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Trusts and Estates

Trusts And Estates

by JordanaLevine, Mar. 2017

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	Definition of Trust	A trust is the relationship which arises whenever a person (called the trustee) is compelled by equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of (1) some persons (called the beneficiaries) or (2) for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or the objects of the trust.
	Types of Trusts: Express Trusts	A. Express Trusts: A trust created by the express will of the settlor
	Types of Trusts: Express Trusts 1) Express Trusts for Persons	1) Express Trusts for Persons: Family trusts, transferring property to avoid taxes, pension funds, conservation trusts (for disabled persons), business trusts (i.e. mutual funds), governance trusts
	Types of Trusts: Express Trusts 2) Express Trusts for Purposes a) Non-Charitable Purpose Trusts	2) Express Trusts for Purposes: a) Non-Charitable Purpose Trusts: These type of trusts are not legally enforceable and will always fail, they will becomes a Trust by Operation of Law
	Types of Trusts: Express Trusts 2) Express Trusts for Purposes b)Charitable Purpose Trusts	b) Charitable purpose trusts: A trust created for the purpose of the relief of poverty, the advancement of education, the advancement of religion or other purposes beneficial to the community
	Types of Trusts: Trusts by Operation of Law	B. Trusts by Operation of Law: A trust that is not created through the intention of the parties, but rather created as a remedial device (to fix a problem)
	Types of Trusts: Trusts by Operation of Law 1) Constructive Trusts	1) Constructive Trusts: May be imposed in the context of family relationships: In Pettkus v. Becker, the court decided to create a constructive trust in order to give a woman property following a break up May be imposed as a remedy for breach of duty May be imposed to disgorge an unearned benefit
	Types of Trusts: Trusts by Operation of Law 2) Resulting Trusts a) Automatic Resulting Trusts	2) Resulting Trusts a) Automatic Resulting Trusts: An automatic resulting trust is imposed where an express trust fails. This may occur when a express trust is created for a purpose that is not considered charitableIn the case of an automatic resulting trust, the trustee will have a duty to return the money to the settlor
	Types of Trusts: Trusts by Operation of Law 2) Resulting Trusts b) Presumptive Resulting Trusts	b) Presumptive Resulting Trust: A presumptive resulting trust is imposed when a trust was not specifically created, but where the intent to create one can be implied
	Types of Trusts: Statutory Trusts	C. Statutory Trusts: A trust created by the legislature for a specific purpose (may be created by both provincial and federal statutes) Examples: bankruptcy estate, builders' lien
	Definition of Settlor	The person who creates an express trust by conveying property to the trustee
	Definition of Trustee	The person who holds title to trust property for the benefit of the beneficiaries
	Definition of Beneficiary	The person for whose benefit the trust property is being held
	Definition of Trust Property / The Res	The property that the trustee holds for the benefit of the beneficiaries (property may be tangible or intangible, may be a chose in action or even an interest in another trust)
	Definition of the Trust Instrument	The Trust Instrument is the document which creates a trust There are two forms: Deed of trust: a document creating a trust while the settlor is still alive - an inter vivid trust Will: this is a testamentary trust
	Types of Trusts: Discretionary Trust	The trustee has discretion in the management of the trust The trust could be discretionary as to the amount the beneficiaries will receive, or which beneficiaries will receive income or capital of the trust, or both Example: Scholarship trust
	Types of Trusts: Fixed Trust	The trustee has no discretion (the beneficial interest have been determined) The amounts to be distributed are fixed, as are the people who are to receive the amounts
	The Trust as a Separate Tax Payer	The trust is generally treated as an individual for tax purposes and is taxed at the highest individual tax rate (29%) (exception for graduated rates estates and disability trusts)
	Personal vs. Commercial Trusts	The Income Tax Act makes a distinction between a personal trust and a commercial trust (more complicated rules apply to commercial trusts) Personal trust: one in which the beneficiary has not paid money to the trust itself (generally family or estate planning trusts) Commercial trust: those where one "pays to get in" (mutual funds, pension funds, investment vehicles)
	Gains and Losses (Transfers)	Transfers of property in and out of the trust are considered taxable events which result in a realization of gains or losses There are exceptions for certain trusts such as spousal trusts or alter ego trusts The settlor will be liable for tax due on gains in value of property since acquisition and before transfer to the trust
	"Deemed" Distribution (21 Year Rule)	Normally, a trust is taxed on all gains in a property in its hands after a period of 21 years (effectively creates a lifespan for the trust) This prevents increasing unrealized gains to be untaxed This can be avoided by providing a "roll-out" of the trust property to the beneficiary prior to the expiration of the 21-year period
	Taxation of the Trust as a Conduit: Level	What is the level- trust or beneficiary - at which tax ought to be payable? Income earned or gained by the trust in a year is taxed in the trust at the trust's rate rate Income payable to the trust's beneficiaries in the year is deducted by the trust and included in the income of the beneficiary and is taxed at the beneficiary's tax rate Exception: A trust with a negative income (i.e. no taxable income) may designate payments made to a beneficiary as not having been paid to the beneficiary, thus allowing the trust to "use up" losses rather than have them "trapped" in the trust
	Taxation of the Trust as a Conduit: Characterization	Income of trusts come from various sources (i.e. capital gains, real estate rents, ordinary income, etc.) Frequently income is taxed different depending on its source The ITA allows a trust to preserve the identity of certain types of "flow through" income when paid to a beneficiary so as to allow the beneficiary to take advantage of a the favourable tax treatment
	Taxation of the Beneficiaries of a Trust: Income	A beneficiary is taxed on income of the trust that has become payable to him in that year Distributions of income on which the trust has already paid tax, as well as distributions of capital, are not taxed again in the beneficiary's hands This avoids that problem of "double taxation"
	Taxation of the Beneficiaries of a Trust: Benefits	The beneficiary of a trust is also taxed on the value of benefits he derives from a trust The ITA provides that the value of all benefits must be included in the taxpayer's income
	Disposition of Income Interest	A beneficiary with an income interest in a trust may dispose of that interest through sale When that occurs, the beneficiary must pay taxes on the difference in value between the amount he paid for the interest (if any) and the amount received upon sale
	Disposition of Capital Interest	The disposition of a capital interest in a trust by a beneficiary to some other person will normally give rise to the realization of capital gains or losses in the hands of the beneficiary
	Requirements for the Creation of an Express Trust	There are four requirements for the creation of an express trust: Capacity Certainty a. Intention b. Subject matter c. Object 3. Constitution 4. Formality
	1. Capacity	Parties must have legal capacity dependant on their role in the trust
	a) Capacity of the Settlor	The settlor must have the legal capacity to make a property transfer Minors: they are generally not competent to be a settlor because contracts made by a minor are usually void or voidable (exception: emancipated minor) Incompetents: they are generally not competent to be a settlor unless they are capable of understanding the nature and consequences of the act of giving away their property
	b) Capacity of the Trustee	A trustee can be any person capable of holding an interest in the type of property in the trust It can be a corporation It can be a minor, but this may be problematic because minors may not be able to dispose of property and therefore may not be capable of dealing with the trust property
	c) Capacity of the Beneficiaries	Any legal person can be a beneficiary (natural persons or persons recognized by the law) Entities who are not legal persons cannot be beneficiaries Therefore, unincorporated associations or partnerships cannot be beneficiaries However, the individual members of the unincorporated association or the individual partners of the there partnership can be beneficiaries The beneficiary does not need to have capacity
	2. The Three Certainties	In order for there to be a valid trust there must be certainty, we must know what the trust is about and what its purpose is The three certainties are: 1. Certainty of intention 2. Certainty of subject matter 3. Certainty of objects
	a) Certainty of Intention	There must be an intention to create a trust, an intention that one person hold property for the benefit of another The expression of intention can be oral or written Conduct alone may be sufficient, but normally the intention will have to be supported by some oral expression of intent or words in a written document No specific words are necessary The intention must be more than a mere moral obligation (i.e. "I leave you this sum and hope that you will do this thing")
	Re Walker	"I give and devise unto my wife all my real and personal property. Also should any portion of my estate still remain in the hands of my wife at the time of her decease undisposed of by her, such remainder shall be decided among..." Beneficiaries argue that this is a trust, that the wife is a trustee holding the property until her death, and that there must be something left to give to the beneficiaries Court decides that the wording is not clearly evidence of an intent for the wife to be a trustee Therefore, it is a gift with a vague restraint on alienation
	Re Shamas	"...All belongs to my wife until the last one becomes 21. If my wife marries again, she will have her share like the other children. If not she will keep the whole things and sees that every child get his share when she dies." Here the Court decides that the wife is a trustee-beneficiary who may encroach on the funds and may exercise her discretion on how much she spends Why the different results? The Court is trying to figure out the intention of the testator by considering the circumstances (contextual approach). In this case, because of the presence of children, it is much easier to find a trust than in Walker.
	Johnson v. Farney	"I also wish if you (my wife) die soon after me that you will leave all you are possessed of to my people and to your people equally divided between them, that is to say your mother and my mothers' families" Is there an intent to create a binding obligation upon the wife to hold the property for the benefit of someone else (i.e. for "my people and your people")? Here the court finds that there is no intention to create a trust (a trust requires an obligation, more than a wish) Note that the presence of the word "wish" doesn't always necessary mean there is no intention
	b) Certainty of Subject Matter	There are two aspects: 1. What is in the trust? 2. How much / what are the beneficiaries going to get?
	i) Certainty of Property Subject to the Trust	The property that is the subject of the trust (the res) must be established at the time it is created Could be a specific piece of property Could be a fixed amount of a fund Could be a method for determining what the beneficiary is to receive
	ii) Certainty of Amounts Beneficiaries Should Receive	Fixed trust: the amounts of sums beneficiaries are to receive needs to be set forth Discretionary trust: the trust may provide that the trustee shall have discretion as to the amounts of sums beneficiaries are to receive In some circumstances, the court will cure an otherwise apparent uncertainty as to the amounts beneficiaries are to receive by assuming that the property of the trust is to be distributed equally among the beneficiaries
	Sprange v. Barnard	A will provides the following: "I leave X to my husband for his own wants and use, and whatever is left at his death is to be divided equally between my brother and my sister" In this case, the money is given to him for his wants and not for his maintenance. As such, the corpus of the trust consists of that which the husband does not want. That is not an amount that can be ascertained with any certainty. The trust fails.
