Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.

Bergler v. Odenthal, 2020 BCCA 175

KEYWORDS:   Secret trusts; intestate heirs;

~A secret trust may be established where, in addition to the usual requirement for the three certainties for creating a trust, two elements are made out on the usual civil standard of proof: a communication by the deceased to their devisee, legatee, or intestate heir, and acceptance by that person of the request that they will hold the property in trust. ~

Overview

This case deals with a concept that is now rarely encountered, the “secret trust”.

In 2013 the plaintiff’s aunt was diagnosed with pancreatic cancer and passed away in a hospital two months later. The deceased had not made a will. What was at issue in this case were the nature of statements and conversations between the deceased, her common law spouse, the niece, and other family members. The niece and her sister testified that the day before her aunt died, they had met with the spouse at the hospital and he had told them that the deceased had told him that she wanted the niece to receive her entire estate, to support her return to school. The niece’s mother (and deceased’s sister) also testified that she had had similar discussions with the deceased in front of the spouse and another witness. The nature of these discussions was that the deceased wanted her estate to return to her family should the spouse begin a new relationship (and, in fact, the spouse had since remarried).

These statements were admitted under the principled exception to the hearsay rule, satisfying both the necessity and reliability requirements.

The spouse did not dispute that the deceased had wanted her estate to go to her family, but said that they were only to receive the estate upon his death. To achieve that, he had created a will that would leave about the same value he had received from the deceased’s estate to the niece. However, in his testimony he had also agreed that the deceased had wanted the niece to receive the estate to support her education, which would suggest she was intended to receive the estate long before the spouse’s death.

The trial judge stated the law to be that “[i]n circumstances where a person dies intestate relying on the fact that her intestate heir has accepted the trust, the law will compel the trustee to carry out the trust”. Reviewing the evidence, the judge found on a balance of probabilities that the deceased had intended for her estate to go to the niece, and the spouse had accepted that obligation. He therefore held the estate for the benefit of the niece.

On Appeal

The Court of Appeal started by observing that a “secret trust” is established when (in addition to the usual requirements for a trust: the three certainties of intention, objects, and subject-matter) two elements are made out: a communication by the deceased to their devisee, legatee, or intestate heir, and acceptance by that person of the request that they will hold the property in trust. The principal ground of appeal was the spouse’s position that the trial judge had erred by failing to sufficiently consider whether he had accepted the trust. Further, the appellant said the evidence and testimony at trial was not capable of supporting the inference that he had accepted it.

The Court agreed that it is a condition for the finding of a secret trust that the trustee accept the obligation. However, that is a matter of “ordinary proof”, and is subject to the usual civil standard of proof of the balance of probabilities. Further, there is authority for the proposition that acceptance can be made out by silence; Professor Waters, a leading authority on trusts, has said: “any person having received a request of this nature would be bound to say something if he rejected the idea that he himself should not enjoy the property beneficially.” The finding that the spouse had accepted the terms of the trust was a factual one that the Court of Appeal could only overturn if clearly and palpably wrong, which was not made out here. The Court therefore found that the spouse was required to transfer the estate to the niece either upon his death or when he began a new relationship, whichever occurred first; as he had since remarried, he was obliged to distribute the assets to the niece. The appeal was therefore dismissed.

Counsel Comments – Bergler v. Odenthal 2020 BCCA 175

James W. Zaitsoff, Owen Bird
Counsel for the Respondent

When a deceased person leaves a will, a disappointed beneficiary may have a variety of available claims, including challenges to the validity of the will and, of course, wills variation claims. When a deceased person dies intestate, it may seem at first blush that a disappointed beneficiary has no recourse, as the legislation sets out a non-discretionary scheme as to how the estate is to be distributed.

However, in Bergler v. Odenthal 2020 BCCA 175, there was a remedy available: the secret trust.

As the Court of Appeal notes, secret trusts are “rarely encountered today” and this will likely continue to be the case. There is considerable risk in relying upon a secret trust to carry out your testamentary intentions. The person who would otherwise receive your assets (whether by will or intestacy) will directly benefit from denying the existence of a trust after your death Or, as happened in Bergler, the trustee make seek to add a “clarification” to the terms of the trust, which would postpone his obligation to distribute the assets until his own death.

In Bergler, the appellant (the spouse of the deceased) argued that the trial judge failed to analyze the question of whether he accepted a trust obligation (a necessary requirement to establish a secret trust). The appellant argued that there was considerable evidence of the deceased’s communication of her wishes, but no evidence that he accepted and agreed to abide by those wishes.

Fortunately, the plaintiff/respondent had good evidence. There was evidence elicited from the appellant in examination for discovery and cross examination at trial that he agreed to do what the deceased asked of him. The Court of Appeal agreed that the finding of acceptance was well supported by this evidence. The deceased also discussed her wishes/instructions with the appellant in front of others, and the appellant confirmed that he received instructions from the deceased to the plaintiff/respondent and her sister immediately prior to the deceased’s death.

When an alleged trustee denies the existence of a trust or seeks to add terms to their own benefit, a plaintiff seeking to prove the trust will likely need evidence like this: evidence from uninterested parties corroborating the creation of the trust, admissions by the trustee as to the existence of the trust, or ideally both. While the law today does not require corroboration of the acceptance of the obligation of secret trust, it would be very difficult to prove a secret trust based only on the word of the person who would benefit under that trust.

The court will also look at what makes sense in the circumstances. In Bergler, the Court of Appeal noted the trial judge’s observation that the stated purpose of the trust – to put her niece on better financial footing and allow her to continue her education – was inconsistent with the appellant’s position that he did not have to deliver the assets to the niece until his death.

The Court of Appeal referred with approval to Professor Waters’ observation that once the deceased’s communication of the trust obligation is established, acceptance can be spelled out of the silence of the trustee: “Any person having received a request of this nature would be bound to say something if he rejected the idea that he himself should not enjoy the property”. If the appellant intended to retain the assets contrary to her wishes, then he was required to tell her that. This would have allowed the deceased to take steps to prepare a will which set out the testamentary wishes that the appellant refused to follow.

Finally, the Court of Appeal confirmed that acceptance by one joint owner of an obligation of secret trust severs a joint tenancy. The idea that the legal owner may not be the beneficial owner is nothing new. However, in this case the Court of Appeal confirmed that if one joint owner instructs the second joint owner that he is to hold her interest in trust (and the second owner agrees), then the joint tenancy is severed, and the second owner now holds the first owner’s interest in trust.