Sabey Rule Blog

Quinn Estate

By March 22, 2018 No Comments

Estate planning for people with assets and connections to both the United States and British Columbia is fraught with potential legal and tax pitfalls. It is important to get tax and legal advice with respect to the implications on both sides of the border. This is illustrated by the recent decision concerning the former NHL coach Pat Quinn in Quinn Estate, 2018 BCSC 365.

Mr. Quinn and his wife Sandra Quinn settled a trust in the United States which dealt with assets in the United States. Mr. Quinn was an American citizen, and Mrs. Quinn had U.S. Green Card, but they lived in British Columbia. Their U.S. lawyer also draft a will for Mr. Quinn dealing with his assets in Canada. The will provided that the residue of his Canadian Estate would “pour over” into a U.S. trust, referred to as the Quinn Family Trust.

The issue in this case was whether the distributive provision of the Canadian will is valid under British Columbia law. The will was signed by Mr. Quinn in the presence of two witness in accordance with the requirements of section 37 of the Wills, Estates and Succession Act. The will itself was formally valid. The difficulty was the “pour over” clause, which I understand is valid in at least some states. The terms of the Quinn Family Trust allowed Mr. and Mrs. Quinn to amend it. Because they could amend the trust, the beneficiaries could be changed without compliance with the requirements of section 37.

Mr. Justice Funt, who heard the application, applied the decision in Kellogg Estate, 2013 BCSC 2292, appeal dismissed as moot 2015 BCCA2013:

[39]         In Kellogg Estate, Justice Gray held a pour-over clause to a revocable, amendable, inter vivos trust to be invalid. As in the case at bar, the inter vivos trust was amended after the execution of the deceased’s will. In Kellogg Estate, the amendment served to remove one of the primary beneficiaries of the trust.

[40]         After a review of the relevant English and Canadian cases, American legislation and cases, and academic commentary, Justice Gray concluded:

[69]      In my view, the fact that the Pour-Over Clause refers to future amendments of the KF Trust and the fact that the KF Trust Indenture was amended by the Amendment to KF Trust following the execution of the Will is determinative.

[70]      The gift cannot “pour over” to be held by the trustee of the KF Trust on the terms which existed at the time the Will was executed, because that trustee is now obliged to follow the terms set out in the Amendment to KF Trust. The gift cannot “pour over” to be held by the trustee on the basis of the Amendment to KF Trust because the effect would be to permit RPK to have effectively amended his Will without complying with the Wills Act [now section 37 of the Wills, Estates and Succession Act].

[71]      Even though there is some formality associated with acknowledging execution of a document before a single witness who is a notary public, the court does not have jurisdiction to weigh the degree of formality. The failure to comply with the Wills Act is fatal.

[72]      The doctrine of “facts of independent significance” has not been recognized in B.C., and applying such a doctrine here would require bypassing the Wills Act.

There was an amendment to the Quinn Family Trust, but it was administrative in nature. Mr. Justice Funt rejected the argument advanced by one of Mr. Quinn’s children that this case could be distinguished on that basis. Mr. Justice Funt held that the problem with the clause was that the Quinn Family Trust could be amended to change the beneficiaries, and it did not matter whether an amendment had been made.

Since the decision in Kellogg Estate, British Columbia law has changed to allow the court to give effect to a document that does not comply with the formal signing and witnessing requirements for a valid will. Section 58 of the Wills, Estates and Succession Act allow the court to give effect to a non-compliant record if the court finds that it represents the “testamentary intentions of a deceased person.”

Can section 58 be applied to save the “pour over’ clause?

Mr. Justice Funt held that it cannot. In this case, the will itself complied with the formal signing and witnessing requirements. It was rather the structure that is inconsistent with the formal requirements of a will, by allowing changes to be made without compliance. He wrote:

[55]         Section 58 is not an independent provision. From its language, “[e]ven though the making, revocation, alteration, or revival of a will does not comply with this Act”, s. 58 is tethered to s. 37. I agree with Ms. Francis, counsel for Sandra Quinn in her personal capacity, in her written submission:

44. The policy reason behind section 58 is to enable the Courts to step in where a person has taken real steps to make a will, but the formalities have fallen short. It does not exist to enable the court to bless structures that circumvent the formalities all together, which is what a pour over clause to an amendable trust does. If the policy behind section 58 were to do away with testamentary formalities, then our WESA would not contain testamentary formalities. Rather, what section 58 reflects is a policy to ensure that a document that reflects the deliberate, fixed and final intention of a Deceased person is not set aside on the basis of failure to comply with a formality.

[56]         Section 58’s scope is reflected in s. 59(1). Section 59(1) enables a will to be rectified where the will “fails to carry-out a will-maker’s intentions” in specified circumstances. Section 59 does not allow rectification under any circumstances. If s. 58 were to be given an overly broad interpretation, s. 59(1) would have no purpose. Rectification could occur under s. 58 based on a simple assertion of testamentary intentions. Section 58 is a curative provision and not an independent provision designed to change fundamental principles of the law of wills.

[57]         In short, the statutory context shows that the purpose of s. 58 of WESA is to permit the Court to address circumstances of “formal invalidity” where the will-maker’s “deliberate or fixed and final intention” as to the disposal of his or her property on death is found. [Quotation from Hadley Estate (Re), 2017 BCCA 311 omitted.

[58]         In the case at bar, the deficiency is not one of proper execution. All parties agree that the Will was properly executed. ….

[62]         The Quinn Family Trust was a revocable, amendable, inter vivos trust with the deceased being one of the two settlors and trustees. Although, as may be seen from clause 6.04, the Quinn Family Trust was part of an estate plan functioning during the deceased’s life time, it was designed to be flexible, and left matters in flux. For example, shortly before the deceased’s death, counsel had sent the November 21, 2014 letter addressed to the deceased and Sandra Quinn, which Sandra Quinn had the opportunity to read, and which recommended the assets be distributed “now”. The distribution of all of the Quinn Family Trust assets would have had the effect of a revocation.

The result is that the Canadian assets will be distributed to the persons entitled under on an intestacy.

The case does not deal directly with the taxation aspects of Mr. Quinn’s estate plan, but Mr. Justice Funt quoted from a tax opinion letter, which indicated that the structure could result in a significant tax burden to the Quinn family by triggering taxes in Canada that would not be offset by credits in the United States. This highlights the need to get specialized tax advice concerning the implications of a plan in both jurisdictions.