Pouring over Pour-Over Clauses – Quinn Estate

Case Summary: Quinn Estate v. Rydland, 2019 BCCA 91

Court: Court of Appeal for British Columbia

Date: March 14, 2019

Citation: Quinn Estate v. Rydland, 2019 BCCA 91

Background: The appeal in Quinn Estate v. Rydland centers around the validity of a “pour-over” clause in the Will of the late John Brian Patrick Quinn. The clause in question directed the residue of Mr. Quinn’s estate into an inter vivos trust known as the Quinn Family Trust (QFT), which was both amendable and revocable. The appellant, Valerie Quinn Rydland, challenged the invalidation of this clause at trial, contending that it should be upheld under the doctrines of incorporation by reference and facts of independent significance, or alternatively, through the curative provision of section 58 of the Wills Estates and Succession Act (WESA).

Facts: Mr. Quinn executed his Will in 1996, which included a provision to transfer the residue of his estate to the QFT. The QFT had been established earlier that year, with Mr. Quinn and his wife, Sandra Quinn, serving as settlors and trustees. The trust provided for the settlors during their lifetimes, with the residue to benefit their daughters, Valerie Rydland and Katherine Quinn, or their respective descendants.

In 2014, facing health issues, Mr. Quinn revisited his estate plan but passed away before any amendments could be made. The QFT was amended in 1997 to comply with certain U.S. regulations, but neither they nor the original QFT deed were witnessed in accordance with the formalities set out in British Columbia’s Wills Act.

Issues:
1. Whether the pour-over clause in Mr. Quinn’s Will could be validated by the doctrine of incorporation by reference.
2. Whether the doctrine of facts of independent significance could apply to validate the clause.
3. Whether section 58 of WESA could remedy the clause’s substantive invalidity.

Decision: The appeal was dismissed. The Court of Appeal upheld the trial court’s decision that the pour-over clause was invalid and could not be saved by the doctrines of incorporation by reference or facts of independent significance, nor by section 58 of WESA.

Reasons:
1. Incorporation by Reference: The court held that this doctrine could not apply because the QFT was an amendable and revocable document, and as such, it did not exist in a fixed form at the time of the Will’s execution. The court reaffirmed that a Will cannot incorporate by reference a document that is not “presently existing.”
2. Facts of Independent Significance: This doctrine, traditionally used to give effect to future determinations of fact with non-testamentary significance, was deemed inapplicable. The court noted that allowing a pour-over clause to rely on this doctrine would undermine the formalities required by the Wills Act and WESA, essentially allowing the Will to be altered without following statutory requirements.
3. Section 58 of WESA: The court determined that section 58, which allows the court to cure formal defects in testamentary documents, does not extend to curing substantive invalidity. The pour-over clause, which attempted to transfer estate residue into an amendable and revocable trust, represented a substantive issue that section 58 could not rectify.

Conclusion: The Quinn Estate case underscores the adherence of some Canadian courts to the formalities and principles underlying testamentary dispositions made by Will, but the question remains as to whether this is the correct analysis and result.

Firstly, the doctrine of incorporation by reference deals with bringing one document into another. In common law jurisdictions such as British Columbia, trusts are a relationship with respect to property that can be created verbally with no requirement to be reduced to writing with a couple of notable exceptions such as trusts with respect to real property. Trusts are not a document and have their own legal rules with respect to their formation.

It is common for trust structures to be amendable either by the express terms of the trust, common law or statutory provision such as British Columbia’s Trust and Settlement Variation Act. However, trusts are not the only amendable structure. Corporations can amend their articles and partners can amend their partnership agreement.

Some might say that there is a key difference between corporations and other legal structures since corporations have their own legal personality, but what is consistent is that a Will provision directing a legacy, bequest, devise or disposition of residue to a trust, partnership or corporation is a disposition of a portion of the testator’s estate to a legal structure, but not necessarily an entity, that must be in existence at the relevant time such as thirty days following the date of death of the testator. Testators can make gifts to after-born humans, which suggests that the legal structure does not need to be in existence on the date the Will was made.

This last statement may seem controversial, but consider a common estate planning wish that a portion of the testator’s estate be given to charity, including a family foundation that may be formed after the date of the Will. It could be a specific cash gift or bequest, or it could be a portion of the residue. In some instances, the gift to charity is only found in the disaster clause. Good drafting would include a gift-over in case the intended charity did not exist at the relevant time as well as a cy-prés clause.

In Canada, there are two ways to form registered charities. One is to use a charitable purpose trust and the other is a non-share corporation. Following the reasoning in Quinn Estate and some other cases with respect to pour-over clauses, an attempt to leave a gift to a charity formed by way of a trust is potentially not going to be valid, but a gift to a charity that is formed by way of a corporation will be okay since its is a legal person. It is unlikely that a Will provision making a gift to a corporation of any kind would be challenged on the basis that it is a pour-over clause that somehow involves incorporating by reference the corporation’s articles, which are amendable.

I disagree that an amendable and revocable trust does not have independent significance just because it is structured to be flexible and adaptable. Also, the testator does not necessarily have the ability to amend the relevant trust calling into question whether any amendment provision in the trust terms relate to a testamentary act of the testator. Even if they do, the trust structure is entirely independent of the Will.

As an aside, it is possible for an inter vivos trust structure to have a provision that will give rise to a subsequent trust that arises as a consequence of death and is therefore testamentary for Canadian income tax compliance purposes. This is permissible under trust and tax law and there is no requirement to comply with the formalities for Wills because trust law governs in this instance. Therefore, a Will gifting provision acknowledged by a competent testator to dispose of estate assets to a structure that by its nature is not required to comply with Will formalities should not be invalid and cannot be invalid on the grounds of incorporation by reference since there is no attempt to draw the trust structure into the Will or estate.

More discussion to follow in subsequent posts regarding pour-over clauses and recent cases.