freedom is to be respected. However, there are three reasons to depart from it:
(a) if dependants have not been adequately provided for - for example, a $1 million estate, with a two year old set to only benefit to the tune of $1000;
(b) if a beneficiary is "unworthy" - for example, a beneficiary who kills the testator in order to get at the estate "loot"; or
(c) if a Will violates "public policy" - for example, a mafioso's Will stipulating that every potential beneficiary must commit a crime in order to inherit.
Now, let's move beyond the starting point of the battle. Our younger son has been well provided for, he did not kill his father, and his father was no mafioso. Does he have any other options?
He does!
The rule in Saunders v Vautier, a court case from the early 1800s, might well provide him with an avenue. In brief, and as restated by the Supreme Court of Canada in Buschau v. Rogers Communication Inc., 2006 SCC 28 (CanLII):
"The common law rule in Saunders v. Vautier can be concisely stated as allowing beneficiaries of a trust to depart from the settlor’s original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property … ."
In other words, our younger son has more than a snow ball's chance in hell of collapsing his father's trust.
That doesn't mean it's all easy-peasy-lemon-squeezy though.
We'll have to return to the words on the page setting up the trust.
For example, if the trust is set up to give the trustee (that is, the older brother) absolute discretion because the younger brother has a mental disability, the rule in Saunders v. Vauthier won't apply. Or, to put it in legal terms, "the rule does not apply to Henson Trusts".
If the trust document mentions another beneficiary and if that beneficiary does not want to collapse the trust, the rule in Saunders v. Vauthier might also not apply.
If a court determines that to collapse the trust would not be equitable … you guessed it, the rule in Saunders v. Vauthier won't apply.
So, it's a good chance that our younger son has, but not a certain bet.
Good chances that are not certain bets are, by the way, tailor made for court.
Smart Dad
In closing, it is worth noting that the father was smart in having the trust run for 18 years.
At 21 years, every trust undergoes what is called a "deemed disposition". It is as if the assets in the trust are sold at fair market value, and the government gets to hit the trust with a capital gains tax.
It is sort of the government's way of saying "enough already with this trust business".
It should be noted that this is despite the fact that the government would have been taxing the trust annually for any revenues anyway.
If you reside in Ottawa or Toronto or any other part of Ontario, and have any questions regarding trusts, get started here, at afolabi.law