	Re Romaniuk	A will provides the following: "The rest of the contents of the house and my personal belongings are to be available to my brothers to divide among them and the rest sold including my house and car. The money from the sale of my house and car and other property as well as the money from my bonds and bank accounts is to be put in a trust." The Court came up with 3 different interpretations of this. As such, the trust must fail for lack of certainty of subject matter. The Court's job is not to do what is fair or reasonable, their job is to put into effect the settlor's intentions. If the intentions are not clear, the Court will not rewrite a will. They must let the trust fail and allow the law to take its course.
	c) Certainty of Objects	We must know who the beneficiaries of the trust are
	i) The Need for Certainty of Objects	Trustee must know who the beneficiaries are otherwise he cannot fulfill his function Courts must know to whom the trustee is supposed to distribute benefits to determine whether there is a breach of trust Beneficiaries must know if they are entitled to receive benefits
	ii) The Test for a Fixed Trust	Certainty of objects is provided in a fixed trust simply because the trust document tells the trustee who the beneficiaries are; the trustee has no discretion The class ascertainability test requires that the trustee/court be able to: 1. Determine whether any person is a member of the class of beneficiaries; and 2. Identify every member of the class (be able to make a complete list of all beneficiaries)
	iii) The Test for a Discretionary Trust	The trustee in a discretionary trust has the discretion to decide which beneficiaries within a class will receive benefits, or the mount each is to receive, or both The individual ascertainability test requires that one be able to determine with certainty whether any given individual is a member of the class of beneficiaries described by the settlor
	IRC v. Broadway Cottages Trust	The Court sets out a rule providing that in order the have certainty of objects for a discretionary trust, we must be able to determine not only whether one particular individual is within the class of beneficiaries, but the entire range of beneficiaries (all the beneficiaries) must be "ascertained or capable of ascertainment"
	McPhail v. Dolton - Re Baden's Deed Trust	Here, the Court overturns the decision in IRC and holds that the requirement of certainty of objects for a discretionary trust will be met "if it can be said with certainty that any given individual is or is not a member of the class", we do not need to know every member of the class of beneficiaries The key here is not knowing everybody in the class, just knowing the definition of the class Conceptual uncertainty: the trust will fail for conceptual uncertainty if we cannot figure out who fits into the class (here the court decided we can figure our who is a "relative and dependant") Evidentiary uncertainty: a person claiming they are part of the class of beneficiaries must prove it, but the trust will not fail simple because a person cannot prove he is in the class
	3. Constitution of Trusts	One of the four requirements of an express trust is that it be constituted Once constituted, the settlor cannot revoke it or alter it unless he has retained a power of revocation Without constitution of a trust, one has only a promise to transfer property to another person to be held in trust for a third person
	Ways of Constituting the Trust	The property must actually be transferred/constituted to the trustee by the settlor, otherwise there is no trust There are 3 ways of constituting a trust: 1. Settlor transfers the property to the trustee 2. A third party transfers the property to the trustee 3. The settlor declares himself a trustee with respect to property in his possession
	a) Settlor Transfers Property to the Trustee	The transfer can be by gift or sale This is the most common method of constituting a trust
	i) Transfer by Gift or Sale	Property can be transferred either by giving the property to the trustee or selling the property to the trustee If it is transferred by gift, the formalities of a gift must be met: a) Intention: the donor must intend to make a gift b) Delivery: the donor must actually deliver the gift (consideration) c) Acceptance: the trustee must accept the gift on the terms of the trust
	ii) Transferring Legal Interest	Proper mode of transfer of the property depends on the type of property in question: Land transferred by deed Chattel transferred by delivery (by contract) Choses in action transferred by assignment Negotiable instrument transferred by endorsement
	iii) Transferring Equitable Interest	Example: Tom is holding the legal title to 10 shares in trust for Barry during his life, and then in trust for Rita after Barry dies. Rita therefore has an equitable remainder interest in the shares. If Rita decides to make a gift of her equitable to her son David, she can either assign her equitable interest directly to David OR create a trust in which the shares will be held for his benefit by: 1. Assignment of her interest in the shares to a new trustee on trust for the proposed donee (David) 2. Instruction to existing trustee (Tom) to hold her equitable interest in the shares on trust for the new beneficiary (David) 3. Declaration of herself as a trustee of her equitable interest in the shares for David's benefit (declaration that owner of equitable interest now holds for someone else)
	Milroy v. Lord	Rule: "The settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him" In this case, the settlor Medley tried to create a trust for his niece Eleanor. Medley wanted to give the trustee Lord 50 shares to hold for Eleanor. Although everyone acted like there was a trust, the shares were never actually endorsed (transferred according to the company's constitution). Court finds that the gift was imperfect because it was not delivered and as such Eleanor is not entitled to the shares.
	Re Rose	Settlor wanted to create a trust composed of shares for his wife. He executed a share transfer agreement in the form required by the company in April 1943, but the company did not record the transfer in June 1943. Inland Revenue contended that the shares were not transferred until the later date and therefore subject to taxation. The Court found that a trust was created as soon as the settlor had signed the form. The settlor may have been the legal owner of the shares until June, but having done everything required to create the trust, the trust came into effect.
	b) A Third Party Transfers Property to the Trustee	A trust may also be constituted by having the settlor order a third party to transfer the property to the trustee to hold for the beneficiary Example: Settlor has goods in a warehouse and orders the warehouseman to deliver the goods to the trustee to hold for the beneficiary
	c) The Settlor Declares Himself a Trustee with Respect to Property in his Possession	A settlor may also constitute a trust simply by declaring himself trustee of property already in his hands Here, the settlor would be both settlor and trustee In this case, no transfer of property is necessary as the owner of the property retains the legal title to it, but the declaration has the effect of divesting the equitable title from the settlor to the beneficiary Courts require very clear evidence of the settlor's intent tom are a gift this way (they don't want to find trusts constituted on this basis so as to perfect an otherwise imperfect gift)
	Paul v. Constance	A man opens a joint bank account with is mistress. They both put money into it. He dies and his wife claims the entire account. Mistress claims that he was actually holding the account in trust for both of them. In this case, the bank manager came forward and said that the man did express his intention to create a trust an be trustee (solves evidentiary problem) So the man is the settlor, trustee and beneficiary. The mistress is the settlor and beneficiary. The trust is to be split between the man and mistress. The mistress gets half the money and the wife, as the husband's heir, gets the other half.
	Enforcement of Promises to Create a Trust	What happens when a settlor promises to create a trust but does not actually constitute it? Should courts enforce a promise to create a trust? It depends on whether the promise is contractual (i.e. has consideration) or is gratuitous
	a) Gratuitous Promises: Absence of a Deed	A gratuitous promise to constitute a trust may be expressed in a deed. It may also be made orally, or in a written document that does not meet the requirements for a deed. Courts will not enforce gratuitous promises to create a trust. However, if there is actual delivery by the settlor of the property to the trustee, this will tend to give one more confidence that the settlor appreciate the significance of what he was doing and truly intended to convey the property in trust for the beneficiary. Delivery may satisfy two underlying concerns: 1. The trust was deliberately made and 2. Provides evidence of the gift.
	b) Gratuitous Promises: With a Deed	A deed is a signed and sealed document where the settlor promises to create a trust Where there is a gratuitous promise in a deed to constitute a trust and the beneficiary is not a party to the deed, courts have been reluctant to enforce the deed (Re Pryce) Where there is a gratuitous promise in a deed and the beneficiary is a party to the deed, they might be able to obtain damages for the breach of the covenant in the deed (but not specific performance; the trust will not be constituted) (Cannon v. Hartley)
	c) Contractual Promises to Create Trusts (Non-Gratuitous)	Where there is consideration for the settlor's promise to deliver property to the trustee to be held on trust, a beneficiary or trustee might be able to get specific performance of the transfer (it may be possible to force the constitution of a trust by enforcing the contractual obligation) Where the beneficiary provides consideration: - If the property at issue is unique (i.e. land) then specific performance might be available - If the property at issue is fungible (i.e. shares) then the beneficiary is likely to get damages unless he can prove that the damages cannot be calculated with certainty Where the trustee provides consideration: the trustee would likely awarded damages for the loss of their management fee
	4. Formalities	No particular words are required to create a trust but certain formalities may be required where certain property is concerned or where the trust is created by certain documents
	a) Statute of Frauds	All trusts with respect to land must be acknowledged in writing by the settlor and assignments of equitable interest in trusts need to be in writing Applies to trusts in 3 contexts: Contracts that create trusts involving land Trusts that creates an interest in land Assignments of equitable interest in trusts
	b) Testamentary Trust	A trust arising by a will (testamentary trust) must meet all requirements of the Act of Wills Sections 3, 4(1), 6 and 7(1) of the Ontario Succession Law Reform Act The will must be in writing (section 3)
	Constraints on Express Trusts	The trust must not: Be illegal or immoral Go against public policy Unreasonably interfere with the family life Defraud creditors
	1. Illegality and Immorality	Terms of a trust which promote crime or immorality cannot be enforced Example: trust as a vehicle for terrorism or money laundering (hiding money made illegally) If the trust is illegal, there is a chance that the trustee gets to keep the assets as there is not way to enforce the trustee's obligations Where the property settled on trust was the proceeds of crime, the property can be confiscated by the government Trust that are considered immoral and considered to be void as well
	2. Public Policy	A trust that contains a provision violating public policy may result in that provision being written out or sometimes in the entire trust being invalidated In general, most courts will attempt to salvage the trust if possible and just write out the offending provision Courts have held conditions to be contrary to public policy where they restrain marriage, attempt to impose lifetime celibacy, interfere with marital relations, interfere with the discharge of parental obligations, impose restraints on alienation, are discriminatory, etc.
	3. Intrusions into Family Life	Sometimes trust provisions may be set aside because they unreasonably interfere with the family life There is different between restraints on family life in a trust for persons and a trust for purposes
	4. Defraud Creditors	Trusts may be created in a way as to shield assets from creditors The trust can be void against creditors of the settlor under provincial fraudulent conveyance legislation if it hinders, delays, or defeats the interests of creditors The trust can be void under provincial fraudulent preference legislation if it provides a preference in favour of one or more creditors over others The Bankruptcy and Insolvency Act makes certain transfers of property at an undervalue, whether arm's length or not, void as against a trustee in bankruptcy in circumstances specified by the act. It also makes transfers that prefer one or more creditors over other void as against a trustee in bankruptcy in circumstances specified in the act.
	Twyne's Case	C owes money to Twyne. Twyne sues C. C transfers all his property to a trustee but continues to live on it. Twyne now cannot enforce his judgement because C is not the legal owner of the property (only has an equitable interest). The Court decides that this conveyance was made to defraud the creditor and voids the trust. The court identifies 4 badges of fraud (things that indicate that a conveyance is fraudulent): The settlor transfers all his assets (rich man suddenly becomes poor) There is not a fair value (the settlor transfers all of his property for free) The settlor remains in possession of his property (this is inconsistent with a conveyance) The transfer is done in order to defraud creditors (the timing of the transfer coincides with when creditors come to make claims) If only one of the badges of fraud is present it may not be a problem, but when they are all present together it is suspicious and indicates a fraudulent conveyance
	Consequences of Invalidity	When an express trust fails, we generally have the creation of a resulting trust (the trustee is bound to return the trust property to the settlor) When a trust has failed for illegality, the choice is either a resulting trust or forfeiture (the Crown may attempt to seize the assets under one of the forfeiture acts)
	Rules Against Perpetuities	The equitable interest must mature within a life in being plus 21 years We must be able to determine within a life in being plus 21 years who the beneficiary will be OR that there is no possible beneficiary and that the trust is incapable of being fulfilled, leading to a resulting trust In general, a trust cannot have a perpetual duration. However, there is an exception for charitable trusts due to the religious nature of many of those trusts.
	Accumulation	Even if the trust satisfies the Rule Against Perpetuities, the trust may not earn any more money after 21 years (section 1(1) of the Ontario Accumulation Act) Example: Trust created in 2015 with $1M. From 2015-2036 trust value increases to $2.7M. In 2037, trust earns $86,000. This money cannot go back into the trust, must go elsewhere.
	Restraints on Alienation	A settlor of a trust may impose a restraint on the alienation of beneficial interests that relate to the mode of alienation, may restrain the class of persons to whom property can alienated or may restrain alienation for a particular period of time Excessive restraints will be struck down (it is a question of degree) To preserve the purpose of a trust to control spending by a spendthrift beneficiary
	Definition of Spendthrift Trusts	Instead of just making an absolute gift to a spendthrift person who might then spend the whole amount of the gift over a relatively short period of time, one might instead settle funds on trust with instruction that the trustee invest the funds and pay the income, or a portion thereof, to the spendthrift beneficiary on a regular basis
	Restraints on Alienation in the Context of Spendthrift Trusts	One approach sometimes used to protect against alienation by a spendthrift beneficiary (+ may also help with the risk that the trust could be wound up under Saunders v. Vautier rule) is to give the trustee a discretion to make and determine the amount of payments [among a number of beneficiaries in addition to the spendthrift beneficiary]. This makes it difficult for the spendthrift beneficiary to alienate his interest because a prospective purchaser of an assignment is likely to surmise that the trustee will choose to no longer exercise their discretion in favour of the spendthrift beneficiary if his interest has been assigned or otherwise disposed of.
	Overriding the Trust Instrument	There are three ways in which the trust instrument may be overridden: Early termination of the trust Variation of the trust provisions Cy Pres
	1. Early Termination	There are two ways in which the trust may be terminated early: The rule of Saunders v. Vautier Revocation
	a) Rule of Saunders v. Vautier	If all the beneficiaries of a trust are of full age and under no disability, the beneficiaries may require the trustee to transfer the legal estate to them and thereby terminate the trust Three requirements: 1. All the beneficiaries must be of full age and have capacity 2. All the interests must be represented 3. All must agree To avoid this rule, the settlor may impose restrictions not merely based on age (i.e. impose a contingency that A receive the money at 21 provided he graduates), or add a beneficiary to whom the trustee will not give money but who you know will not agree to wind up the trust, or etc. (p.152)
	b) Revocation	A settlor may himself terminate a trust early if he has reserved that right in the trust instrument
	2. Variation of Trusts	A trust may be varied under section 1(1) of the Ontario Variation of Trusts Act A Court may decide to vary a trust if the trust has become unworkable because of something that has happened, if the settlor's intentions cannot be fulfilled given the way the trust instrument is written (adjustment to the administrative working of a trust) or if tax laws have changed since the creation of the trust making a previously well tax-planned trust no longer so To change the beneficiaries is not a variation; that is creating a new trust
	3. Cy Pres	The courts of equity enjoy the inherent right to vary trusts so as to ensure that the settlor's goals are met "as near as possible" This doctrine is only applicable to charitable trusts (because they are designed to last forever and circumstances may change over time) Variation refers to the variation of technicalities and administrative working of a trust, whereas cy pres allows the court to change beneficiaries and the way the trust is designed to function
	Purpose Trusts	There are two types of purpose trusts: Non-charitable purpose trusts, which are void Charitable trusts, which are valid On their face, all purpose trusts are void because (1) there is no certainty with respect to the beneficiaries (2) or the subject matter of the trust and (3) they violate the rule against perpetuities. However, courts have made an exception for charitable trusts because they serve an important purpose.
	Non-Charitable Purpose Trusts: The General Rule against Validity	Non-charitable purpose trusts are void (because there are no clear beneficiaries)
	Re Astor's Settlement Trusts	Lady Astor created a trust for the "maintenance of good understanding between nations" and "the preservation of the independence and integrity of newspapers" The Court held that the trust was invalid: Beneficiary problem: there are no clear beneficiaries, there must be someone in whose favour the court can decree performance Uncertainty: the non-charitable purpose of the trust is too vague to be accomplished
	Purpose Trusts with Individual Beneficiaries	To solve the beneficiary problem in purpose trusts, we draft the "trust" as a power Beneficiary problem: In general, purpose trusts are void because a purpose cannot enforce trust. There must a beneficiary who can go to court to enforce the trust. Without a beneficiary with a right to compel the trustee to perform there can be no trust, because the essence of a trust is the trustee's obligation to carry out the trust.
	Re Denley's Trust Deed : solving the problem of the non-charitable purpose trust	Land will be maintained for the purposes of sports ground primarily for employees of the company and other persons the trustees allow Defendant argues that trust is invalid because a) is a trust for persons with an unascertainable class of beneficiaries and is void for uncertainty or b) is a non-charitable purpose trust void on the beneficiary principle Court decides to interpret trust as being a trust for persons with the beneficiaries being the current employees. Now the trust can be valid as it is not a trust for a non-charitable purpose and it is not set up for the benefit of employees forever thus violating the rule against perpetuities.
	The Problem of Unincorporated Associations	A trust for the benefit of an unincorporated association poses a problem because it is not a legal person If it is read as a trust for persons (present or future members) it can take effect as a trust, but there may be a perpetuity problem If it is read as a trust for purposes, it may be invalid if the purpose of the association is not charitable
	Re Lipinski's Will Trusts : solving the problem of the trust for an unincorporated association	A man dies and leaves money in trust to an unincorporated association The court interpreted the trust as being for the benefit of the individual members of the unincorporated association, as such there is an ascertainable group of beneficiaries and the trust is valid
	Charitable Purpose Trusts	Charitable purpose trust should be invalid for the same reason as non-charitable purpose trusts: there is no beneficiary + violates rule against perpetuities However, charitable trusts are considered valid. The beneficiary problem is solved by assuming that the Crown acts in parens patria for the beneficiaries.
	Statutory Non-Profit Corporations	Today, the law of charity is not just the law of trusts but also the law of statutory non-profit corporations The Ontario Non-Profit Corporation Act allows for the creation of a corporation that is not engaged in procuring profits. These types of corporations can take advantage of 2 tax concessions IF they meet the common law definition of trust: Corporation's activities are not subject to tax (i.e. income received by donations are not taxable) Corporation can issue receipts to donors (who gets a deduction from their taxable income equal to a certain percentage of the donation made)
	Charitable Purpose Trusts: Intention and Perpetuity	Charitable purpose trusts avoid the problem of uncertainty with respect to the beneficiaries - Court find ways to make them valid (find the object and the beneficiaries) Charitable purpose trust enjoy relief from perpetuity rules as well
	Charitable Purpose Trusts: Tax Laws	Must always ask 2 separate questions: Is this a valid charitable trust? Is the trust tax exempt?
	The Legal Meaning of Charity: Charitable Purposes and Public Benefit	In order for a charitable trust to exist, there must be (1) an exclusive dedication of property (2) for a charitable purpose (3) for a public benefit
	What is a Charitable Purpose?	The law does not provide an ultimate definition of charity However, there are four categories of charitable purposes derived for the Statute of Charitable Uses (1601)
	Statute of Charitable Uses (1601): The Four Heads of Charity	The four heads of charity are: Relief of poverty Advancement of education Advancement of religion Other purposes beneficial to the community To be considered a charity, one must fit with the four heads (Bishop of Durham's Case and Commissioners v. Pemsel)
	Statute of Charitable Uses (1601): Public Benefit	Charitable trust must provide a public benefit 2 aspects of public benefit: There must be a benefit to the public: there must be something of practical utility, this is generally assumed for the first 3 heads The public must be the beneficiary: (a) the beneficiary must not be numerically negligible and (b) the quality that distinguishes the beneficiaries from other members of the community cannot depend on their relationship to the individual Also: (1) no requirement that beneficiaries be poor and (2) the charity does not need to fit within the "popular" meaning of charity
	a) The Relief of Poverty	Poverty doesn't necessarily mean "poor" Poverty is a relative concept Poverty means more than simply providing for the basic necessities of life While many trusts for poverty relieve the poverty of large numbers of people, courts recognize something of a general exception to the public benefit concept in that trusts for the relief of property may assist only very small quantities of people
	Jones v. T Eaton Co. Ltd.	Trust established to be used for any "needy or deserving" employees of a company is considered a trust for charitable purposes The word "deserving" needs to be interpreted given the context. While the beneficiaries may not be poverty-stricken and need money for food, it can still be considered a trust for the purpose of the relief of poverty. Not necessary that a charitable trust benefit all members of the public While all the beneficiaries have a connection to the settlor (they are his employees), they are not physically related to him, so public benefit rule 2(b) not violated
	b) The Advancement of Education	Education pay include both private and public schools (even if they are wealthy) Education pay also include things beyond schools, such as libraries, museums, Shakespeare societies, etc. The mere provision of information is not education, there must be a philosophy/knowledge being conveyed (i.e. a trust designed to benefit newspapers is not considered to be for the advancement of education, it is the mere provision of information)
	Re Pinion Westminster Bank, Ltd. v. Pinion and Another	Pinion leaves his art collection to the state so that they may make a museum (trust for the advancement of education) As with the other heads of charity, a trust for the advancement of education must also be for the public benefit The benefit is usually assumed, but this presumption can be rebutted In this case, experts determined that as a means of education the art collection was worthless Since there is no public benefit the trust fails
	c) Advancement of Religion	Charity includes trusts for the publishing, teaching and propagation of religion and for the building/maintaining of churches + burial grounds In general, Anglo-Canadian law makes no distinction between religions in the recognition of trusts Religion requires deism (a belief in god) and worship (the religion promotes the worship of that god) In Re South Place Ethical Society, the Court rejected a trust to provide for the spread of "ethical principles" English law assumes that religion provides a public benefit
	Gilmour v. Coats	Gift left by will to convent of nuns who had no contact with outside world, they are devoted to ceaseless prayer for all of our behalf Court holds that it is not a charitable trust because what the nuns are doing is not in the public benefit in any provable sense Rule: Religion has to have some public aspect to it to be of public benefit (i.e. religions activity performed in public / open to the public). Religions activity conducted in private or among a limited number of people is not for the benefit of the public. Controversial decision: criticized as being hostile to Catholics
	d) Other Purposes Beneficial to the Community	Social welfare purposes: might overlap with other three heads (i.e. orphanages, hospitals, disaster relief) Community purposes: provides benefits to a community (i.e. parks, cemeteries, but not sporting associations)
	Native Communications Society v. Minister of National Revenue	Organization created to organize non-profit radio and TV programs for native people of BC and to promote by communications the image of native people on the national scene recognized as charity under 4th head Not a trust under the first 3 heads (training workers is educational but is not exclusive purpose of program + news is information not education) Court considers the special position of the aboriginal community. What they are doing is about cultural preservation/expression. The purpose is of a benefit to the aboriginal community and the wider Canadian population.
	Vancouver Society of Immigrant and Visible Minority Women v. MNR	Organization provides educational forums for immigrant women to help them find jobs and carries on political activities on their behalf Court rules that this is not a purpose beneficial to the community falling within the traditional understanding of charity Here, Court reaffirms that Pemsel is still the law and seems to backtrack on their decision in Native Communications They say that if the 4th head is to be extended, parliament should be the one to do it (they don't want to expand the number of non-taxable entities)
	Other Doctrines of Charity: Exclusivity	To be a charitable trust, there must be an (1) exclusive dedication of property (2) to a charitable purpose (3) for the public benefit Trust that combines both charitable + non-charitable purposes is void When a gift appears to provide for both charitable and non-charitable purposes, courts will attempt to search for the true intention of the settlor. If the settlor's intention was to make a dedication of property exclusively for charitable purposes, courts will generally ignore the excess wording. However if the settlor intended the gift to be for both charitable and non-charitable purposes, the trust will likely fail.
	What will courts do if a trust appears to have both a charitable and non-charitable purpose?	Courts will consider 3 possibilities: 1. The nature of the gift makes it clear that the purpose is exclusively charitable 2. Sever the charitable purpose from the non-charitable purposes 3. Consider whether the non-charitable purposes are merely ancillary to the charitable ones (i.e. non-charitable purposes are a means by which the charitable aims of the trust are effected)
	Guaranteed Trust Company of Canada v. Minister of National Revenue	Mrs. Tull leaves a sum of money to the U of T Women's Medical Alumni Association for the purpose of female medical students in need of financial assistance (trust for the advancement of education) The purpose of the gift is charitable, but is the entity receiving the funds (the association) itself charitable? Yes. Even though the association does some things that are not charitable (i.e. throwing parties), they are ancillary and serve merely to help the association complete its main charitable purpose (i.e. raising money)
	Other Doctrines of Charity: Political Purposes	Trusts for political purposes and not charitable trusts and are invalid for 2 reasons 1. Inability to find public benefit: urging the change of a law, adoption of a law, advancement of a political party, etc. cannot be charitable because we cannot tell whether it will be for the public benefit (Bowman v. Secular Society) 2. The law is assumed correct
	McGovern v. Attorney General	Is Amnesty International a charity? Court says no, because it is engaged in trying the change the policy of foreign governments. Inability to find public benefit: it is impossible for the court to determine whether the changes in foreign policy they are advocating will have positive impacts on our society The law is assumed correct: we are to assume that the law passed by parliament are valid, for a court to permit the operation of a charity that believes laws are invalid would violate the separation of powers
	Human Life International in Canada Inc. v. Minister of National Revenue	Organization sends postcards to MPs to change abortion laws and encourages others to do the same They are not a charity under the category of the "advancement of education" because this is advocacy/indoctrination Can they qualify as a charity for "other purposes beneficial to the community"? No. An organization promoting political change is not a charity. It cannot be ascertained that the political mission is beneficial to society.
