Pouring over Pour-Over Clauses: MacCallum Estate

Case Summary: The Estate of Helen F. MacCallum

Court: Probate Court of Nova Scotia

Date: February 2, 2022

Citation: MacCallum Estate, 2022 NSSC 34

Background: The case involves the interpretation of a provision in the Will of Helen F. MacCallum, specifically clause 3(d), which directs the residue of her estate to be paid to the trustee of the Helen MacCallum Alter Ego Trust (the “Trust”) – a pour-over clause. The executor, Royal Trust Corporation of Canada, sought the court’s guidance on whether this clause is legally effective or if it results in a partial intestacy.

Facts: Helen F. MacCallum executed the Helen MacCallum Alter Ego Trust and her last Will and testament on December 15, 2017. She died on December 19, 2020, and was survived by thirteen nieces and nephews. The assets held by Royal Trust as executor were valued at approximately $192,453.84, while the Trust held assets worth $2,029,044.41. Royal Trust, as executor, wanted to determine the legal effect of clause 3(d), in light of a series of cases in other jurisdictions in Canada challenging the validity of pour-over clauses that had found them invalid for various reasons, in order to be able to complete the estate administration.

Issues:

1. Is clause 3(d) of Helen F. MacCallum’s Will legally effective to authorize the executor to pay and transfer the residue of the estate to the trustee of the Trust?
2. Does the clause result in partial intestacy?

Decision: The court found clause 3(d) to be legally effective, allowing Royal Trust as executor to transfer the residue of the estate to itself as the trustee of the Trust.

Reasons: The court’s analysis focused on conflicting legal authorities regarding the validity of “pour-over” Wills, where the residue of the estate is intended to flow into an inter vivos trust. British Columbia cases, such as Quinn Estate v. Rydland and Kellogg Estate v. Kellogg, invalidated such clauses based on the formal requirements of the Wills Act, and it successor the Wills, Estates and Succession Act (“WESA”) being met, arguing that they allowed changes to the estate distribution without proper testamentary compliance.

Conversely, older English and Manitoba authorities, including Blackwell v. Blackwell and Jankowski v. Pelek Estate, upheld such clauses. The court found these precedents more persuasive and relevant to the present case.

The court found that all essential elements for a valid semi-secret trust were present:

• MacCallum communicated the purposes of the trust to Royal Trust set out in a document signed by her.
• Royal Trust promised in writing to execute the trust.
• The Trust document was signed by both parties prior to the Will.
• MacCallum transferred substantial assets to Royal Trust as trustee during her lifetime (more than ten times the value of the estate assets) so the Trust was fully constituted.
• The Trust was never revoked nor amended. Royal Trust has a fiduciary duty to administer it on terms agreed to before the Will was executed.

Conclusion: Clause 3(d) of Helen F. MacCallum’s Will was found to be valid and effective on the basis of a semi-secret trust existing at the time the Will was executed. As a result, the executor, Royal Trust, was authorized to transfer the residue of the estate to the trustee of the Helen MacCallum Alter Ego Trust, aligning with the testatrix’s intentions and avoiding partial intestacy. The decision in this case is reassuring as it respects the public policy presumption against intestacy and affirms the integrated estate planning approach undertaken by the testator, as well as the general law with respect to semi-secret trusts.

It should be noted that the last item in the court’s list about the Trust never having been revoked or amended is from the dissenting judgment of Huband J.A. in Pelek Estate, rather than the majority decision. Pelek Estate dealt with a direction in the deceased’s Will that concluded:

[c] to pay transfer and deliver all the residue of my estate to my said Executor to deal with as he may in his discretion [sic] decide upon.

The court in Pelek Estate went on to examine the requirements for a fully secret trust and found that one existed. The dissenting judgment focused on the fact that the “trust” was not created prior to the Will. More specifically, the objection was to the deceased’s instruction to the executor regarding his wishes about the persons to whom the Executor should distribute the residue coming after the execution of the Will.

If those instructions had been in the nature of a declaration of trust, rather than simply precatory comments about how he wishes the executor to exercise his power of appointment, the objection would still not be valid as fully secret trusts can be communicated before or after the Will unlike semi-secret trusts, so long as it is during the testator’s lifetime. However, there is no evidence that the deceased intended to create a trust. Firstly, there was no express language to that effect although this is not necessary for a valid trust to be formed. All the testator did was to verbally instruct the Executor to divide the residue between three people and then he wrote the names of the three people on a blank paper for the Executor, who was the lawyer who drafted the Will.

An express common law trust, at its most basic form, requires an intention to have a person hold property for the benefit of another who acquires an equitable or beneficial interest in the trust property on the trust’s settlement. This should not be confused with a power of appointment which, only when exercised, confers a benefit on the object or “beneficiary” of the power without conferring property rights before the exercise of the power.

The direction in the Pelek Estate Will does not permit the Executor to retain the residue for the benefit anyone and neither did the subsequent instructions to the Executor. Instead, the Executor was given a general power of appointment to distribute the residue of the estate as he determined which would include to himself. The Will provision did not give the residue to the Executor, full stop, and then a trust was imposed externally either before or after execution of the Will. This would be a fully secret trust.

The lawyer may have felt that he was morally bound to follow the instructions, but they were precatory. In order for a trust to have been found, there would need to be terms at least giving the Executor discretion to both distribute and hold any undistributed portion of the residue. However, the ability to retain and manage a portion of the residue in trust raises the issue of compliance with the perpetuity period.

This blog series has examined several cases dealing with pour-over clauses from various angles to test their consistency with broader principles. The next, and final blog, on pour-over clauses will review the decision in Vilenski Estate, which draws a sharp comparison between the BC cases and MacCallum Estate, as well as summarizing reasons why pour-over clauses are not only legally valid but also desirable.