A woman dies, leaving a discretionary life interest in her will for her spend-thrift brother. Her will provides that upon her brother’s death, his only son is to be the remainder beneficiary. For years after his sister’s death, the brother accepts payments of income from the trust. He is not very happy, because the payments are conservative in his view, and he does not like that his gift is tied up in trust. One day, the brother decides he wants to buy a speedboat (but he’s broke). As luck would have it, his son also needs money for a down payment on a house. The brother disclaims his interest in the trust, and tells the Trustee to accelerate payment of the trust assets to his son (with whom he has made a side deal).
Is it possible to disclaim a life interest once you’ve already been receiving payments of income or capital? Under current Ontario law, it seems to be that you can.
A beneficiary’s disclaimer of an interest in property bequeathed to them has the effect of voiding the gift. Disclaimed property is treated as never having been acquired by the would be beneficiary. Direction as to ownership is then found in the testator’s will (or the rules of intestate succession). Courts have confirmed that the disclaimer of a life interest results in acceleration of the estate in remainder. While it does not appear possible to disclaim an outright gift after having accepted it, the Court of Appeal in Re Coulson (1977) 16 O.R. (2d) 497 held that a beneficiary who had received income under a testamentary trust for a number of years was entitled to make a disclaimer with respect to future income.
So in the facts above, the brother and his son would be able to purchase their respective boat and house, despite the fact that it doesn’t seem that this outcome would have been in line with the deceased’s intentions.
Lesson Learned: As a reminder, despite intentions, at death the testimentary arm can only reach so far.
Until next time,