	Charity, Politics and the Tax Act	A charity whose primary purpose fits into one of the 4 heads of charity will be considered charitable under the Tax Act (but not under the common law) if its political activity is ancillary and incidental to its main charitable purpose So you can be engaged in politics provided it is in support of your main charitable mission
	Discriminatory Conditions	Traditionally, the common law has not restricted discriminatory provisions in trust on the grounds of public policy A modern trend is for the courts to strike down discriminatory provisions by contending that they are uncertain
	Re Canada Trust Co v. Ontario Human Rights Commission (Re Leonard Foundation Trust)	A man creates a scholarship (charitable trust) for males who are British, white and Protestant The Court finds that the trust violates public policy as it is discriminatory. However, the Court clearly states that this case should not be taken as authority for rendering all trusts with discriminatory provisions invalid and void (this decision is only about this particular case). Also, this decision has no effect on private family trusts
	Spence v. BMO Trust Company	Will contains no provision for daughter. Lower court found that evidence indicates that the testator's intent was discriminatory (she married a white man) and struck the provision and required an even split of the estate. The Court of Appeal reversed the decision. Unlike Canada Trust, this will provides no dispositions against public policy (no mention of discriminatory intent in the will). The Court reaffirms that Canada Trust is not about every trust and is not about private trusts.
	Re McCorkill, Deceased	Canadian testator left a bequest to a white supremacist group in the United States. Court holds that the gift is not valid. They say that allowing this gift would constitute allowing a gift to an illegal group. (Note that while they would be illegal in Canada, they are not in Canada. However, Court says it doesn't make a difference because we are dealing with Canadian assets) Citing Canada Trust, the Court struck down the gift as being a violation of public policy because it is given to an unworthy beneficiary.
	The Cy Pres Doctrine	Where a charitable trust becomes impossible or impractical to perform, the court may apply the funds to a purpose near to the original one In order for the doctrine to be applicable, the settlor had to have had a general charitable intent. If the settlor had a specific charitable intent and the trust becomes impossible, it must fail. We must consider the timing: If the impossibility/impracticability occurs before the trust takes effect, the court must find a general charitable intention. If it occurs after the trust has taken effect there is no need to find a general charitable intention, cy pres is automatic.
	The Cy Pres Doctrine: Impossibility or Impracticability	Impossibility: it is simply not possible to do what the settlor has asked (i.e. in Re Buchanan money was left to an entity that does not exist) Impracticability: it is possible, but wildly impractical to do what the settlor has asked (i.e. in Schneckenburger settlor leaves funds for the construction of a German church in a town, but a German church was just built in the next town, so rather than building a second church court gives money to that church that was already built so that there can be one strong church)
	Rector, Wardens and Vestry of the Parish of Christ church v. Canada Permanent Trust Co.	A man leaves a sum of money in trust to be used for the construction of a new church They decide that they are not going to build a new church and want to use the money to spruce up the old one Can they vary the terms of the trust on the basis of the cy pres doctrine? No, because it is not impossible or impracticable to build a new church. There is simply no present intention to build one.
	The Cy Pres Doctrine: Initial and Subsequent Failure and General Charitable Intent	If the impossibility arises before the trust takes effect, we must find a "general charitable intent" in order to apply the cy res doctrine Two cases where the charitable trust becomes impossible/impractical: 1. Where the organization never existed - courts are more likely to find a general charitable intent 2. Where the organization existed but went out of business - courts are more reluctant to find a general charitable intent
	Royal Trust Corporation v. Hospital for Sick Children	The settlor has left money to the Crippled Children's Hospital in Toronto. The settlor's intention cannot be fulfilled because that institution does not and has never existed. The court concluded that there was a general charitable intent. The settlor was a wealthy man who spread the majority of his wealth among institutions. They also found a specific intent that the money should go to crippled children. The court applies the cy pres doctrine by splitting the money between the 4 hospitals in Toronto that aid crippled children.
	Re Ramsden Estate	Ramsden gives money to PEI University for scholarships for Protestant students. The University cannot accept the gift because it is prejudicial to its non-denominational character. The trust is therefore impossible. Court finds a general charitable intent. Court solves the problem by removing the University as trustee and naming another trustee so that the gift may be effective. Also, the Court here upholds the discriminatory provision (distinguishes from Re Leonard Foundation Trust)
	Administration of Trusts	To determine how a trust is to be administered, we look at these sources of law: 1. The trust instrument (the will or the deed) - always the first source 2. The trust acts 3. The equitable law of trusts
	The Role of the Trust Instrument	We always give preference to the settlor's intentions as expressed in the trust instrument. Then we turn to statutes and finally to the rules of equity.
	Where is the Trust Located?	Generally, the trust is located in the place where the trustee resides This is important for tax purposes as well as for the law governing the trust A change in the trustee might result in a change in the location of the trust, and consequently a change in the trust's tax status or the law governing the trust
	The Role of the Trustee	Trustee is in charge: Once created, neither the settlor not the beneficiaries have the right to intervene in the management of the trust (unless settlor is a trustee or has reserved some power for himself). A trustee who takes direction for the settlor or the beneficiaries is in breach of the trust. Settlor's interference: A settlor may sometimes attempt to exert control over the trustee's action by leaving a "letter of wishes", but this is advisory and unless made part of the trust document is not binding on the trustee. The settlor might also appoint a "protector" to watch over the trustee, but the powers of the protector are not yet settled in law.
	Trustee Issues	There are 3 issues concerning the person of the trustee: 1. Appointment: how are trustees appointed? 2. Retirement: how do trustees give up their duties? 3. Removal: on what grounds may trustees be removed without their consent?
	Appointment of the Trustee: Trust Instrument	Trust instrument usually provides for the appointment of the trustee The settlor may appoint himself or any other party as trustee The trustee may be appointed by name or by function No one can be compelled to be a trustee Acceptance of the duties of trustee may be express or implied The trust instrument may provide for the appointment of substitute trustees or additional trustees The trust instrument may provide that any person, including current trustees, may appoint successors, substitutes or additional trustees
	Re Helliwell's Trusts	Settlor appoints 2 trustees. Trustee #1 dies and so Settlor, as executor of Trustee #1's estate, becomes Trustee in his stead. So Settlor is now Trustee of the trust he created. This whole situation was accidental. He now wants to retire as Trustee. Court allows him to retire as trustee without charging him costs. They say that if he had knowingly accepted the trust and then changed his mind he would probably not be allowed to be relieved without engaging his responsibility. However, because he was made trustee accidentally it can be allowed as he never consented to being named trustee.
	Appointment of the Trustee: Trustee Acts	Trustee Acts usually provide for the appointment of trustees where the instrument does not provide a mechanism (i.e. Ontario Trustee Act, section 3.1) According to the Act, if a trustee must be appointed (i.e. original trustee dies, went bankrupt, etc.) the person nominated for the purpose of appointing new trustees by the trust instrument, or if there is no such person then the surviving or continuing trustee or the personal representative of the surviving or continuing trustee may appoint a new trustee.
	Appointment of the Trustee: Judicial Action	In the absence of a statute, we resort to the court system for the appointment of a new trustee Equity courts have inherent power to appoint, remove or substitute trustees In making decisions as to appoint or remove a trustee, the court "acts upon and exercises its discretion... guided by some general rules and principles" (In Re Tempest)
	Retirement and Discharge of the Trustee	Trustees eventually crease their work (they die or "retire") Note that a trustee cannot just quit, they must write a resignation letter and get an order permitting retirement Retirement and discharge relieves the trustee of all liability and obligations The trust instrument may provide what happens when a trustee decides to retire. Failing that, trust acts or judicial orders of retirement fill the gap.
	Removal of the Trustee	Trust instruments may provide for the removal of a trustee If there is a "protector", the trust instrument may provide that he has the power of removal Statutes confer the power of removal on the courts Courts also have the inherent power to remove trustees as an incident of their power to supervise trusts generally
	Conroy v. Stokes	Application to remove trustee by 2 out of 5 beneficiaries (3 have no problem). Main complaint is that the trustee has not provided financial statements in a timely fashion. Lower court orders removal of trustee on the grounds that "friction had developed between the beneficiaries and the trustee". Trustee appeals the order. Court rules that mere friction cannot be cause for removing a trustee. There must be neglect or breach of duty on the part of the trustee.
	Re Consiglio Trust (No. 1)	Trust established as part of divorce settlement to provide for the children. Ex-husband, his lawyer and ex-wife's lawyer are trustees. There is constant fighting among the trustees. Application to remove trustees. There is no misconduct on the part of any trustee, but in this case the fighting and friction is so bad that the trust ceases to function. So the court orders the removal of the trustee due to friction (even though there is no breach of fiduciary duty or wrongdoing). The court is justified in removing the trustees, even though there is no breach of duty, because the welfare of the beneficiaries is impaired.
	Re Bartel Estate	Another example in which a family is fighting and it becomes so bad that the administration of the estate is impaired. The court has to step in and appoint a third party as trustee in order to make the trust work. Generally, friction among the beneficiaries and trustees is not enough for the removal of the trustee, but when it becomes too great and impairs the administration of the trust and the welfare of the beneficiaries, there can be a removal.
	Duties and Powers of the Trustee	Trustees have both duties and powers to manage the trust Duty: trustees are under a duty to act when they are obliged to act (obligation to act in a particular way) Power: trustees have a power to act when they are given authority to do an act, but are not required (permission to act in a particular way) Example: In a discretionary trust, I may have the obligation to distribute $5000 a year in a scholarship, but I have the power to choose who it will go to
	Duties of the Trustee	Trustee has absolute duties and other duties Absolute duties: Trustees must carry out these obligations and if they fail to do so there is no defence to an action for breach of trust. They cannot argue that they exercised reasonable care or acted in good faith. It imposes strict liability. These duties include: (1) duty of loyalty, (2) duty of impartiality, (3) duty to pay beneficiaries
	Specific Duties of the Trustee	Duty to provide information Duty to invest prudently
	Duty to Provide Information	Beneficiaries may demand that trustees produce "trust documents" (i.e. books of account, trust instrument, but maybe not internal memos) upon reasonable notice Beneficiaries must pay the cost of copying any document Trustees are not under any obligation to produce information without a demand. Exception: when a minor beneficiary reaches the age of majority, a trustee must inform him of his interest and its nature. Certain legislation will impose a duty upon the trustee to provide information (i.e. pension trust).
