580x230-Header-AltroLevy-David_Antoine

Version française aussi disponible.

Earlier this year the Quebec superior court rendered a judgment in the case of Québec (Curateur public) c. A.N. (Succession de), 2014 QCCS 616 (CanLII) where the court clarified the nature of a beneficiary’s right in a testamentary discretionary trust.

In this case, the beneficiary of the testamentary discretionary trust had a serious mental health condition similar to autism, which made him entirely dependent on his mother until her death. The beneficiary’s condition and inability to provide for his own needs made him eligible to receive financial and social assistance payments from the ministère de l’Emploi et de la Solidarité sociale (the “Department”).

A testamentary discretionary trust (the “trust”) was created at the death of the beneficiary’s mother for the beneficiary’s benefit. The trust agreement gives discretionary powers to the trustee to distribute amounts from the revenues and capital of the trust to provide for the “additional” maintenance and support of the beneficiary. By using the term “additional,” the beneficiary’s mother wanted to make sure that the trust distributions of capital and revenue would not render the beneficiary ineligible to the financial and social assistance payments that he had been receiving up to that point. As such, once the financial and social assistance payments were received by the beneficiary, the trustee had the discretion to distribute any additional amounts that he deemed necessary to complement the beneficiary’s maintenance and support needs.

The relevant clause of the trust agreement reads as follows:

“To provide out of the revenue of my Estate and from the capital thereof should my said Executors and Trustees in their sole discretion deem it advisable, such sums as in their discretion they deem necessary, for any additional maintenance of my son, during his lifetime, including additional provision for education, medical care, residence, companion and such other expenses as my Executor and Trustee shall deem reasonable ;”

The Department, considering that the trust had an obligation to provide for the needs of the beneficiary, ruled that the beneficiary was no longer eligible to receive financial and social assistance payments. The Public Curator who was in charge of the beneficiary therefore requested from the trustee that the trust now provide for the basic needs of the beneficiary. The trustee denied the Public Curator’s request.

The Individual and Family Assistance Act, CQLR c A-13.1.1, stipulates that an adult who receives assistance payments must exercise his “rights” when such rights would affect his eligibility for a financial assistance program, or reduce the amount of assistance. Therefore, in this case the court had to determine if the beneficiary had a right to the revenue and the capital of the trust, in which case he would have to exercise this right which would make him ineligible to financial and social assistance. Right at the outset, the court determines that the beneficiary does not have a “real right” in the trust property but rather a personal right. Furthermore, because the trust is discretionary the beneficiary only has a precarious and eventual right that is subject to the trustee’s discretion.

One of the fundamental principles of trust law is that a beneficiary’s right is governed and subject to the terms of the trust agreement. In this case, the trust provided in plain and clear terms that the beneficiary’s right was subject to the trustee’s discretion and that such discretion could only be exercised in addition and as a complement to the financial and social assistance received from the Department. By creating this type of trust, the beneficiary’s mother wanted to ensure that he would benefit from an additional financial security during his whole life rather than see the trust capital and revenue decrease rapidly until its complete depletion. The restrictions that she imposed on the distributions of capital and revenue are therefore entirely legal and neither the Public Curator nor the Department can require the trustee or the beneficiary to distribute additional amounts to the beneficiary in order to provide for his basic maintenance and support needs rendering him ineligible to financial and social assistance. The clauses of a trust agreement can only be limited when they violate public policy or prohibitive laws, which did not happen in this case.

However, the court reiterates that while a trustee may have discretionary powers, this discretion is not absolute and must be exercised reasonably and according to the settlor’s intent. Furthermore, this discretion must be exercised with prudence and diligence and in the best interest of the beneficiary or of the object pursued by the trust. In this case, as long as these obligations are honoured, the beneficiary cannot request additional amounts to the trustee since the trustee already complies with the trust agreement and the mother’s intent.

In conclusion, the court makes a parallel with the common law rules applicable in other Canadian provinces and recognizes that while the statutory dispositions are different, the principles are essentially the same in Quebec and in the rest of Canada. This type of trust is already recognized in the rest of Canada and is commonly known as a “Henson Trust.” The court summarizes the rule that applies in other provinces as follows:

“The eventual and precarious “right” of the beneficiary of a discretionary trust does not make him lose his right to social security payments to which he is otherwise entitled under the law.”

The court also justifies its position by citing the Manitoba Court of Appeal’s decision in Thomas v. Director, Employment and Income Assistance Programs, 2013 MBCA 91 (CanLII) and concludes that the beneficiary does not really have “rights” in the testamentary discretionary trust under Quebec civil law and that therefore, he has no right to exercise as defined under the Individual and Family Assistance Act.

This case shows the importance of having a good estate plan and how essential it is to have your wills and trust agreements carefully drafted by professionals in order to have your last wishes be honoured. The notaries and lawyers of Altro Levy LLP are specialists in domestic and cross border tax and estate planning and can help you with all your needs in this regard.