In the recent decision of Easingwood v. Easingwood Estate, 2013 BCCA 182, the British Columbia Court of Appeal upheld the validity of estate planning steps taken by two children for their father using a valid enduring power of attorney. In 2001 the father made an enduring power of attorney (the “Power of Attorney”) pursuant to sections 8 and 9 of the Power of Attorney Act, R.S.B.C. 1996, c. 370 (the “Act”), naming two of his children as his attorneys (the “Attorneys”). The Power of Attorney was a general enduring power of attorney with no special provisions or restrictions. The Power of Attorney provided that the Attorneys had to act together.
In 2007, the father was diagnosed with Alzheimer’s disease and his Attorneys took over control of his companies and his personal affairs. One attorney was diagnosed with advanced cancer in 2005 and began receiving treatment at that time. As the attorney’s health began deteriorating, the Attorneys became concerned that he would predecease their father, resulting in a situation in which no one would have authority to manage their father’s affairs (as the Power of Attorney did not provide for this event), and someone would have to apply to be appointed as a committee.
After obtaining tax and legal advice, the Attorneys decided to use the Power of Attorney to establish an alter ego trust (the “Trust”) for their father. The Trust was established for tax planning purposes, and in order to avoid probate fees and the costs, publicity and potential conflicts of a committeeship application. The Attorneys transferred all of their father’s assets, other than his residence and the joint accounts held with his wife, into the Trust. The Attorneys were appointed as the trustees of the Trust. The Trust allowed for the appointment of replacement trustees. The terms of the Trust mirrored the provisions of the father’s will, as both provided for the creation of a fund to provide for his wife during her life and left the residue of his estate to his four children.
After the father died his wife commenced an action challenging the creation of the Trust and seeking an order under the Wills Variation Act, R.S.B.C. 1996, c. 490. The Supreme Court of British Columbia held that the Trust was validly created and dismissed the wife’s action for relief under the Wills Variation Act. The wife appealed the trial judge’s decision.
Court of Appeal Decision
The Court of Appeal upheld the trial judge’s decision and held that the Trust was valid.
At the time of the trial judge’s decision, the Act provided that a general form power of attorney conferred on the attorney the authority to do on behalf of the donor anything the donor can lawfully do by an attorney, subject to the conditions and restrictions, if any, contained in the power of attorney. The Court of Appeal concluded that on the plain reading of a general enduring power of attorney that has no special provisions, an attorney may create an inter vivos trust and transfer to such a trust assets held by the donor. Furthermore, while the Court of Appeal acknowledged an attorney may not make a testamentary disposition, the Court of Appeal concluded the Trust was not testamentary as it was fully established by the trust documents, the three certainties were met and the Trust, on its terms, was irrevocable.
In determining whether the creation of the Trust was within the Attorneys’ powers, the Court of Appeal stated it was relevant that the terms of the Trust mirrored the provisions of the father’s will as this supported the position that the Attorneys were in compliance with their duty to act in accordance with their father’s intentions and his best interests.
While the wife claimed that the Attorneys’ fiduciary duty prevented them from acting for their own benefit (i.e. in avoiding taxes and probate fees therefore enhancing their share of their father’s estate), the Court of Appeal supported the trial judge’s finding that there were two sound reasons for the creation of the Trust. First, the Power of Attorney could lapse if one of the Attorneys predeceased the father. Second, creating the Trust was prudent business as it accorded with estate management advice received by the Attorneys. Furthermore, while the Court of Appeal acknowledged a power of attorney must be used for the donor’s benefit and not an attorney’s benefit, it stated this does not mean that where there is a benefit to attorneys, such as in preserving the value of assets, while fully meeting the obligation to secure the best interest of the donor, the attorneys may not take a prudent step.
While the decision in Easingwood is significant in that it establishes that attorneys acting under a general enduring power of attorney without special provisions have the power to create an intervivos trust, the implications of the case are not nearly as far reaching as they appear at first glance.
First, the facts in Easingwood were very specific as the Attorneys had received legal and tax advice, the Attorneys were acting for sound reasons that benefited the donor, and the terms of the Trust mirrored the terms in the father’s will. As such, if an attorney decides to use a power of attorney to establish a trust he or she should first seek legal advice and should use extreme caution to ensure the terms of the trust reflect the terms of the donor’s will. If the donor has not made a will, the attorney should ensure the donor’s property will pass on as the donor’s intestacy.
Second, both actions taken by the Attorneys and the decision of the trial judge occurred before significant amendments to the Act came into effect on September 1, 2011. While the Court of Appeal’s decision was rendered after September 1, 2011, the amendments to the Act were not taken into consideration by the Court of Appeal in its decision.
Although the amended Act still provides that an attorney under an enduring power of attorney has the authority to do anything the donor can do by an agent, it includes several provisions that could limit the scope of estate planning transactions an attorney can make. For instance, the amendments provide that unless the power of attorney provides otherwise, the total value of all gifts made by an attorney in a given year must not be more than the lesser of $5,000 and 10% of the donor’s taxable income from the previous year. While it could be argued that a transfer of a donor’s assets to a trust where the donor is the sole beneficiary during the donor’s lifetime is not a gift, since there is no change in beneficial ownership, there are no cases which consider what constitutes a gift under the amended Act. If a transfer of a donor’s assets to a trust constitutes a gift under the amended Act, then unless the power of attorney provides otherwise, an attorney’s ability to transfer the donor’s assets to a trust may be extremely limited.
While the courts have not considered whether the obligations imposed on an attorney under the amended Act will apply to attorneys acting under powers of attorney made before September 1, 2011, section 42 of the amended Act provides that an enduring power of attorney that was validly made under section 8 of the Act prior to September 1, 2011 is deemed to be an enduring power of attorney made under the amended Act. Commentators have suggested since this deeming provision serves the limited purpose of ensuring that pre-existing powers of attorney that don’t meet the formal requirements under the amended Act are still valid, the new obligations imposed on attorneys under the amended Act will apply to attorneys acting under powers of attorney made prior to September 1, 2011. Section 4(2) of the Interpretation Act, R.S.B.C. 1996, c. 238, supports this position, as it states an enactment that is replaced and repealed ceases to have effect at the time the new enactment commences.
In light of the amendments to the Act, attorneys acting under standard enduring powers of attorney made either before or after September 1, 2011 should exercise extreme caution in the event they would like to establish a trust on behalf of the donor. If a donor wishes to allow their attorney to use a power of attorney to create a trust, then it would be prudent for them to execute a new enduring power of attorney that expressly provides their attorneys with this power.