	Schmidt v. Rosewood Trust (Isle of Man)	Mr. Schmidt makes an application for the production of trust documents as he suspects a breach of fiduciary duty. The trustee, Rosewood Trust Ltd., argues that he is not entitled to receive information because he is not a true beneficiary, only a discretionary beneficiary. They say that the right to information depends on having a proprietary interest in the trust. Court says that it can step in and order the release of trust documents when there is a justifiable basis for the request - part of Court's inherent jurisdiction to supervise / intervene in the administration of trusts (doesn't matter that the beneficiary does not have a property right in the trust)
	Duty to Invest Prudently	What types of investments may trustees make? It is common for the settlor to determine the nature of permitted investments in the trust instrument itself. If this is not provided, Trustee Acts set forth the types of investments trustees may make What are the duties and powers of trustees in making investments? The trustee must exercise due care / act with ordinary prudence and follow the permitted investments laid out in the trust instrument (if any)
	Permitted Investments	It is common (and desirable) for the settlor to determine the nature of permitted investments in the trust instrument itself If nothing is provided, all jurisdictions have a Trustee Act which sets forth the types of investments a trustee may make. There are 3 forms: 1) the "legal list" 2) the "prudent trustee" and 3) the "prudent investor"
	The Legal List	In the absence of more liberal investment powers in the trust instrument, trustees are authorized only make investments permitted by law The investments permitted by a legal list have traditionally been very conservative (secure investments that pay little interest, i.e. government and municipal bonds) The problem is that with inflation these investments have started to lose money Today legal lists are just an option, we now have "prudent trustee" statutes in place
	The Prudent Trustee	Section 27 Ontario Trustee Act: "(1) In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments. (2) A trustee may invest trust property in any form of property in which a prudent investor might invest." This eliminates/opens up the legal list, it is no longer binding. The legal list has been replaced by the duty to prudently invest as a function of the duty of care)
	The Prudent Trustee v. The Prudent Investor	Some jurisdictions use the "prudent trustee" standard and others use the "prudent investor" standard. What is the difference? Some scholars argue that the "prudent trustee" is a slightly higher standard. However, other scholars suggest that there is no difference between the two.
	Cowan v. Scargill	Trustees argue that the trust should not be investing as South Africa. They are attempting to use the pension fund as a way of making a social statement. The Court says that in considering what investments to make, trustees must put aside their own personal interests and views. Under a trust, if investments of this type would be more beneficial to the beneficiaries than other investments, the trustees must not refrain from making the investments by reason of the views that they hold. The only question the trustee needs to ask is: "Is this a good investment?"
	Harries v. Church Commissioners for England	Trustees can make investments guided by ethical considerations if it can be shown that financial performance would not be harmed, but also if it would be consistent with the purpose of the trust. Ethical investments putting financial return at risk are not open to trustees. Investments should aim for the best return, and be chosen only not to conflict with any express aims of the charity, and should not be used to make moral statements. Trustees must find balance neither bringing their charity into disrepute, nor failing to act with prudence.
	General Duties of the Trustee	There are 3 general duties: 1. Duty of care 2. Duty not to delegate 3. Duty of impartiality (Also duty of loyalty)
	Duty of Loyalty	Trustees must act solely in the interest of the trust They must disregard their own interests and the interests of others Failing to do so creates a conflict of interest and trustees will be liable for any profit they make and for any loss suffered by the trust
	Keech v. Sandford	Man has lease on a market and puts it in trust for his minor son. The lease is going to expire and lessor informs trustee that he is not interested in renewing the lease with a minor. Trustee takes on the lease himself. The beneficiary sues and says that the lease should be part of the trust. Court: Trustee had duty to let the business go. Allowing this will encourage trustees to manipulate business of trust to take advantage of opportunities. Must ensure trustees are only watching out for the trust and nothing else. Essence of trustee's duty of loyalty is to avoid conflicts of interest.
	Duty of Care	There is no requirement for a trustee to be perfect or to always be right, but a trustee must always use due care (i.e. act reasonably) when making decisions What constitutes due care? Fales v. Canada Permanent Trust Co.: Traditionally the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs, and traditionally the standard has applied equally to professional and non-professional trustees.
	Fales v. Canada Permanent Trust Co.	Large sum of shares placed in trust. Two trustees: CPT (professional trustee) and the mother (private trustee). Investment begins to decline and all is lost. Beneficiaries sue CPT but not mother and argue that as a professional trustee they had a duty to be more careful. How do we define the liability of a trustee + should liability differ depending on if trustee is just an average person or has specialized skill? Court refuses to make distinction between professional and private trustee. Reasonable person test applies to both; same standard of care. They are jointly liable.
	Duty Not To Delegate	Trustees are generally not permitted to delegate Trustees don't have to do everything themselves (i.e. can use lawyers, accountants, brokers, real estate agents, etc.) Trustee may rely on investment advisor, but ultimately decision's theirs If using agents trustees must: 1) act prudently in selecting the agent, 2) use an agent within the scope of their expertise (i.e. make sure they are able to do the job) and 3) use due care in supervising the agent (that way trustee can be absolved from the agent's wrongdoing) Agents may not exercise discretionary functions
	Speight v. Gaunt	Trustee hired stockbroker. Stockbroker misappropriated funds. Beneficiaries argued that the trustee should have completed the trade directly with the vendor rather than using the services of the stockbroker as an agent. Court held that a trustee investing trust funds is justified in employing a broker to procure securities authorized by the trust and giving the broken the purchase money, if he follows the usual and regular course of business adopted by ordinary prudent men in making such investments.
	Duty of Impartiality	All beneficiaries (current and future) are not to be treated necessarily the same, but they are to be treated equally (i.e. without favour) The trustee must be impartial when making decisions, but may treat beneficiaries differently Example: Trustee of a discretionary trust is given power to provide for education of 3 children. In making decisions, he must treat them impartially, but does not have to treat them equally. He must consider all their needs and make decisions in their best interests (i.e. no to one for art school, yes to the other for medical school)
	Powers of the Trustee	Trustee has a choice to make (though he may make the choice to do nothing) Trustee must exercise the power A power requires discretion
	Turner v. Turner	When a trustee has a power, he must periodically consider whether to exercise that power (he may decide not to) When exercise a power, the trustee must do so in a responsible manner according to its purpose
	Tempest v. Lord Campoys	Trustees have duty to invest and power to purchase land. Trustee 1 wanted to buy a particular piece of land, while trustee 2 refused. Trustee 1 sued saying that this exercise of discretion is unreasonable. The Court says that it will step in if the trustees have exercised their discretion improperly, but it will not enforce the exercise of a power against the wishes of the trustees. This is because the settlor has chosen the trustee for a reason, and it is not the court's place to step in and change their decisions even if they disagree with them, so long as their discretion is being exercised reasonably.
	Gisborne v. Gisborne	Settlor has left trustees with funds to pay for the support of his wife. Wife asks trustees to increase her allowance. They refuse. The trust document provides that the trustees have "uncontrollable authority" (settlor has specifically stipulated this) Court says that because of this, as long as there is no bad faith, there is nobody who can step in and change the decisions of the trustees
	Fox v. Fox Estate	Widow is trustee of late husband's estate. She is annoyed with son for marrying non-Jew and distributes corpus of trust to grandson, leaving nothing for son. Son complains that she has acted with mala fides (bad faith) and that this is religious discrimination. Court has the right to interfere if the trustee's discretion is influenced by "extraneous matters". Court suggests that discriminating on religious grounds is considered to be bad faith and contrary to public policy. This is wrong because Canada Trust does not affect private family trusts. Also, judge doesn't know if her bad reasons for deciding this take away from the good ones.
	Trusts Arising by Operation of Law	Express trusts comes into being because someone expresses an intent to create them, whereas trusts arising by operation of law are created by the law without respect to intent There are two types of trusts arising by operation of law: 1. Resulting Trusts 2. Constructive Trusts
	1. Resulting Trusts	There are two types of resulting trusts: 1. Presumed Resulting Trust: this occurs where a person would have created a trust had they thought about it (arises where legal or equitable title is in one party's name, but that party, because he is a fiduciary or gave no value for the property, is under an obligation not return it to the original title holder or the person who did give value for it) 2. Automatic Resulting Trust: this occurs where an express trust fails
	a) Presumed Resulting Trusts	There are 3 situations which give rise to a presumed resulting trust: 1. Where one person purchases property in the name of another 2. Where one person voluntarily transfer their property to another 3. Where two people share a joint bank account
	i) Purchase in the Name of Another	Where a person purchases property in the name of another, there is a presumption that the other is trustee for the purchaser However, this presumption can be rebutted by the presumed trustee A purchaser claiming a resulting trust must show that 1) he advanced the purchase money and 2) he was actually a purchaser and was not making a gift or a loan
	ii) Voluntary Transfer	Where a person voluntarily transfers their property to another, there is a presumption that the other is trustee for the transferor However, this presumption can be rebutted by the presumed trustee To rebut the presumption, the transferee must show that the gift was intended
	Neazor v. Hoyle	Man transfers property to his sister gratuitously. Sister lives on land. When man dies, estranged wife claims that this is a resulting trust as the sister has not paid for the property. The sister argues the land was a gift. The Court decides that the sister has rebutted the presumption of a resulting trust by showing that in the circumstances there seems to be an intention by the man to give her the land as a gift. Factors considered: man promised to take care of sister, sister paid taxes on land, sister received money when some land was expropriated and man never asked for any part of it, etc.
	iii) Joint Bank Accounts	Joint tenants in a bank account each have the right to demand funds from the account If there is a right of survivorship in the joint bank account (i.e. the account funds go to the last survivor), what happens when the only one person ever puts money in to the account dies? Does the other person get all of the funds?
	Niles v. Lake	Arnott opened a joint bank account with Lake and was the only one to put money in the account. Upon Arnott's death, Lake claims the money by right of survivorship. Arnott's children claim that there is a presumptive resulting trust and the money is theirs. According to law, the money belongs to Lake due to the right of survivorship. According to equity, the money belongs to the children due to the creation of a presumptive resulting trust. Court says that in order to succeed in equity, Lake must rebut the presumption of trust and prove an intention to make a gift. She fails. Note in a law court, children would have to disprove the right of survivorship.
	Presumption of Advancement	In the vast majority of cases, where one person puts property in the hands of another for which the other has given no value, we presume a resulting trust. The recipient of the property must then prove the intention of the person to make a gift in order to rebut the presumption. However, in the case of a family relationship the common law presumes the exact opposite. When there is a gratuitous transfer of property from husband to wife or from parent to child, there is a presumption of gift (presumption of advancement). This presumption is abolished by statute in most provinces.
	Percore v. Percore	Husband and wife are splitting up assets in divorce. Wife and her father had joint bank account with right of survivorship. Father dies. Husband argues that there is no presumption of a resulting trust between father and daughter in this bank account, this is a gift. Wife says no, she wants to rebut the presumption of gift between parent and child. Court says that here there would normally be a presumption of advancement. However, because she is an adult and not a minor, the Court decides that the presumption of gift (presumption of advancement) should not apply.
	b) Automatic Resulting Trusts	The automatic resulting trust arises where there is the failure of an express trust Examples where express trust fails and automatic resulting trust arises: trust in favour of an unincorporated association, express trust for non-charitable purposes, cy pres not available to alter an existing charitable trust, lack of certainty (beneficiaries, object, subject matter), lack of intent, illegality, family trust violates rule against perpetuities, etc.
	2. Constructive Trusts	The constructive trust is a relationship by which a person who has obtained title to property has an equitable duty to transfer it to another, to whom it rightfully belongs, on the basis that the acquisition or retention of it is wrongful and would unjustly enrich the person if he were allowed to retain it It almost always arises independently of the parties' wishes The constructive trust often has a remedial character; it is often imposed where there is a breach of duty or some wrongdoing There are no formal requirements necessary
	Constructive Trusts: A Proprietary Remedy	The constructive trust requires property; there must be property in my hands to which the constructive trust may attach Generally creditors want an in rem remedy (recourse against a thing) as opposed to an in personam remedy (remedy against a person). Advantages of in rem remedy: ability to claim the thing, capture increase in value, acquires priority over other creditors, ability to follow the property in whosever hands it goes (except in the hands of the bone fide purchaser i.e. the one who buys the property for value in the ordinary course from a seller in goods of the kind without notice)
	Theories of Constructive Trusts	There are two theories of constructive trusts: Institutional Model (UK): the constructive trust is used to preserve or enhance institutional values, there may or may not be a wrongdoing (more liberal) Remedial Model (US): the constructive trust is used as a remedial device, there must be a wrongdoing (breach of fiduciary duty or unjust enrichment) In Canada, we have adopted the institutional model (Soulos v. Korkonzilas)
	Soulos v. Korkonzilas	Man hires agent to purchase building. Seller makes counteroffer which agent does not relay to man. Agent then buys building for himself. Agent has breached his fiduciary duty. However, there is no unjust enrichment because the building has lost value and so agent argues there can be no constructive trust. Court rejects rigid view that constructive trust only arises where there is an enrichment of the wrongdoer at the expense of the innocent party. The court adopts the institutional model; sees constructive trust as a flexible vehicle to attack a variety of problems.
	Soulos v. Korkonzilas: 4 conditions for the establishment of a constructive trust	Defendant must have been under an equitable obligation (i.e. agent/principle, lawyer/client, corporate officer, accountant, executor, etc.) The property in question must have come into the defendant's hands as a result of the breach of duty Plaintiff must show a legitimate reason for seeking the remedy (i.e. why he should not simply be awarded damages for the loss) There must be no factors that would render the imposition of a constructive trust unjust (benefit test: if the benefit to the plaintiff outweighs the burden to the defendant the remedy may be imposed)
	Situations Where Constructive Trust May Be Established as a Response to Wrongful Conduct	The following are situations where we are likely to see constructive trusts established as a response to wrongful conduct (not exhaustive): 1. Breach of fiduciary duty 2. Appropriation of corporate opportunity 3. Bribery 4. Breach of confidence 5. Preventing a criminal from retaining the benefit of his crime
	Breach of Fiduciary Duty: Keech v. Sandford	Man has lease on a market and puts it in trust for his minor son. The lease is going to expire and lessor informs trustee that he is not interested in renewing the lease with a minor. Trustee takes on the lease himself. The beneficiary sues and says that the lease should be part of the trust. Court imposes a constructive trust; even though the lease is in the trustee's name personally, it actually belongs to the beneficiary of the trust. Although there is no unjust enrichment here on the part of the trustee, the trustee cannot be allowed to have the lease because trustees cannot be allowed to manipulate their obligations.
	Appropriation of Corporate Opportunity: Regal (Hastings) Ltd. v. Gulliver	Directors use information that has come into their hands to make an investment and then a profit (buy cinemas). The corporation could not have acted on the opportunity due to lack of fund and is not damaged. Court orders a constructive trust. Directors owe a fiduciary duty to the corporation and are generally not permitted to take advantage of business opportunities otherwise available to the corporation that arise in the course of their duties or by reason of them. The concern is possible conflict of interest. This is true even if the corp. itself is not able to take advantage of the opportunity. Doesn't matter if directors were not in bad faith.
	Bribery: Attorney General for HK v. Reid	Crown prosecutor for New Zealand took bribes not to prosecute certain individuals. He owed a fiduciary duty to the Crown. In breach of his duty, he does not fulfill his obligations and accepts cash. Court says that when a bribe is accepted by a fiduciary in breach of his duty, then he holds that bribe in trust for the person to whom the duty was owed If the property representing the bribe decreased in value, the fiduciary must pay the difference between that value and the initial value of the bribe to the trust. If the property increases in value, the fiduciary is not entitled to any surplus.
	Breach of Confidence: Lac Minerals v. International Corona Ltd.	Lac improperly used confidential information, provided by Corona in the course of the negotiation, to buy land on which it developed a gold mine. Corona sued on the basis of breach of fiduciary duty and breach of confidence. Court awards Corona a constructive trust over that land. Constructive trust can be the appropriate remedy for a breach of confidence, even if there is no fiduciary relationship 3 elements to establish breach of confidence: (1) that the information conveyed was confidential, (2) that it was communicated in confidence and (3) that it was misused by the party to whom it was communicated
	Criminal Conduct: In re Crippen, Dead.	Dr. Crippen murdered his wife in order to marry his mistress Ethel. After his conviction, but before his hanging, he made a will making Ethel sole beneficiary. Dead wife's heirs claim a right to part of the estate. When Dr. Crippen killed his wife, her property went to him, now it will go to Ethel. They argue that Ethel should not get the benefit of the crime. Court says that any property Dr. Crippen acquired from his wife following the murder is held on constructive trust for the victim's estate. "No person can obtain or enforce any right resulting to him from his own crime; neither can his representative, claiming under him, obtain or enforce any such right."
	Unjust Enrichment	Unjust enrichment may fall outside of claims for breach of contract or tort (it is a third category) In order to make a claim in unjust enrichment, there must be: (1) an enrichment, (2) a corresponding deprivation and (3) the absence of any juristic reason for the enrichment (i.e. there is no legal reason why you should be able to keep this; there has not necessarily been a wrong but the transfer is imperfect or vitiated; usually this is because there is a mistake; it could also be ignorance, incapacity and undue influence)
	Juristic Reason: Garland v. Consumer Gas Co.	Two-step analysis to determine if there is a juristic reason for the transfer: 1. Plaintiff must prove that the transfer is not a result of an established category of justifications (i.e contract, disposition of law, donative intent and other common law equitable or statutory obligations) 2. Defendant then has the right the respond to the Plaintiff's prima facie right to recovery by showing a reason to deny recovery, either (a) reasonable expectation of the parties or (b) public policy
	Unjust Enrichment and Constructive Trust	Traditionally, we have seen constructive trusts imposed where there is a breach of a fiduciary duty (to take away the unearned benefit) Unjust enrichment open up this newer possibility for constructive trusts, with the constructive trust being used as a vehicle to affect the restitution (to unwind those unjust enrichment transfers). Court will impose a constructive trust on the property in the hands of the transferor. This is an equitable remedy, so it will only be imposed when the legal remedy is not adequate or when the property is unique.
	Unjust Enrichment and the Property of Conjugal Couples	Family law constructive trust cases with respect to unjust enrichment are sui generic (different) They don't follow the traditional rules of constructive trust In a good strict formal view, the women in the cases below should not have been granted a constructive trust over the property in question because their contribution was indirect (no direct link between the unjust transfer and the property) They were recognized by the courts in the cases below because otherwise there would have been no remedy for these women
	Pettkus v. Becker	Woman paid rent and living expenses, while man put all his money into a bank account and bought a farm with the title in his name. They shared the farm and turned it into a profitable bee keeping operation. They were never married. They split up and now she wants her part of the farm. She is attempting to assert a claim in unjust enrichment. She wants a constructive trust imposed on the farm. (1) There is an enrichment - she provided 19 years of labour to the farm and was paying rent and other household expenses, (2) There is a deprivation - she was not paid for the labour, (3) There is the absence of any juristic reason for the enrichment - where one person in a relationship tantamount to spousal prejudice herself in the reasonable expectation of receiving an interest in property and the other person in the relationship freely accepts the benefits conferred by the first person in circumstance where he knows or ought to have known of that reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it In order to claim a constructive trust, there has to be a proprietary interest. What proof does the woman have that the enrichment she has provided is connected specifically to the property of the farm? The court grants the constructive trust; they want to make constructive trusts a more flexible weapon to be used.
	Sorochan v. Sorochan	Married couple. He owned property prior to beginning of relationship. She leaves her job, moves in with him, raises their kids. They split up. She makes an unjust enrichment claim. Court grants her a share of the house. What has she done that would give her a significant link to the property? Court suggests that a contribution relating to the preservation, maintenance or improvement of the property might also suffice. Court also says that in addition to the causal connection requirement, it is often sufficient that the reasonable expectation of the claimant in obtaining an actual interest in the property as opposed to monetary relief constitutes another important consideration in determining if the constructive trust remedy is appropriate. Court says that she had a reasonable expectation in obtaining and interest in the land and he was aware of her expectation in this regard.
	Unjust Enrichment in the Commercial Context	Traditional constructive trust rules apply There must be a proprietary link between the unjust transfer (i.e. the for which there is an absence of juristic reason) and the property over which the plaintiff wishes to impose a constructive trust; plaintiff must show that the transfer gave rise to that specific property
	Chase Manhattan Bank v. Israel British Bank	Accidental transfer from Chase to Israel British Bank (mistake, no wrong - traditional case of unjust enrichment) Court suggest that a constructive trust is not an appropriate remedy in this case. A constructive trust is about property. Can you have a proprietary interest over money (over numbers in a bank account?). In this case the legal remedy is adequate; just get an order for Israel British Bank to pay the money back. Distinction between claim and remedy: the claim for unjust enrichment is valid (transfer, deprivation and a juristic reason for unwinding it), but a legal remedy is perfectly adequate. In this case though, Chase wants the imposition of a constructive trust so that the money immediately becomes the subject of their property interest, such that they are above all other creditors (Israel British Bank is insolvent)
	Tracy v. Instaloans Financial Solutions	Tracy has unjustly enriched Instaloans. Instaloans has taken the money and transferred it into the other property. Tracy is seeking a property interest in that property. The Court say no. Tracy needs to be able to demonstrate that the money they gave Instaloans directly translated into this property. This is the problem of tracing. In order for a constructive trust to occur, you must be able to show a direct connection between that the money that was unjustly transferred and the property in question.
	Canada Revenue v. Farber & Partners	Canada Revenue wants to assert a property interest in Farber & Partners' property Court says same thing as above: you must be able to show that there is a direct link between the money at issue and the property that you are claiming an interest in
	Nature of Trustee's Liability	The liability of a trustee is joint and several, trustees have to act together and they are liable together (i.e. if your co-trustee steals money from the trust, you too are liable)
	Trust Remedies	There are two types of trust remedies when trustees breach their duties to the trust: 1. Personal remedy (in personam): enforceable against the trustee in person (an order that the trustee must pay or do a specific thing; attaches to the trustee in person and not their property; may be ineffective if the trustee is insolvent) 2. Proprietary remedy (in rem): enforceable against property rather than people (allows the injured party to pursue the property wherever it goes; may be lost if the property cannot be traced)
	Personal Remedies	There are two types of personal remedies: 1. Equitable compensation 2. Accounting
	1. Equitable Compensation	Designed to recoup losses to the trust caused by the trustee's breach (we want the trustee to pay back the loss) Common remedy Ex. Fales v. Canada Trust: trustee lost the trust money by failing to exercise a duty of care (didn't sell the stock when he should have) Just because there is a loss to the trust does not mean the trustee owes damages, they only owe damages if the loss is the result of a breach of a duty (i.e. breach of the duty of care, stealing trust money, losing trust money, forgetting to sell goods, etc.) How to calculate damages owed by the trustee: [how much the trust would have had if the trustee had not breach their duty] - [how much the trust currently has]
	Carson Enterprises v. Boughton & Co.	There is a transaction between a buyer and a seller with an intermediary in between who make an unjust profit of $115K. Solicitor of the buyer is aware of the intermediary. Buyer builds a building, hires bad engineers and ends up losing $2M. Buyer sues solicitor for the loss, saying had he known about the secret deal he would have never done this transaction and all lost this money. Solicitors argue that although they are in breach, the damages flowing from the breach must be limited by the doctrines of remoteness and foreseeability. How far should the equitable compensation go? Court sides with solicitors and takes the position that the remedy for breach of fiduciary duty has to be reasonable and proportionate. Court says that in this case foreseeability may be an appropriate defence. Law firm should only have to pay $115K because it was not foreseeable that them making an unjust profit would lead to millions of dollars of losses because of the fault of an engineer. The court here is flexible with respect to the remedy because this is a solicitor-client case. Note that the solicitor is a fiduciary, not a trustee.
