All About Estates

ONCA Considers: Trust Funds for “Use” of a Discretionary Beneficiary – Is Accumulating Wealth a “Use”?

A very recent decision from the Ontario Court of Appeal (Holgate v. Sheehan Estate, 2015 ONCA 77) considered the question of whether the accumulation of wealth should be considered a “use” of trust income or capital.

The facts reflect a common blended family planning scenario. John and May Holgate married later in life and each had children from previous relationships. To provide for his wife while leaving an inheritance for his children, John Holgate’s will and codicil established two trusts, referred to in the case as the “Holgate Trust” and the “U.K. Trust”. Mrs. Holgate had a life interest in both trusts. Specifically, the trustees were directed to hold the trust property “for the sole use and benefit” of Mrs. Holgate. Mr. Holgate’s children were the remainder beneficiaries.

In the case of the Holgate Trust, the trustees had discretion to draw on income and capital as they “in their discretion consider[ed] advisable”. The Holgate Trust provisions expressed Mr. Holgate’s strong wish that the trustees take Mrs. Holgate’s well-being as their first consideration and provide for “all her needs and requirements of every kind”. They also indicated that Mr. Holgate was not concerned with conserving capital of the trust for the future use of his children or grandchildren.

In the case of the U.K. Trust, the trustees had discretion to draw on income only. None of the language mentioned above in describing the Holgate Trust provisions appeared in the U.K. Trust provisions. The trustees were simply given an authority to distribute income to Mrs. Holgate and directed, on her death, to distribute the remainder to Mr. Holgate’s descendants.

Mrs. Holgate survived her husband and received payments from both trusts. On her death, she left the bulk of her estate to her own children. Mr. Holgate’s children brought an action seeking, among other things, general damages of $5,000,000 and a declaration that they were entitled to a resulting or constructive trust interest in both estates. They alleged that Mrs. Holgate violated the terms of the trusts by accumulating wealth. By saving the money, they argued, Mrs. Holgate was not using it. They submitted that the purpose of the life interest was to preserve funds for the capital beneficiaries; otherwise, there would have been an absolute gift.

The Court of Appeal upheld the trial judge’s interpretation that the accumulation of income was permissible. The Court based this conclusion on the fact that there was no prohibition in either trust regarding the accumulation of funds or any words limiting the trustees’ discretion to make distributions of income (and capital, in the case of the Holgate Trust). In considering the Holgate Trust, the Court also noted the language mentioned above indicating Mr. Holgate’s “clear intention” to allow his wife unrestricted access to trust fund. It is interesting to note, however, that the absence of this language in the U.K. Trust did not affect the Court’s conclusion.

About Katie Ionson
Katie Ionson is an Associate at Fasken Wealth Management, Charities and Not-for-Profit Group. As part of her wealth management practice, Katie assists clients with Wills, powers of attorney, trusts, marriage and domestic contracts, and trust and estate administration. She has experience using estate planning to address a variety of client objectives, including income splitting arrangements, asset protection and business succession issues. Katie is engaged in a broad practice in the areas of charities and not-for-profit law, which includes preparing applications for charitable status, assisting clients with transitioning to the new federal or provincial not-for-profit legislation, drafting endowment and gift agreements and advising on administrative and tax-related issues. Email: