1. Note to Participants Session 4: Disclaimers and Surrenders
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August 2009
Disclaimers and Doctrine of Acceleration

2. Disclaimers and Doctrine of Acceleration

3. Disclaimer
This presentation, together with all information and material distributed or discussed as part of the presentation, is intended to provide general information related to the doctrine of acceleration. It is not intended, nor should it be construed, as legal, tax or other advice. While every effort has been made to ensure the accuracy of the information provided, no guarantees, warranties or representations of any kind are made in this regard. No one should act upon the examples/information presented without a thorough examination of the legal/tax situation with their own professional advisors, after the facts of their own specific case are considered.
The views expressed herein are mine, and do not necessarily express the views of Royal Trust Corporation of Canada/The Royal Trust Company, or their respective employees, directors or officers.
® Registered trademarks of Royal Bank of Canada. Used under licence. © Royal Trust Corporation of Canada 2009
August 2009
Disclaimers and Doctrine of Acceleration

4. How might acceleration apply?
Agenda
What is acceleration?
How might acceleration apply?
What is a disclaimer? What is a release/surrender?
Statutory considerations
When does it apply?
Factors suggesting acceleration applies
Factors suggesting acceleration will not apply
Destination of disclaimed income
Exceptions to application of acceleration
Perpetuity legislation (Ontario)
A brief note on Quebec
Some additional legal considerations
Tax considerations
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Disclaimers and Doctrine of Acceleration

5. What is Acceleration?
Typical scenario involves a Will in which there is a trust fund set aside for a life tenant who is to receive the income (and perhaps capital) until some stipulated time, usually death, with a gift-over at that time to the issue of the life tenant in equal shares per stirpes. The life tenant desires to disclaim (surrender) his or her interest with a view to effecting the immediate distribution of the trust fund to the residual capital beneficiaries of the trust fund. The issue that arises is whether or not the disclaimer by the life tenant will result in the immediate distribution of the trust fund to the capital beneficiaries.
Additional issue: if disclaimer made, but no immediate acceleration, what happens to income/capital interests?
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Disclaimers and Doctrine of Acceleration

6. What is Acceleration?
The doctrine of acceleration probably had its origins in real property law. In a nutshell, the doctrine provides that where there is a postponement of an interest to allow a prior interest to be enjoyed, then if that prior interest comes to an end, whether because of the death of a prior beneficiary or for any other reason, the reason for the postponement is gone and the prior interest may in certain cases accelerate or vest in the hands of the remainder beneficiaries.
However, jurisprudence indicates that whether or not a gift accelerates following a disclaimer depends on the construction of the instrument creating the trust and the intention of the testator/settlor. It may also depend on whether or not a jurisdiction’s “variation of trust” legislation is considered to apply.
See Re Hodge (2), [1943] 2 All E.R. 304 at 305.
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Disclaimers and Doctrine of Acceleration

7. How Might Acceleration Apply?
There are several methods to extinguish a gift, including:
Disclaimer
Release, or
Surrender
Depending on the method of eliminating a right or interest and the provincial law that applies, different results may occur both as to destination of the gift and tax consequences.
August 2009
Disclaimers and Doctrine of Acceleration

8. What is a Disclaimer?
"Disclaimer" can be defined as the refusal or rejection to accept a gift or other transfer of property and is commonly understood to be an avoidance so as to make the gift void right from the beginning.
However, see Coulson, Re (1977) 1 E.T.R. 1, 16 O.R. (2d) 497, 78 D.L.R. (3d) 435 (Ont. C.A.) in which a beneficiary was able to disclaim an income interest for the future after having already received income for a number of years.*
Disclaimers create a gap in the entitlement to an interest, so that where the disclaimer is of a life interest, the doctrine of acceleration may apply to accelerate the subsequent interests which were to take effect only on the determination of that prior interest.
Ultimate destination of the gift will depend on the testator’s intention evidenced in the Will.
A "release" or "surrender", on the other hand, operates to renounce a gift after it has been accepted.
A release of surrender may be considered an act of disposition if made in favour of another.
The ultimate destination of a released/surrendered income interest will depend on the intention of the party releasing the interest.
* See also British Columbia (Public Guardian and Trustee of) v. Engen (Litigation guardian of) [2009] B.C.J. No.33 (B.C.S.C.)^ where a life tenant, after enjoying the benefit of certain real property for a period of time, was permitted to disclaim her life interest, but then benefitted from the sale proceeds of the property as a result of the terms of the Will. In that case, C.J. Ross J. stated at para.18: “It is clear that the law recognizes that a beneficiary has a right to disclaim a testamentary gift: see Re Grund Estate, [1998] B.C.J. No.160 (S.C.). This right has been acknowledged even where the beneficiary takes a greater benefit from an estate as a result of the disclaimer: see Dunkley v. Sullivan (1929), [1930] 1 Ch. 84, [1929] All E.R. Rep. 564 (Eng. Ch.D.).”^
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Disclaimers and Doctrine of Acceleration

9. Statutory Considerations re: Disclaimer
Some Canadian jurisdictions* have statutory provisions that describe what happens to either or both an income and capital interest that is disclaimed.
E.g., s.23** of Ontario’s Succession Law Reform Act provides:
23 Except when a contrary intention appears by the will, property or an interest therein that is comprised or intended to be comprised in a devise or bequest that fails or becomes void by reason of,
(a) the death of the devisee or donee in the lifetime of the testator; or
(b) the devise or bequest being disclaimed or being contrary to law or otherwise incapable of taking effect,
is included in the residuary devise or bequest, if any, contained in the will. R.S.O. 1990, c. S.26, s. 23.
* See e.g., Succession Law Reform Act (Ontario), s.23; Wills Act (Alberta), s.23 (“disclaimer” not expressly mentioned); Wills Act (B.C.), s.21 (“disclaimer” not expressly mentioned)
** Note that in Ontario, jurisprudence has held that this section does not apply to gifts of the residue, but only to specific gifts. A similar result also applies in Alberta {see Re Redmond Estate [1993], A.J. No.490 (Alta. Surr. Ct.)^}; and in Manitoba {see Sparks Estate v. McKay [1994] M.J. No.339 (Man. C.A.)^}.
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Disclaimers and Doctrine of Acceleration

10. When will Acceleration Apply?
“There is a presumption in favour of acceleration of remainder interests where a gift of a life interest fails on account of disclaimer.” {Skerrett v. Bigelow Estate [2001] N.S.J. No.304 (N.S.S.C.)^ per Moir J. at para.14}
Presumption rebutted if a contrary intention can be shown in Will/Trust instrument or surrounding circumstances
Court will ascertain intent by interpreting will (both clause in question and will as a whole) in light of the surrounding facts and circumstances permitted to be taken into account at the time the will was made and from the subjective perspective of the testator at that time (i.e., - “armchair rule” or ascertaining intent by putting oneself in the testator’s chair) – see Skerrett v. Bigelow Estate [2001] N.S.J. No.304 (N.S.S.C.)^ and Creighton Estate (Re) [2006] B.C.J. No. 979 (B.C.S.C.)^.
“In this context the settlor’s intention means the intention a reasonable person, placing himself or herself in the settlor’s chair, would suppose the settlor had in view of the surrounding circumstances.” – McGavin v. National Trust Co. [1998] B.C.J. No.810 (B.C.C.A.) at para.10.^
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Disclaimers and Doctrine of Acceleration

11. When will Acceleration apply?
For the doctrine of acceleration to apply, there is some support* indicating that the remainder interest to be accelerated must be vested either absolutely or subject to divestment (i.e., it cannot be a contingent interest), and no contrary intention in the Will must be evident which would preclude the application of the doctrine.
If the remainder interest is vested subject to divestment, then some jurisprudence suggests that distribution will be postponed to determine if the divesting event will occur**.
If the remainder interest is contingent, it has been suggested that the doctrine will not apply.* However, in the B.C. Court of Appeal decision in Brannan v. British Columbia (Public Trustee) [1991] B.C.J. No.1005^ the Court stated: “To limit acceleration only to cases where the testator specifically contemplated that a beneficiary would refuse a gift or to exclude acceleration in any case where there is the contingency of survivorship would be contrary to the weight of authority and to the very concept of acceleration.”
*This appears to especially be the case in Ontario where Anderson J. in Re Jacques [1985] O.J. No.2290 (Ont. H.C.J.) stated at para.7 that “It would appear that for the doctrine of acceleration to apply, the remainder interest to be accelerated must be vested either absolutely or subject to divestment, and not contingent, and there must be no contrary intention in the will which would tell against the application of the doctrine.”^
See also Mackenzie, James, Feeney’s Canadian Law of Wills, Fourth Edition (Markham, Ontario: LexisNexis Canada Inc., 2000, including Service Issues ), at paras and
In Re Jacques [1985] O.J. No. 2290^, the Will provided for a testamentary trust in favour of the testatrix’s daughter (all net income to be paid to her during her lifetime with limited capital encroachment power in her favour). The Will provided that upon the death of the survivor of the testatrix and the daughter (referred to as the “date of distribution”), the son would be given the fund remaining “…if he shall be living at the ‘date of distribution’ for his own use absolutely…”. Anderson J. held that the wording of the Will indicated that the gift over to the son was vested, subject to divestment in the event that he should predecease the daughter.
**Re Bogstie (1963), 42 W.W.R. 702 (Alta.S.C.); see also Mackenzie, James, Feeney’s Canadian Law of Wills, Fourth Edition (Markham, Ontario: LexisNexis Canada Inc., 2000, including Service Issues ), at para
- In Brannan v. British Columbia (Public Trustee) [1991] B.C.J. No.1005^, the Court of Appeal referred to the Australian case of Re Syme, deceased (1980), V.R. 109 US.C. Victoria and quoted extensively the decision therein of Lush J. One of the quotations contains the following statement made by Lush J. at p.116 of the Re Syme case as it relates to certain class gifts:
“…as soon as a contingency of survivorship is introduced the testator can have intended no more than that every member should have a chance to take; some may be omitted if they die too soon, and it is not a far cry from this to omitting some because they are born too late. It is probably safest to ask whether the individual will or other instrument discloses that it was an essential part of the testator’s intention that all possible members of the class should have this chance.”
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Disclaimers and Doctrine of Acceleration

12. Factors Suggesting Acceleration
Brannan v. British Columbia (Public Trustee) [1991] B.C.J. No.1005^; (1991) 41 E.T.R. 210; 83 D.L.R. (4th) 106 (B.C.C.A.)
Combination of the following factors indicative of an intention that doctrine of acceleration should apply:
At time of execution of Will, no remoter issue had been conceived or born, therefore testatrix likely concerned about immediate children and not unborn remoter issue,
Testatrix’s estate relatively small, especially when divided among potential beneficiaries who would inherit under acceleration (approximately $50,000 to each son). Therefore, unlikely testatrix had dynastic concerns about remoter issue when none existed at time of execution of Will,
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Disclaimers and Doctrine of Acceleration

13. Factors Suggesting Acceleration
Brannan v. British Columbia (Public Trustee), [1991] B.C.J. No.1005^; (1991) 41 E.T.R. 210; 83 D.L.R. (4th) 106 (B.C.C.A.) con’t
Combination of the following factors indicative of an intention that doctrine of acceleration should apply:
Although remoter issue were born during the testatrix’s lifetime, she had the opportunity (over several years) to amend the Will to expressly prevent acceleration, but did not do so,
The life tenant’s interest could be determined not only by his death but by his remarriage. Testatrix thus gave life tenant unilateral ability to end his interest and determine when and for whose benefit the residue would vest absolutely, and
Trustees under Will could encroach upon corpus to assist one of the testatrix’s three sons, but not remoter issue.
According to the Court of Appeal, [1991] B.C.J. No. 1005^:
“The deceased's Will provides that upon the death or remarriage of Brannan Sr. the residue is to be divided into as many equal shares as there are children of the deceased "then alive", failing which there is a contingent gift over to remoter issue. The scheme of distribution under the Will denotes only the order of the gifts and does not determine the time for distribution. It indicates an intention that distribution should occur on the determination of Brannan Sr.'s interest, however caused, so that the words "then alive" should be interpreted to mean "at the time Brannan Sr.'s interest is determined."
The learned judge found that the remarriage clause was significant in determining the deceased's intentions as to when she wished the three sons to take. If she had intended to defer the interest of the three sons until Brannan Sr.'s death, she could have so provided in the remarriage clause. Instead she directed that if Brannan Sr. remarried then the residue should be distributed as if he had died. The learned judge concluded, correctly in my view, that while the deceased did not contemplate that Brannan Sr. would disclaim, the remarriage clause showed an intention to defer the sons' interest only until Brannan Sr.'s interest was determined.
To limit acceleration only to cases where the testator specifically contemplated that a beneficiary would refuse a gift or to exclude acceleration in any case where there is the contingency of survivorship would be contrary to the weight of authority and to the very concept of acceleration.
The appellant has shown nothing to rebut the presumption of acceleration. It is illogical for the residue to vest absolutely in the three sons only if Brannan Sr. remarries or dies. The deceased, by the remarriage clause, gave Brannan Sr. unilateral control over the timing of distribution and to whom distribution could be made. If Brannan Sr. could cause an immediate distribution to the three sons by the unilateral or voluntary act of remarriage, it follows that he must also he able to do so by the unilateral or voluntary act of disclaimer.”
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Disclaimers and Doctrine of Acceleration

14. Factors Suggesting Acceleration
McGavin v. National Trust Co. [1998] B.C.J. No. 810^; (1998) 22 E.T.R. (2d) 36; 158 D.L.R. (4th) 364 (B.C.C.A.)
Terms of the trust permitted the life tenant’s interest to be determined not only by death but also by remarriage. Life tenant thereby had a unilateral ability to terminate her interest and thus determine for whose benefit the residue would immediately vest.
The remarriage clause showed an intention on the part of the settlor/testator to defer the distribution only until the life tenant’s interest was determined.
In McGavin v. National Trust Co.:
At time of petition, trust fund consisted of a house and property in Calgary, Alberta of a value of approximately $130,000, $47,941 in portfolio investments, and a promissory note in the amount of $5,500. This was considered relatively modest and consistent with intention to provide for immediate needs of life tenant beneficiaries, rather than providing for any dynastic concerns involving remoter issue.
Article XIV of the trust instrument provided {per [1998] B.C.J. No.810 at para.12^}:
“No beneficiary or intended beneficiary of the trusts hereby declared shall have any vested or other interest in the trust fund or in the Capital Purchase and Emergency Fund or the income thereof unless the Trustees shall have determined otherwise or unless by this Deed specifically provided, and the Trustees may in their unfettered discretion refuse to recognize or give effect to any assignment or attempted assignment or alienation of any benefit hereunder by any beneficiary save as aforesaid.”
Court however held that the restraint on alienation provision did not relate to a disclaimer and did not indicate any intention by settlor in regard to disclaimer.
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Disclaimers and Doctrine of Acceleration

15. Factors Suggesting Acceleration
Skerrett v. Bigelow [2001] N.S.J. No.304^; (2001) 195 N.S.R. (2d) 386 (N.S.S.C)
If no gift-over provisions should first level capital beneficiaries predecease life tenant - Risk of intestacy.
If terms of Will suggest that Testator did not contemplate additions to the class of first level capital beneficiaries (e.g., no provision for “trust to majority” for new infant members of the class).
If Estate not so large as to suggest “dynastic concerns.” Trust at issue worth approximately $250,000.
If remote interests are “very remote” and not likely in testator’s contemplation.
If broad encroachment powers – no attempt to protect capital (indicates primary intent is to benefit life tenant, not preserve trust for others).
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Disclaimers and Doctrine of Acceleration

16. Factors Suggesting Acceleration
Skerrett v. Bigelow [2001] N.S.J. No.304^; (2001) 195 N.S.R. (2d) 386 (N.S.S.C), con’t
Little difference to acceleration whether remainder interests are subject to a condition precedent (contingent) or condition subsequent (vested subject to divestment).
Key criteria is the “nature of the condition and its apparent reason” – e.g., if condition relates to something personal that the remaindermen must attain or achieve (age, marriage, etc.) then court likely to infer that condition must be satisfied and acceleration will not apply. On the other hand, if condition regards circumstances of holder of present interest, then acceleration may more readily be found to apply.
Some court decisions seem to easily determine that subsequent interests are vested even where the terms of the trust stipulate that the subsequent interests must be alive at the time of death of the person entitled by the prior interest. It is curious that in such cases the jurisprudence has not held these subsequent interests to be contingent. Appears that some jurisprudence simply interprets words like “then alive” to mean “at the time the prior interest is determined.” In Linsley v. Weinstein (2004) 8 E.T.R. (3d) 196 ( B.C.S.C.), the phrase “if he is then living” in relation to a gift over to sons following the death of a life tenant spouse was interpreted to create a gift that was vested subject to divesture. According to the judge, the word “then” established a future point in time (the death of the survivor of the testatrix and the life tenant) at which a son must be alive to become indefeasibly vested with the gift. The judge noted that there is a presumption that gifts are vested unless there is a clear condition precedent.
In Skerrett v. Bigelow, Moir J. stated that the fact that the class of remainder interests is not closed and that the remainder gift was conditional upon surviving the life interest would not preclude acceleration where there is a disclaimer or a forfeiture not contemplated by the testator.
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Disclaimers and Doctrine of Acceleration

17. Factors Suggesting Acceleration
Morrow Estate (Re) [2002] B.C.J. No. 1143^; (2002) 45 E.T.R. (2d) 260 (B.C. S.C.)
Presumption of acceleration upon determination of life estate by death or disclaimer, unless contrary intention of testator can be shown
If Trust provides for encroachment upon entire capital for the benefit of the prior interest (i.e., life tenant) - indicates that the Deceased did not intend to preserve the corpus of the Trust for subsequent interests (i.e., no dynastic concerns).
If terms of Trust provide for immediate distribution of entire capital to subsequent interests if life tenant fails to survive or fails to survive by a certain period. Also, if no other provision for (children), then appears Deceased would have intended children to benefit after life tenant’s interest looked after.
If it appears that the Deceased only intended to postpone distribution of capital for the time necessary to look after life tenant’s financial needs.
It was noted by Garson J. that the absence of a remarriage clause is not necessarily evidence of a contrary intention by the testator to preclude acceleration.
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Disclaimers and Doctrine of Acceleration

18. Factors Suggesting Acceleration
Morrow Estate (Re) [2002] B.C.J. No. 1143^; (2002) 45 E.T.R. (2d) 260 (B.C. S.C.), con’t
If value of the estate is not so great that it may be said that Deceased had dynastic concerns (i.e., to benefit more than immediate generation of children). Value can, for this purpose, appear to be as high as $900,000, especially if tax and subsequent distribution would result in a division of this value among a number of beneficiaries so that each one’s share was not that great.
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Disclaimers and Doctrine of Acceleration

19. Factors Suggesting Acceleration
Creighton Estate (Re) [2006] B.C.J. No.979 (B.C.S.C.)^
Terms of Will suggested that life tenant children not expected to benefit much from trust
Executor could encroach on capital of trust for specified purposes for remoter beneficiaries (i.e., grandchildren)
No inference from provisions providing for gifts-over in case of a pre-deceased beneficiary that testator intended testamentary scheme to continue– clause inserted to protect against intestacy
Lack of remarriage clause not determinative of a contrary intention to acceleration, but simply a factor to consider
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Disclaimers and Doctrine of Acceleration

20. Factors Suggesting Acceleration
Even if doctrine applies, will distribution occur immediately?
Re Bogstie Estate (1963) 42 W.W.R. 702 (Alt. S.C.):
Where the subsequent interest is vested subject to divestment, distribution of the trust property “released” by the disclaimer of the life tenant must be postponed to the time of death of the life tenant presumably to determine who will ultimately become entitled to the trust property.
In B.C., the decision in Re Brannan is binding. That decision supports the proposition that upon an acceleration being held to apply, the class closes. However, it would appear that another possible line of reasoning supported in English law (and picked up in the decision of Re Bogstie Estate) is that while a disclaimer accelerates the interest of the subsequent members of the class then alive, the class remains open until the death of the former tenant for life. The question then becomes: is the subsequent interest vested subsequent to partial or full divestment? In other words if a member of the subsequent class dies, will he/she still get the share, or will it be completely divested? If a new beneficiary enters into the class before the life tenant dies, then presumably the share that is vested will at the very least be diluted (i.e., subject to partial divestment).
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Disclaimers and Doctrine of Acceleration

21. Factors Suggesting Acceleration
Summary of Key Factors:
At time of execution of Will/Trust instrument, no remoter issue conceived or born so that Willmaker/Settlor likely primarily concerned with first level capital beneficiaries and not unborn remoter issue
Ability to encroach on capital
Ability for life tenant to determine his or her interest (e.g., there is a remarriage clause)
No evidence of dynastic concerns (e.g., value of trust relatively modest* or gifts-over suggest desire to avoid intestacy)
No terms to protect against perpetuities
Willmaker or Settlor does not amend Will/Trust instrument to prevent acceleration where subsequent remoter beneficiaries are born since executing Will or Trust instrument and some time has passed since the date of execution
* However, in Creighton Estate (Re) [2006] B.C.J. No.979 (B.C.S.C.) the estate in question was worth approximately $3.8 million, but would be worth only approximately $350,000 to each of the beneficiaries entitled on application of doctrine of acceleration.
> NOTE: Legislative provisions in Ontario suggest that where a female life tenant is over 55 years of age, the combination of Ontario’s Trustee Act and Perpetuities Act might be used to justify the argument that the life tenant will have no further children so that her disclaimer should result in the acceleration of her interest to her children if the children are named as the class of capital remaindermen under the terms of the trust in question.
Of course, while the two statutes might be grounds to support a reasonable argument that no further natural born children will in future arrive on the scene, there is still the possibility that the life tenant might adopt children, which would result in those adopted children then being denied what they otherwise might have received had there been no early termination as a result of the doctrine of acceleration. Consequently, it is possible that future adopted children might prevent the acceleration of an interest. However, see Cullity, J.’s decision in Meredith v. Plaxton (2002), 62 O.R. (3d) 427.
- McGavin v. National Trust Co. (1998) 22 E.T.R. (2d) 36; 158 D.L.R. (4th) 364 (B.C.C.A.)
- Skerrett v. Bigelow (2001) 195 N.S.R. (2d) 386 (N.S.S.C)
- Morrow Estate (Re) (2002) 45 E.T.R. (2d) 260 (B.C. S.C.)
- Creighton Estate (Re) [2006] B.C.J. No.979 (B.C.S.C.)
Drafting in Wills and Trust instruments
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Disclaimers and Doctrine of Acceleration

22. Factors Suggesting Acceleration Will Not Apply
de la Giraudais v. de la Giroday [1998] B.C.J. No (B.C.S.C.)^
No capital encroachment provisions for either life tenant or other beneficiaries entitled to receive income. Demonstrated an intention to preserve the capital of the Trust and defer its ultimate distribution until the date of the life tenant’s death.
Trust Deed did not expressly provide the life tenant with ability to unilaterally terminate his or her interest by re-marriage or waiver.
Recital (in inter vivos trust) indicated that the settlor created an “irrevocable trust” for the benefit not only of the Settlor’s wife and children but also for “others” - words demonstrated an intention to benefit not only immediate family but also remoter generations (e.g., inclusion of future “adopted” children)
Kirkpatrick, J. stated at para.31: “As with any interpretation of a will or Trust Deed, the Settlor’s intention is to be determined by reference to the Trust Deed and the circumstances existing when the Trust Deed was executed.”^
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Disclaimers and Doctrine of Acceleration

23. Factors Suggesting Acceleration Will Not Apply
de la Giraudais v. de la Giroday [1998] B.C.J. No (B.C.S.C.)^, con’t
Trust had large monetary value ($30 million). Evidence of dynastic concerns (i.e., benefitting remoter generations) rather than simply the immediate needs of a life tenant and first level capital beneficiaries.
Absence of any evidence that the testator/settlor had concerns of a “personal nature” * with the life tenant such that these concerns were the reason behind the creation of the trust (in other words, the trust was intended to meet immediate needs of life tenant). Where no such concerns are evident, then settlor/testator may have had other reasons to create trust, e.g., “dynastic” concerns involving remoter issue.
*For example, absence of any “health concerns” of the life tenant that might lead to the conclusion that the trust was only created to benefit the life tenant. Conversely, where evidence exists showing that settlor/testator created trust because life tenant was a “spendthrift” so that trust is intended to provide for immediate needs of life tenant and family may lead to result that acceleration will occur [reference made to trust in McGavin v. National Trust Co., [1998] B.C.J. No.810 (B.C.C.A.)].
Kirkpatrick J. noted that there was an absence of evidence as to the number of children of testator/settlor who were alive at the date of execution of the instrument creating the trust and absence of evidence as to whether remoter issue had been conceived or born at that time.
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Disclaimers and Doctrine of Acceleration

24. Factors Suggesting Acceleration Will Not Apply
de la Giraudais v. de la Giroday [1998] B.C.J. No (B.C.S.C.)^, con’t
Provisions existed to protect against the rule against perpetuities (i.e., terms provided for premature vesting if the rule was violated). Demonstrated an intention that future generations to be given an opportunity to have the trust property vest in them.
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Disclaimers and Doctrine of Acceleration

25. Factors Suggesting Acceleration Will Not Apply
Re Jacques (1986) 55 O.R. (2d) 534 (Ont. C.A.)
Terms of the instrument creating the trust manifested a contrary intention to acceleration (terms defined a “date of distribution” as time at which beneficiary was to receive entitlement)
Re Jacques [1985] O.J. No (Ont. H.C.J.)
Terms of trust provided for a further gift over if first level capital beneficiary was not alive at date of distribution (note: may be more relevant where first level capital beneficiary is entitled to a separate share at same time as life tenant and gift over provisions for share of life tenant and capital beneficiary are different).
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Disclaimers and Doctrine of Acceleration

26. Destination of Disclaimed Income When Arising from Residue
Re Jacques (1986) 55 O.R. (2d) 534 (Ont. C.A.)
trust was part of residue
Court held that disclaimed income was to be distributed as on an intestacy for period that disclaiming life tenant was alive
Terms of Will “evinced an intention against the accumulation of income” (life tenant was to receive all income during her lifetime)
Will a disclaimer result in the loss of testamentary trust tax status?
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Disclaimers and Doctrine of Acceleration

27. Destination of Disclaimed Income When Not Arising from Residue
If trust is not part of residue, but life tenant disclaims all interest (or income interest), then until interest in trust vests absolutely (assuming acceleration does not apply so as to immediately vest interest), the disclaimed income is paid to residuary legatee*
See also relevant legislation, e.g., s.23** of Ontario’s Succession Law Reform Act
See British Columbia (Public Guardian and Trustee of) v. Engen (Litigation guardian of) [2009] B.C.J. No.33 (B.C.S.C.)^ for destination of sale proceeds of real property following disclaimer of life interest in the property given the terms of the Will
*see Mackenzie, James, Feeney’s Canadian Law of Wills, Fourth Edition (Markham, Ontario: LexisNexis Canada Inc., 2000, including Service Issues ), at para
** 23. Except when a contrary intention appears by the will, property or an interest therein that is comprised or intended to be comprised in a devise or bequest that fails or becomes void by reason of,
(a) the death of the devisee or donee in the lifetime of the testator; or
(b) the devise or bequest being disclaimed or being contrary to law or otherwise incapable of taking effect,
is included in the residuary devise or bequest, if any, contained in the will. R.S.O. 1990, c. S.26, s. 23.
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Disclaimers and Doctrine of Acceleration

28. Exceptions – Alberta and Manitoba
The Trustee Act of Alberta and The Trustee Act of Manitoba contain specific provisions stating that, subject to any trust terms reserving a power to any person or persons to revoke or in any way vary the trust or trusts, a trust cannot be varied or prematurely terminated without the approval of the court.
This prohibition applies to, among others, any variation or premature termination by consent of all of the beneficiaries or by any beneficiary’s renunciation of the beneficiary’s interest so as to cause an acceleration of remainder or reversionary interests.
See section 42 (and relevant sub-sections) of Alberta’s Trustee Act and section 59 (and relevant sub-sections) of Manitoba’s The Trustee Act.
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Disclaimers and Doctrine of Acceleration

29. Exceptions – Saskatchewan and Ontario
In Saskatchewan, jurisprudence suggests that The Variation of Trusts Act takes precedence over the common law principles of disclaimer and acceleration when dealing with contingent interests of infants [see Kist Estate, Re [1993] 8 W.W.R. 107, 114 Sask. R. 53].
In effect, where there is a trust that has minor contingent interests, the law in Saskatchewan relating to the inability of a beneficiary to renounce his or her interest to “vary” or “terminate” a trust without the approval of a court is similar to the statutory regime that exists for Alberta and Manitoba.
The law as described in Kist was approved by Greer, J. in the Ontario decision of Genova v. Giroday [2000] O.J. No (Ont. S.C. J.)^.
Kist Estate, Re, a 1993 decision of the Saskatchewan Surrogate Court suggests that in Saskatchewan, the provisions of The Variation of Trusts Act may take precedence over the common law principles of disclaimer and acceleration when dealing with contingent interests of infants. In other words, where such interests exist, it would appear that the law in Saskatchewan would prohibit a life tenant from disclaiming his or her interest so as to effect an acceleration to a class of contingent minors without getting approval to such an acceleration (or variation) by a court.
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30. <intentionally left blank> see note below in notes section
Exceptions - Ontario
<intentionally left blank> see note below in notes section
Greer J. in Genova v. Giroday stated at para.11 the following:
“The Children's Lawyer tried to show the Applicants' that their position was wrong at law, and that a Variation of Trusts Application was the appropriate route to take.  I am satisfied that the law on this issue is as is set out in Re Kist Estate, [1993] 8 W.W.R. 107 (Sask.).  The Variation of Trusts Act in Saskatchewan rebuts the principle of acceleration that operated in Re Brannan; Brannan v. Public Trustee, (1990), 37 E.T.R. 209, whereby a husband lost his life interest in his late wife's estate if he remarried.  By waiving his interest, the principle of acceleration applied, but this is quite different from the case at bar where death operates to terminate the trust.  In Kist, supra, it is pointed out the remarriage clause in Brannan was significant in determining the deceased's intentions as to when she wished the three sons to take, which was firstly if he remarried, and if he did not, on his death.  If the deceased, in that instance, had not wanted the sons to take immediately if their father remarried, she could have directed that the capital remain in trust until some other event as set out in the Will, occurred.  At the conclusion of Kist, the Court said:
The common law must give way to the statutory provision. A disclaimer is possible, but even if there is a valid disclaimer resulting in acceleration it must still be shown that a benefit will accrue to the infants with a contingent interest if the approval of the court is to be granted and the contingent interest determined.”^
It is interesting to note that a similar argument that the statutory provisions of the British Columbia Trust and Settlement Variation Act take precedence over the common law principles of disclaimer and acceleration was dismissed by the B.C. Court of Appeal in McGavin v. National Trust Co..
In that case, the court held that the disclaimer that occurred did not amount to a variation of trust under the Act. The court held that there is no requirement that a beneficiary of a trust obtain the consent or approval of other beneficiaries before that beneficiary is entitled to disclaim his or her interest under a trust. The court did not consider that the provisions of the Act were engaged as the petitioners were not applying for the court’s approval of an arrangement under the Act, nor were they proposing to vary or revoke all or any of the terms of the trust --- the trust terms remained unamended.
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31. Perpetuity Legislation (Ontario)
The Ontario Trustee Act in section 65 makes reference to the application of the Perpetuities Act that could have some bearing on whether the doctrine of acceleration could apply in certain cases. Section 65 reads:
Application of Perpetuities Act
65. Where in the administration of any trust, estate or fund any question relating to the disposition, transmission or devolution of any property arises, including the right of any person to terminate a trust or an accumulation directed under a trust or other disposition, and it becomes relevant to inquire whether any person is or at a relevant date was or will be capable of procreating or giving birth to a child, section 7 of the Perpetuities Act applies to any such question as it applies to questions concerning the rule against perpetuities. R.S.O. 1990, c. T.23, s. 65.
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32. Perpetuity Legislation (Ontario)
Section 7 of Ontario’s Perpetuities Act reads:
Presumptions and evidence as to future parenthood
7. (1) Where, in any proceeding respecting the rule against perpetuities, a question arises that turns on the ability of a person to have a child at some future time, then,
(a)   it shall be presumed,
(i)   that a male is able to have a child at the age of fourteen years or over, but not under that age, and
(ii)   that a female is able to have a child at the age of twelve years or over, but not under that age or over the age of fifty-five years; but
(b)   in the case of a living person, evidence may be given to show that he or she will or will not be able to have a child at the time in question.
Idem
(2) Subject to subsection (3), where any question is decided in relation to a limitation of interest by treating a person as able or unable to have a child at a particular time, then he or she shall be so treated for the purpose of any question that arises concerning the rule against perpetuities in relation to the same limitation or interest despite the fact that the evidence on which the finding of ability or inability to have a child at a particular time is proved by subsequent events to have been erroneous.
(3) Where a question is decided by treating a person as unable to have a child at a particular time and such person subsequently has a child or children at that time, the court may make such order as it sees fit to protect the right that such child or children would have had in the property concerned as if such question had not been decided and as if such child or children would, apart from such decision, have been entitled to a right in the property not in itself invalid by the application of the rule against perpetuities as modified by this Act.
(4) The possibility that a person may at any time have a child by adoption or by means other than by procreating or giving birth to a child shall not be considered in deciding any question that turns on the ability of a person to have a child at some particular time, but, if a person does subsequently have a child or children by such means, then subsection (3) applies to such child or children.  R.S.O. 1990, c. P.9, s. 7.
> In Skerrett v. Bigelow Estate [2001] N.S.J. No.304^, the judge noted that the life tenant who executed a conditional disclaimer swore she is incapable of bearing more children and has no intention of adopting any. The life tenant was a 54 year old woman. Moir J. stated at para.8: “In the absence of evidence to contradict her, I should accept, and I do accept, her evidence that she is not going to produce more children.” ^ Regarding the issue of the class of beneficiaries being open to receive possible adopted children, the judge indicated that the testator was “…likely unaware of circumstances suggesting an adoption lay in his daughter’s future” (para.8)^. The Will did not contain any provision addressing further grandchildren (e.g., no “trust to majority” provision that could have been used to administer the interest of a minor grandchild joining the class by pregnancy or adoption).
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33. Perpetuity Legislation (Ontario)
The legislative provisions suggest that where a female life tenant is over 55 years of age, the combination of Ontario’s Trustee Act and Perpetuities Act might be used to justify the argument that the life tenant will have no further children so that her disclaimer should result in the acceleration of her interest to her children if the children are named as the class of capital remaindermen under the terms of the trust in question.
Of course, while the two statutes might be grounds to support a reasonable argument that no further natural born children will in future arrive on the scene, there is still the possibility that the life tenant might adopt children, which would result in those adopted children then being denied what they otherwise might have received had there been no early termination as a result of the doctrine of acceleration. Consequently, it is possible that future adopted children might prevent the acceleration of an interest.
However, see Cullity, J.’s decision in Meredith v. Plaxton (2002), 62 O.R. (3d) 427; [2002] O.J. No.4472^.
Cullity, J. suggested in Meredith v. Plaxton (2002), 62 O.R. (3d) 427; [2002] O.J. No.4472^ that the possibility of future adopted children should not preclude the effect of s.65 of the Ontario Trustee Act when he stated beginning at para.30:
“When s. 65 of the Act was first enacted in 1966 there was nothing novel in the principle that trustees could be given leave by the court to distribute trust property on the basis that a woman would not have children in the future if, as here, the possibility of such children was the only contingency that would prevent all of the beneficial interests in the trust -- whether vested or contingent -- from being owned by beneficiaries of full age and capacity who, in consequence, would be entitled to terminate the trust. This has long been the practice of the court although, perhaps, sometimes obscured in the minds of former law students by the biblically-inspired "fertile octogenarian" rule that was applied for the purpose of the rule against perpetuities until the enactment of the Perpetuities Act. Examples of the practice of the court can be found in Re Smith, [1928] Ch. 915; In re White, [1901] 1 Ch. 570; In re Thornhill, [1904] W.N. 112; Inland Revenue Commissioners v. Bernstein, [1960] Ch. 444; In re Westminster Bank Ltd.'s Declaration of Trust, [1963] 2 All E.R. 400, [1963] 1 W.L.R. 820; and In re Pettifor's Will Trust, [1966] Ch. 257, [1966] 2 W.L.R Many other decisions in which the practice was observed are noted in Morris and Leach, The Rule Against Perpetuities, 2nd ed. (London: Stevens & Sons, 1962), at p. 83. In Pettifor's Will Trust, Pennycuick J. said [at p. 260 Ch.]:
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34. Perpetuity Legislation (Ontario)
<intentionally left blank> see note below in notes section
Continued from slide #32:
. . . it is equally well established that in administration the court will allow funds to be distributed on the footing that at a certain age, normally in the late or middle fifties, a woman has become incapable of childbearing.   [31] In Mr. Todd's submission -- supported, I think, by Ms. Bales -- neither s. 65 of the Act nor the practice of the court I have described has any relevance to the issues in this case because of the provisions of s. 1(2) of the Children's Law Reform Act, R.S.O. 1990, c. C.12 and s. 158(4) and (5) of the [page440] Child and Family Services Act, R.S.O. 1990, c. C.11. By virtue of these provisions, the references to children of Mrs. Plaxton in clause III(g) of the Will include adopted children and, whether a child will be adopted by Mrs. Plaxton is not one of the questions with which s. 65 of the Act is concerned as it is not an inquiry into whether a person "is or at a relevant date was or will be capable of procreating or giving birth to a child". I have difficulty with this submission as such an inquiry would be relevant in determining whether the Residuary Trust can be terminated and, if so, all of the provisions of s. 7 of the Perpetuities Act -- including s. 7(4) -- are then applicable. Moreover, if the possibility of adoption is not intended to be excluded by s. 65, it is difficult to see how the section could have much, if any, practical significance. However, in view of the concluding words of s. 65 which, read literally, appear to incorporate s. 7 of the Perpetuities Act only for the purpose of determining whether a person is capable of procreating or giving birth, there is obviously some force in Mr. Todd's reasoning.
   [32] There is no application at present before the court to approve the distribution of the assets of the Residuary Trust between Mrs. Plaxton and her children, and I do not have to decide whether the restrictive interpretation that Mr. Todd asked me to place on s. 65 of the Act is correct. However, if it is only the interests of a child, or children, that Mrs. Plaxton might choose to adopt in the future that prevent her and her living children from terminating the trust, there is even greater force in Ms. Laidlaw's submission that the existence of the interests of other beneficiaries does not present a strong case for the intervention of the court that Mr. Meredith has requested.”^
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35. A Brief Note on Quebec
The Civil Code of Quebec contains provisions that describe what happens when a renunciation is made by a beneficiary. Article 1286 CCQ provides:
"Art If the beneficiary renounces his right, or if his right lapses, it passes, according to whether he is the beneficiary of the fruits and revenues or of the capital, to the co-beneficiaries of the fruits and revenues or of the capital, in proportion to the share of each.
If he is the sole beneficiary of the fruits and revenues of his rank, his right passes, in proportion to the share of each, to the beneficiaries of the fruits and revenues of the second rank, or where there are no such beneficiaries, to the beneficiaries of the capital."
Where there may be unborn contingent revenue or capital heirs, a question arises concerning their rights (see Articles 1289 and 1290 CCQ) and how Article1286 CCQ applies in such a situation.
What happens if there is a sole beneficiary as to fruits and revenues (i.e, the life tenant) who disclaims her interest therein, and the remainder capital beneficiaries all of whom are ascertained are entitled to receive the trust property on the death of the life tenant? Do the remainder capital beneficiaries get the property before the death of the life tenant? It appears that the answer is "no". It seems that Art does not cause the termination of the trust if either the revenue or capital beneficiaries renounce (but not both).
What happens is that there is an accrual between them as described in the provision. The rule in Saunders v. Vautier does not apply to trusts in Quebec. However, pursuant to Art CCQ, if all of the beneficiaries both as to the fruits and revenues and capital renounce, then the trust terminates, but any property remaining in the trust would devolve to the settlor or his heirs as there would no longer be a beneficiary of the trust (see Art CCQ). These heirs may not be the same persons as the capital beneficiaries described in the trust.
Pursuant to Art CCQ, a trust is terminated by the renunciation or lapse of the right of all the beneficiaries, both of the capital and of the fruits and revenues. A trust is also terminated by the expiry of the term or the fulfilment of the condition, by the attainment of the purpose of the trust or by the impossibility, confirmed by the court, of attaining it.
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36. Some Additional Legal Issues*
Is it possible to disclaim an interest arising from an intestacy? YES!
Can a disclaimer be revoked?
YES, in relation to a testamentary gift, but only if no change in position of affected parties that would make a revocation inequitable, and apparently only before interest has vested in possession.**
NO, in relation to an inter vivos gift.
* Source: Hoffstein, Maria Elena and Lee, Julie Y., "Restructuring the Will and the Testamentary Trust: Methods, Underlying Legal Principles and Tax Considerations", Estates and Trusts Journal, vol 13, 1993, p at pp.55-57; and Cullity, Maurice C., "Post-Mortem Tax Planning: Renunciations, Disclaimers, Surrenders and Elections", Estates, Trusts & Pensions Journal, vol. 18, 1998, pp at p.35.
** But see Coulson (Re) (1977), 78 D.L.R. (3d) 435, 16 O.R. (2d) 497, 1 E.T.R. 1 (C.A.) where a beneficiary who already received income for a time was permitted to disclaim future income interest entitlement
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37. Why give a valid disclaimer?
Tax Considerations
Why give a valid disclaimer?
To achieve a tax-deferred rollover of property to a spouse or qualifying spousal trust
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38. The beneficiary cannot disclaim in favour of any person;
Tax Considerations
In order to have a valid disclaimer under subsection 248(9) of the Income Tax Act (Canada), all of the following conditions must be satisfied:
The beneficiary cannot disclaim in favour of any person;
The beneficiary cannot disclaim until he or she "is entitled to inherit,"
The beneficiary generally cannot delay making a disclaimer after the period ending 36 months after the death of the deceased; and
The beneficiary cannot derive any benefit from the disclaimed property prior to making the disclaimer.
If all 4 conditions have been satisfied, the beneficiary will be considered, for tax purposes, never to have acquired the interest and no amount will be included in beneficiary’s income
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39. Tax Considerations
If life tenant releases or surrenders income or capital interest in a trust in respect of future payments that were:
(i) not due and payable, and
(ii) NOT in favour of any person (or in favour of those who would otherwise have benefitted as a result of the release or surrender),
then gifting rules do no apply and proceeds will only need to be included in life tenant’s income to the extent that attribution rules apply.
See: IT-385R2
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40. (i) not due and payable, and
Tax Considerations
If life tenant for no consideration releases or surrenders income or capital interest in a trust in respect of future payments that were:
(i) not due and payable, and
(ii) in favour of a non-arm’s length person, then:
Results in immediate tax consequences to life tenant.
Gifting rules apply and life tenant deemed to have received proceeds equal to FMV of the interest.
Life tenant must include proceeds in his/her income in year of disposition.
ss.248(8)(c) of the Income Tax Act (Canada) provides that a release or surrender by a beneficiary under a Will or on intestacy will not be considered a “disposition of the property” by the beneficiary where the property was property of the taxpayer immediately before the taxpayer’s death. However, in respect of an “income interest” in a testamentary trust, the Canada Revenue Agency takes the position that such an income interest cannot have been the property of the taxpayer immediately before death.
See: IT-385R2
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41. Depends on whether amount has become payable or not
Tax Considerations
In Canada Revenue Agency (the “CRA”) technical interpretation document no E5, December 2004, the CRA expressed its views on whether a testamentary spouse trust that retains income at the discretion of a spouse-beneficiary would result in a contribution of property to the trust and “taint” its status as a testamentary trust.
Depends on whether amount has become payable or not
In summary, the CRA took the position that:
A testamentary spouse trust may provide for the retention of income by the trustee if the spouse-beneficiary can legally enforce payment of all the income of the trust and advise the trustees in writing that he or she does not want to receive some or all of the trust’s income BEFORE the amount becomes payable. This would result in a disposition of the spouse’s right to that income but would not be viewed as an increase in the capital of the trust or as a contribution of property to the trust. Therefore, the trust would NOT lose its status as a testamentary trust.
If a spouse-beneficiary advises the trustee that he or she does not want to receive the income of the trust AFTER the amount becomes payable, this would result in a contribution of property to the trust and an increase in the capital of the trust. Therefore, the trust WOULD lose its status as a testamentary trust.
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42. References
Cullity, Maurice C., "Post-Mortem Tax Planning: Renunciations, Disclaimers, Surrenders and Elections", Estates, Trusts & Pensions Journal, vol. 18, 1998, pp.31-51
Hoffstein, Maria Elena and Lee, Julie Y., "Restructuring the Will and the Testamentary Trust: Methods, Underlying Legal Principles and Tax Considerations", Estates and Trusts Journal, vol 13, 1993, p
MacKenzie, James, Feeney’s Canadian Law of Wills, 4th ed. (Markham, Ontario: LexisNexis Canada Inc. 2000, including Service Issues ), paras –
^Cases and quotations from cases found on: LexisNexis Quicklaw (LexisNexis Canada Inc., 2009).
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