Typically, we tend to think of the beneficiaries of an estate under a will as being individuals or organizations: family members, friends, and charities. These beneficiaries usually receive their gift outright or through a trust created under the will (i.e., a testamentary trust). However, for those who have created trusts during their lifetime or intend on doing so (i.e., an inter vivos trust), sometimes it is desirable to make a gift under your will to an existing trust.
What is a pour-over provision?
A pour-over provision or clause makes a gift of assets under your will from your estate to a previously established trust. Importantly, the terms of the trust are not defined under the will. Instead, the will references that the gift is to be made to the trustees of the trust to be held under the terms of the trust. The distribution of the estate assets is then governed by the provisions of the trust agreement.
Pour-over provisions are especially common in estate planning in the United States because of the popularity of using a trust, which is often revocable and can be amended to pass assets on death to avoid the often onerous probate process in many U.S. states.
In conjunction with the trust, any assets left in the deceased‘s name at their death are governed by their will which “pour over” these assets to the trust.
Current legal standing of pour-over provisions in Canada
Courts in British Columbia (Quinn Estate v. Rydland, 2019 BCCA 91 and Waslenchuk Estate, 2020 BCSC 1929), Nova Scotia (MacCallum Estate, 2022 NSSC 34), and Ontario (Vilenski v. Weinrib-Wolfman, 2022 ONSC 2116) have all grappled with the use of a pour-over clause to a trust that can be revoked or amended, reaching conflicting conclusions.
The result is that in British Columbia such pour-over clauses were found invalid and similarly the Superior Court of Ontario adopted such reasoning.
In contrast, Nova Scotia recognizes pour-over clauses if the inter vivos trust was not amended after the testator signed his or her will.
Further, the use of pour-over clauses in several provinces (e.g., Alberta, Manitoba, Newfoundland and Labrador etc.) is uncertain as they do not currently have any related case law validating or invalidating them.
Although the Ontario court in Vilenski v. Weinrib-Wolfman found the pour-over clause to be invalid resulting in an intestacy (i.e., distribution of the estate pursuant to succession legislation rather than the terms of the will), the reasoning of the Court provides some latitude as to when a pour-over clause may successfully work in an Ontario will.
As well there are additional protective actions you can take that bolster the use of a pour-over clause but shield your estate from an intestacy.
Considerations in using a pour-over clause in Ontario
The courts in British Columbia and Ontario both took issue that a pour-over clause would effectively make a will (a testamentary document) beholden to a trust document (a non-testamentary document) that can be changed or revoked after the will was signed which gifts assets to the trust.
The courts took the view that such a disposition of property is invalid because it does not comply with the formalities for signing a will, including that the testator and two witnesses all must sign a will together in each other’s presence, if the person making the will can later amend of revoke the trust and thereby effectively indirectly change how the property is dealt with on their death without witnesses or other formality.
As well, if the trust is amendable, there is uncertainty with regard to what the disposition of property is under the will when it is signed if it can later be changed.
Even if the facts show that the trust to which the will pours over has not been amended after the time of the signing of the will, a term in the trust agreement which allows the testator to amend or revoke the trust was found by these courts to be sufficient to find the pour-over clause invalid.
The reasoning of the courts largely turns on whether the pour-over clause is to an amendable or revocable trust and therefore pour-over clauses to a trust that is unamendable and irrevocable should not be problematic.
Until the case law is further developed or relevant legislation is enacted, there are risks with using a pour-over clause to a trust that can be revoked or amended. Additional fail-safes to guard against these risks can be considered.
If a pour-over clause is found to be invalid, the existence of a default provision in your will (a provision that contemplates what should happen if there is an undisposed portion of your estate) can protect against an intestacy.
Further, if the beneficiaries and the terms under the trust are mirrored in your will, then even if the trust structure cannot be used because of the legal issues involved in using a pour-over clause, by having parallel provisions, you can be assured that the same provisions will apply.
Pour-over provisions can be useful, especially for clients that have an existing trust and wish their assets consolidated and dealt with on the same terms as their trust and managed by the same trustees using one primary vehicle.
In using a pour-over provision, caution is important and capable professional advice is imperative so that all relevant tax and legal issues are considered.
— Nicholas André