In a recent British Columbia Court of Appeal decision, the court found that a deceased’s instructions to her common law partner with regards to her estate had created a secret trust in favour of her niece.

A secret trust can be described as an arrangement between a testator and a trustee to benefit a person without having to specify that person in a will. The trustee is transferred property under the terms of the will which he or she then holds in trust for others.

Deceased Died Without a Will and Gave Verbal Instructions to Her Partner

The deceased passed away in April 2013 at the age of 62. She had been diagnosed with cancer in February and had put off preparing a will until she felt better — which never happened. Shortly before her death, she told her common law partner that she wanted her estate to go to her niece, who did not have a career or a home and was hoping to go back to school.

Following the deceased’s passing, the common law partner received her entire estate as her heir on intestacy. He did not keep the estate assets separate from his own. The funds in all bank accounts were transferred to his accounts and spent as if they were his own. In accordance with his understanding of the deceased’s wishes, he executed a new will shortly after she died, which would have left 3/10 of the residue of his estate to the niece upon his death.

In the fall of 2013, the common law partner became involved romantically with a woman; the two began living together in early 2016 and eventually married.

In 2015, the niece commenced a proceeding, seeking a declaration of express or implied trust, a constructive trust, a secret trust, and/or restitution for unjust enrichment.

Following the niece’s claim, the common law partner revoked his will and made a new one leaving nothing to the niece.

Issue at First Trial

At issue was the timing of the estate transfer. The deceased’s common law partner claimed that the deceased had told him to transfer her estate to her niece upon his death, while the niece claimed that the deceased had said that he had to transfer the estate to her when he began a new relationship.

Lower Court Finds Trust Was Created

In the lower court decision, the judge found that a trust had been created and that one of the trust terms was that the common law partner was bound to transfer the trust assets to the niece if he entered a new relationship.

Considering that the common law partner had entered a new relationship in 2013, the judge ordered him to transfer the trust assets to the niece immediately.

The judge concluded that whether or not the deceased had used the word “trust”, she had created a trust by her instructions to the common law partner and that he had accepted the obligation placed on him. Having done so, the judge said, it was not open to him to derogate from that obligation. He had breached his fiduciary obligations as trustee.

Grounds of Appeal

The common law partner appealed the decision. His principal ground of appeal was that the trial judge erred in law in failing to analyze the question of whether he had accepted the obligation which the deceased had purportedly imposed on him.

His second ground of appeal was that because part of the deceased’s property had been held by the couple in joint tenancy, it passed to him automatically because the deceased’s death severed the tenancy; thus it never became a part of her estate.

Court of Appeal Upholds Finding That Secret Trust Had Been Created

The court agreed with the common law partner’s assertion that, as a condition of finding a secret trust,the trial judge was required by law to consider whether the partner had in fact accepted the obligation imposed by the deceased.

However, the court concluded that the trial judge’s finding that the common law partner had accepted the obligation to hold the deceased’s assets for the niece was well-supported by the evidence.

As a result, the court found that the trial judge did not fail to consider the element of acceptance nor had she erred in law or in fact in finding that the common law partner had accepted the trust. He was thus required to transfer the trust assets on death or upon entering into a new relationship, whichever first occurred; and the time for the distribution of the trust assets came in 2013 or 2014 when he entered the new relationship.

Finally, the court rejected the common law partner’s second ground of appeal, finding that, as a matter of law, the creation of the secret trust severed the joint tenancy and the deceased’s remaining interest in that property formed part of the trust assets to be distributed to the niece.

As a result, the appeal was dismissed.

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The knowledgeable estate lawyers at Cherkowski Marsden LLP have over 50 years of combined experience helping people in Vernon create Wills designed to protect their families’ futures. Everyone, no matter their stage in life or income bracket, should have a Will to retain control over the administration of their estate. We work with clients with both modest and robust estate planning needs, advising on matters including asset distribution, business considerations, foreign assets and trust considerations. For clients with business assets and those in need of assistance with succession planning, we also offer the benefit of our considerable business law experience. It is impossible to predict all of life’s variables but having an estate plan in place takes a great deal of stress out of the unknown.

Contact the knowledgeable estate planning lawyers at Cherkowski Marsden LLP in Vernon and Salmon Arm for trusted legal advice and guidance on your estate planning needs, including how best to maximize clarity and minimize financial implications for your estate trustees and heirs. We look forward to collaborating with you to achieve your goals with respect to your interests and the protection of your loved ones. We can be reached online or by phone at 250-308-0338 (Vernon office) or 250-803-9171 (Salmon Arm office).