	Hodgkinson v. Simms	Person gives broker money. Broker puts money in risky investments, for which he earns an additional commission. Broker claimed to be an independent advisor; person trusted him. Person says had he known the broker was picking investments based on the secret profit it earned him, he would not have hired the broker. Court agrees that the fiduciary (the broker) ought to bear the full amount of the loss. The broker is a trustee and the person (beneficiary) is fully at his mercy. This case is different than Canson because a beneficiary is much more vulnerable than a client in an attorney-client relationship. Trustees must be held to the highest duty of care, and when that duty is breaches harsh liability must be imposed on the trustee. The Court seems to be suggesting that the nature of the fiduciary relationship will have an impact on the damages for which the fiduciary will be liable following their breach
	2. Accounting	The trustee has made money for himself instead of for the trust Remedy is designed to disgorge the unearned benefit to the trustee Damages are measured by the gain to the trustee rather than the loss to the trust (opposite of claim for equitable compensation) This remedy is justified through a legal fiction: in order to get the money back, beneficiaries approve of the trustee's conduct after the fact, the trustee impliedly promised to pay the trust and has failed to do so Though there has been no loss to the trust, courts want to ensure vigorous observance of the duties of the fiduciary. Courts want to prevent the trustee from benefiting in any way from the proceeds of the trust. As such, any unearned benefit to the trustee must be disgorged as it is a form of unjust enrichment (traditional form, there is a wrong done) and a breach of the trustee's fiduciary duty.
	MacMillan Bloedel Ltd. v. Binstead	MB is a logging company. Sales manager B is supposed to sell unused logs to 3rd parties. B sets up his own company, sell the logs to his company at market value, and then resells them for even more money to 3rd parties (i.e. makes profit as middleman). B is a trustee of the company (occupies a fiduciary relationship), he is using his position as trustee to make a profit. There is no loss to MB. Court orders an accounting for profit. Under the principle of unjust enrichment, the Court requires that the profits he made through this enterprise be disgorged. He would not have obtained these profits had it not been for his position, therefore he has an obligation to turn it over.
	Proprietary Remedies	The two most common forms of proprietary remedies are: 1. Constructive trust 2. Equitable lean
	1. Constructive Trust	A relationship by which one person who has obtained title to property has an equitable duty to transfer it to another, to whom it rightfully belongs on the basis that the acquisition or retention of it is wrongful and would unjustly enrich the person if he were allowed to retain it A constructive trust arises by operation of law Has some property come in the trustee's hands that make his retention of it wrongful as against the trust? The Court is simply declaring hat this piece of property is beneficially owned by someone else
	2. Equitable Lean	Applicable in two circumstances: 1. Where the circumstances require proprietary relief, but preclude the operation of the constructive trust 2. In the last decade the equitable lien has reemerged as an effective alternative to the constructive trust (i.e. courts are making this up as they go along - controversial trend) Applies in situations where the property doesn't necessarily completely belong to the beneficiary (i.e. the wronged person), but is subject to an interest to some percent Example: Trustee took money from trust. Bought car with half trust money, half his own money. A constructive trust therefore may not be appropriate. What should be done is a determination of what percentage interest the beneficiary has on the car, and the court will impose a lien in accordance with that percentage. The trustee will then have the choice to (1) pay the percentage of the lean or (2) they will be forced to sell the property and hand over the share belonging to the beneficiary.
	Tracing	It is up to the plaintiff to prove that the money from the trust actually went to purchase the property in question Beneficiary must show that their proprietary interest (usually in trust money) survives in something else Two principles of tracing (works for all fungible products, i.e. products you cannot tell the difference between such as oil, grant, wheat, gold, etc.): 1. Rule in Hallett's Estate 2. Rule in Clayton's Case
	The Rule in Hallett's Estate	RULE: Where a trustee mixes funds subject to a pro proprietary remedy with other funds, the trustee is deemed to have "spent his own money first" Trust can only claim to have a proprietary interest in the actual dollar bills taken from the trust Example: On Day 1, trustee's account balance is $5,000. On Day 2, trustee deposits $10,000 of trust funds, making balance $15,000. On Day 3, trustee withdraws $12,000, making balance $3,000. We assume that he took out his own $5,000 and $7,000 of the trust money. Therefore, there is $3,000 left of trust funds. On Day 4, trustee deposits $2,000 of his own money, making the balance $5,000. On Day 5, trust may only claim $3,000 from the account. Trust has a proprietary claim for $3,000 and an in personam claim for $7,000 (the rest).
	The Rule in Clayton's Case	RULE: When a trustee takes funds from multiple accounts and puts it all into his own, the rule is first in, first out Example: On Day 1, T takes $5,000 from Trust A and puts it in his account, making the balance $5,000. On Day 2, T takes $2,000 from Trust B and puts it in his account, making the balance $7,000. On Day 3, T takes $3,000 from Trust C and puts in in his account, making the balance $10,000. On Day 4, T withdraws $6,000 from his account, making the balance $4,000. We assume $5,000 was withdrawn from Trust A and $1,000 was withdrawn from Trust B. On Day 5, Trust C may claim $3,000 from the account, Trust B may claim $1,000 from the account, and Trust A gets nothing from the account. Note that Trusts B and A still have an equitable claim from compensation, even if all or part of their property has disappeared and they cannot therefore have a proprietary claim for the amount owed to them. The idea behind this rule and the reason why the balance is not split pro-rata between the parties is that if you are defrauded and you do nothing about it and then others get defrauded afterwards, then you are less of an innocent party than the subsequent party (assumption that everyone has a duty to verify what is going on with their own property)
	Environmental Trusts	Modern desire to use trust principles to advance environmental agenda Three areas in which we encounter trust problems: 1. In connection with the public trust doctrine (obligation of the Crown to protect the environment) 2. What is the trustee's liability for environmental damage cause by land/property in the trust? 3. Trusts in connection with environmental remediation after extraction
	The Public Trust Doctrine	The public trust doctrine imposes fiduciary obligations on the government with respect to the environment It is based on the principle that certain natural and cultural resources are preserved for public use, and that the government owns and must protect and maintain these resources for the public's benefit The government holds certain natural resources (property) in trust for the benefit of the public The public trust is an American creation
	Illinois Central Railroad Co. v. Illinois	The state of Illinois takes certain lands of Lake Michigan and sells them to the railroad company for the purpose of building piers. State changes its mind and wants to rescind sale. Can it do this? Court says that the title that the state holds in this type of property (i.e. navigable waters) is different in character than other lands that the state may hold (i.e. land under a school). Land under navigable waters is held by the state in trust. The purpose of the doctrine is to make sure that the state always holds this land free and clear so that the public may use it. The state may grant concessions which limit access to the waters/land under waters, but it must be for the benefit of the public. Significance of the public trust doctrine: actions by the state which impede access or do damage to the water/subsurface give rise to claims against the state as trustee in breach of a fiduciary duty (doctrine is used as a means of holding the state accountable for its actions that do damages to navigable waters)
	National Audubon Society v. Superior Court	Mono Lake is held by the state of California in trust, under the public trust doctrine. State decides to pump water out of the lake to bring to LA, which will have terrible environmental consequences. National Audubon Society sues and claims that the state has a duty as trustee to preserve the lake under the public trust doctrine. Court says that the state has a duty to supervise and control these lands for the benefit of the wider public. However, it must have the power to grant rights to waters even when doing so would harm a public trust use. The state must balance the two interest in question. In this case, the injunction request is denied. LA's need for water wins over public trust uses (i.e. fishing, swimming, boating, etc.) The public trust doctrine is not absolute. The boundaries of the government's trust obligations are flexible, depending on other government interest.
	Public Trust Doctrine in the US	The doctrine applies to navigable waters and the interests which are traditionally exercised on those waters (fishing, swimming, etc.) Some suggest that this doctrine should also be applied to other areas of the environment that require protection The public trust doctrine does not create an actual trust, but rather imposes trust-like duties on governmentsThe trust-like responsibilities of the government have to be balanced with its other responsibilities, there are conflicting obligations (makes it different than a formal trust) To determine if a public trust duty is breached, courts must balance all the governments duties (court has admitted that it might not be the best institution to make this determination)
	Public Trust Doctrine in Canada	No case grounded on the public trust doctrine has succeeded in Canada
	Green v. The Queen	Provinces attempt to lease part of a provincial park to a cement company so that it may use its sand Plaintiff's argue that the language of section 2 of the Provincial Parks Act creates a trust (i.e. declares that the parks are to be held in trust by the government for the benefit of the people of the province of Ontario) and that an attempt to lease these lands is a violation of the government's duty as trustee The Court finds that the subject matter of this alleged trust cannot be determined, because the province can expand and shrink parks at its discretion. Also, because the parks may expand and shrink, its users may change, which makes it impossible to determine who are the beneficiaries. Basically, the Court is trying to avoid recognizing the public trust doctrine by doing a literal analysis of the alleged trust and stating that no trust can be recognized as the aspects that formally constitute a trust are not present (i.e. identifiable trustee, beneficiaries and subject matter) This is the opposite approach of Illinois Central. The Court in that case seized the opportunity to go beyond the strict definition of trust and impose trust-like obligations. Here, the Court is more conservative and refuses to find a public trust doctrine.
	British Columbia v. Canada Forest Products Ltd.	There is damage to trees as a result of the negligence of a logging company. The Crown claims it may proceed against the logging company for damages to the forest in their capacity as constructive trustee to all wilderness lands. Crown is specifically invited to find a public trust doctrine. However, it finds that the doctrine is not applicable here. If there are damages to the Crown, it is in their capacity as an owner of the trees and not as a trustee. Basically Court says they are going to save the government from themselves. If the Court recognizes a public trust doctrine which allows the government to sue for damages in this case in its capacity as trustee, it would also open the door for the Crown to be held liable in the future as trustee for any damage it does to the environment.
	Liability of the Trustee for Environmental Damage	Should a trustee be liable for environmental damage caused by activities on the trust property? Section 7(1) Environmental Protection Act: trustees are personally responsible for environmental damage caused by land held in trust (example of trust principles coming into play to expand liability for environmental damage) Sections 14.06(2) Bankruptcy and Insolvency Act: trustee is not personally liable for any environmental condition that arose or environmental damage that occurred (a) before the trustee's appointment or (b) after the trustee's appointment unless it is established that it happened because of the trustee's gross negligence or wilful misconduct
	The Trusteed Environmental Fund	Trust designed to provide assurance for the Crown that the land will be restored after the operation Crown leases company a piece of government land to frack, mine, etc. Crown does not want company to walk away after the operation and leave the them with a mess. Three options: (1) Promise by User: have the company promise to restore the land - problem is that Crown does not trust company. (2) Deposit Scheme: company pays into government-controlled fund which is then used by government to pay for restoration - problem is that company does not trust government. (3) Trusteed Environmental Fund: company pays portion of income into fund managed by trustees who are charged with paying the costs of reclamation - both parties feel secure.
	Example of Trusteed Environmental Fund: Oil Spill Liability Trust Fund (US)	Every barrel of oil shipped to or from the US pays a tax, which is placed into the fund The commandant of the coastguard is the trustee of the fund When there is a spill, the company accused has 24 hours to begin clean up. If they do not, the commandant of the coastguard has the right to do whatever needs to be done in order to clean it up. After, once the responsible party is determined, they will be billed.
	Commercial Trusts	Most of the wealth held in the US is held in commercial trusts
	Advantages of a Trust for Commercial Purposes	4 advantages of a trust for commercial purposes: 1. Tax considerations 2. Flexibility 3. Monitoring 4. Reducing contracting costs
	Tax Considerations	Avoids the problem of double taxation Double taxation: If I create a corporation, the corporation pays taxes on its earnings for the year. When the corporations send me a dividend, I then pay taxes on that dividend. This doesn't happen with a trust. Trusts are not taxed in the same way as corporations and beneficiaries are not taxed in the same way as shareholders.
	Flexibility	Trusts may offer greater flexibility of design, especially useful where the purpose is to hold and preserve assets You may want to avoid statutory oversight (i.e. avoid regulations, "fly under the radar")
	Monitoring	A trust may provide for a more efficient way to monitor activities (i.e. reduce monitoring costs), especially when many people have small interest in an asset but the total interest held is quite large
	Reducing Contracting Costs	The use of a trust may make it easier to offer identical contractual benefits to large numbers of people as part of a single transaction
	Functions of a Commercial Trust	There are 3 main functions of a commercial trust (how they may be used): 1. Pooling vehicle / Pooling device for corporate security holders 2. Finance vehicle 3. Financial intermediary
	Trusts as a Pooling Vehicle	A commercial trust is useful for pooling assets 2 examples of pooling device: Voting trust Trust indenture
	Voting Trust	Shareholders are able to put our shares together in blocks and vote them together through a voting trust (allowed under s. 146(1) CBCA) Shareholders do this because they want to get more power as a group While individual shareholders may not be taken seriously, a voting trust may be an effective way to get power Contracts can be made whereby shareholders agree to vote in a certain way, but if a shareholder doesn't vote as he says he will there is no remedy except in contract. However, if a voting trust is created, the trustee will vote the shares and there is no risk that shareholders won't follow through on their promises
	Ziedler v. Campbell	Woman has shares in company. She wants to retain her ownership interest but give up her voting rights. Woman's shares represent (1) her right to own (and receive dividends) and (2) her right to vote. Woman retains ownership, but puts her voting rights in an irrevocable trust to be mangled by Campbell. Campbell will manage the company and vote her shares. Woman wants to revoke the trust. Campbell says she cannot revoke trust because it is irrevocable. Woman invokes the rule of Saunders v. Vautier and says that she can bring trust to an end as she is sole beneficiary (he is voting her shares on her behalf). Lower Court suggest that this is not in fact a trust because Campbell stands to make a profit here (if the company does well as a result of his management and the way he votes, he can get a bonus and get his own shares). Court says trustee is not able to profit from a trust. This is problematic many trustee companies are in the business of making money (i.e. managers of pension fund, brokers at banks, etc.) Court of Appeal decides that there is a trust, but Saunders v. Vautier cannot apply here because not all the beneficiaries are in agreement. Campbell himself is a beneficiary of the trust because one purpose of the trust, if it is fully performed, is to get him a bonus and shares.
	Trust Indenture: Why it Exists	We pool debt or securities for the purpose of reaching out the public and getting access (i.e. to access capital markets) Corporation needs cash and doesn't want to go to bank. Instead, it will issue debt (i.e. corporation wants 100 000 people to give $1000 each). Individual lenders might be worried about their investment- they aren't a big entity able to monitor the company or to sue them it they don't pay the debt. Solution: we create a trust indenture - we put a trustee between the company and the lenders. It is a standby trustee, we hope the trustee will never have to take the property.
	Trust Indenture: How it Works	Company issues debt and will provide that in the event it does not pay on time, the trustee has the right to sue on behalf of all the lenders (so lenders are given the trustee the right to sue(, In the meantime, the trustee will be monitoring the company on behalf of the lenders. If the company defaults, the trustee will take the assets of the company and sell them on behalf of the lenders (trustee will foreclose and execute the rights of the lenders). So as long as the company is paying the lenders, the trustee is just an empty box.
	Millgate Financial Corp. v. BF Realty Holdings Ltd.	Debtor has violated the terms of the loan agreement and the trustee does not take any action against it Usually the agreement between the company/debtor, the trustee and the lenders contains a "no-action clause", which provides that the individual lenders have no right to commence an action against the debtor in their own capacity, only the trustee may commence an action The "no-action clause" is not for the trustee's benefit and, as such, the individual lenders who are unhappy that the trustee has not commenced an action against the debtor may sue the trustee
	Trusts as a Finance Vehicle	Trusts may be used as a means to finance transactions We will look at two types: 1. Asset Securitization: Special Purpose Vehicles (SPV) 2. Business Income Trusts a. Income Trusts b. Real Estate Investment Trusts
	Asset Securitization: Special Purpose Vehicles (SPV)	Mortgage company creates individual mortgages (loans). They have no cash, but they have assets. They create a SPV (a trust). Mortgage company transfers mortgages to SPV, SPV then sells shares in the SPV to investors, and SPV transfers investors' money to mortgage company. Now mortgage company has cash. Mortgagors now pay their monthly payment to the SPV, which in turn pays the investors. This is secured debt (asset-backed securities, backed up by real estate). However, the system only works if the mortgages are good (i.e. mortgagors don't all default)
	Benefits of Securitization	1. It provides off-balance sheet debt financing: mortgage company has same about of assets, but now has more liquidity, looks better 2. It can lower a firm's financing because an SPV can obtain a higher credit rating than originator: SPV has no operations and therefore no other liabilities, can get lower interest debt 3. It effectively segregates the risk of financial failure: SPV looks like less of a candidate for bankruptcy
	Business Income Trust	A way in which a person can become an investor in a business without actually being directly involved in the business Two kinds of Business Income Trusts: Income Trusts Real Estate Investment Trusts
	Income Trust	Company pays corporate tax rate and distributes dividends to shareholders. We want to avoid this double taxation issue. Trust is formed and units are issued. Trust will give company a loan. Company will pay back loan to trust. Unit holders will receive this income (as beneficiaries instead of shareholders and will therefore be taxed at the beneficiary level).
	Real Estate Investment Trust	Same idea as Income Trust, but designed to invest in real estate. Trust is formed and units are issued. Trustee then buys buildings and renters pay their rent to the trust. Trustee distributes this income to unit-holders. REITs are very important pension fund investments (pay low returns, but are considered very secure). REITS are thought to produce economic benefits in the real estate economy and the larger economy
	Trusts as a Financial Intermediary	Two examples: 1. Mutual Fund Trusts 2. Pension Fund Trusts
	Mutual Fund Trusts	Mutual fund buys shares from a variety of companies. I then invest my money in this mutual fund. The fund manager (trustee) is making the investment and telling me what he is gong to do. I don't own a single share as an investor, the trustee is the owner of the shares. As an investor, I have an interest an interest in the trust and not the shares of the individual companies.
	Pension Fund Trusts	I put money in a pension fund and the pension fund makes in vestments on my behalf. It is essentially a mutual fund, except it is much more highly regulated as we are dealing with people's retirements. Also, I cannot pull out of the pension fund whenever I want. Two kinds of pension funds: 1. Defined Benefit Plan: the amount of money the employee will get when they retire is fixed 2. Defined Contribution Plan: the contributions (of the employer and employee) are fixed, but the amount the employee will receive when he retires is not fixed
	Trusts and Family Relationships: Married Couples vs. Unmarried Couples	Married couple are usually governed by provincial Matrimonial Property Acts (MPAs), which sets out how property is to be divided upon the dissolution of the marriage Unmarried couples (cohabiting couples) were often not covered by MPAs.
	Nova Scotia (Attorney General) v. Walsh	Unmarried cohabitants maintain their respective proprietary rights and interest throughout the duration of their relationship. Woman claims that they were effectively a married couple and should therefore by able to take advantage of the MPA. Court says that unmarried couples cannot take advantage of the MPA (if they wanted the benefits of marriage then they should have gotten married, people make a choice to not be married and we must honour that choice) The Court suggests however that even though unmarried couples cannot take advantage of the MPA, other equitable remedies may available for an aggrieved ex-partner (i.e. constructive trust)
	Statutory Response to Walsh	Following the Court's decision in Walsh, a number of provinces enacted legislation to allow unmarried cohabiting couples to have access to the protection of the MPAs In the provinces where no such legislation was adopted, unmarried couples must seek remedies in equity (i.e. constructive trusts)
	Walsh's Impact on Unjust Enrichment Claims for Cohabiting Couples	After Walsh, the tendency to broaden unjust enrichment seems to have slowed Ex. Smith v. Prusko: no award towoman who lived with man for 19 years even though they had a “traditionalrelationship in terms of household responsibilities” but kept separate finances (no common economic goal)
	Murdoch v. Murdoch	Irene Murdoch claimed an interest in assets accumulated as a result of work done by both Irene and her husband on ranch properties in Alberta during their 25-year marriage; title to the assets of the marriage was held in her husband's name at separation A majority of the SCC denied the wife's claim based on resulting trust, in part because they discounted the work she has done as "just about what the ordinary rancher's wife does" However, the dissenting judgement of Laskin J concluded that the facts justified a declaration of constructive trust, based on the husband's unjust enrichment arising out of his wife's significant "contribution of physical labour beyond ordinary housekeeping duties"
	Peter v. Beblow	Woman moves in with man. They live together for 12 years. She looks after the house and kids. Before she arrived, he paid a housekeeper, but now she does that work (unjust enrichment). They also each worked outside the house. Relationship ends and she seeks an interest in the house (i.e. wants a constructive trust over the house). In order to get the remedy of constructive trust, she must prove unjust enrichment. This is proven. Court says that while technically this situation would not meet the criteria for the granting of a constructive trust (i.e. unjust enrichment has no connection to the specific property), the Court decides to stretch the notion of constructive trust in family cases and imposes one in this case.
	Concept of the Trust in Quebec Law	Civil law rejects the notion of beneficial ownership. Therefore, Quebec trusts are created via patrimony by appropriation: a patrimony that is appropriated to a specific purpose without being attached to any particular natural person.
	Formation of Quebec Trust (Art. 1260 C.c.Q.)	Four requirements: 1. An act whereby a settlor 2. Transfers property from his patrimony to another patrimony constituted by him 3. Which he appropriates to a particular purpose and 4. Which a trustee undertakes, by his acceptance, to hold and administer
	Classification of Quebec Trusts	There are three main categories: 1. Personal Trusts: a personal trust is constituted gratuitously for the purpose of securing a benefit for a determinate or determinable person (art. 1267 C.c.Q.) - basically a family trust at common law 2. Private Trusts: a trust for a private or community purpose that is not itself designed to provide a personal benefit to an individual - basically a non-charitable purpose trusts a) Non-Commercial (art. 1286 C.c.Q.): trusts for a thing (e.g. a war memorial) or for a purpose (e.g. a youth hockey league) b) Commercial (art. 1269 C.c.Q.): primary purpose is to make a profit (e.g. mutual fund) or designed to confer a financial benefit on determinate persons outside the family context (e.g. pension trust) 3. Social Trust: constituted for a purpose of general interest, such as a cultural, educational, philanthropic, religious or scientific purpose (art. 1270 C.c.Q.)
	Main Differences between Quebec Trusts and Common Law Trusts	The Quebec trust is created by a patrimony by appropriation, not by a transfer of property to the trustee. The settlor transfers property from his patrimony to another patrimony constituted by him, which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer. Unlike the common law trustee, the trustee of a Quebec trust has no right of ownership. Instead, the relationship between the trust patrimony and the trustee is one of powers - he has been given powers to deal with the property. There are no constructive or resulting trusts in Quebec. Quebec recognizes the existence of private trusts, which are basically non-charitable purpose trusts, that are not recognized in the common law. Quebec recognizes the existence of social trusts, which have a wider range than common law charitable trusts. The trustee of the Quebec trust may have greater power to delegate than at common law. Beneficiaries of Quebec trusts lack rights against the trust property that exist at common law, their rights are personal rather than in rem, remedies for benefices are thus weaker in Quebec trusts.

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