Problems with pour-over trust clauses in wills

A pour-over trust clause in a will is used when a testator created a trust during their lifetime and at death wants to capture assets that did not — whether intentionally or unintentionally — form part of the trust. The will names the trust as a beneficiary and the clause essentially stipulates that the assets go through the trust and are distributed in accordance with the terms of the trust deed. With this planning, estate administration is simplified, and the testator’s privacy is maintained, because a trust deed, unlike a will, is not a public record.

These types of wills are commonly used in the U.S., but in many Canadian jurisdictions, they are problematic when the trust is a revocable trust. Essentially, a will with a pour-over trust clause allows the will to be altered by altering the trust deed. The signing process for a will or an amendment to a will has formal requirements including the presence of two witnesses. A pour-over trust could potentially create an opportunity for an individual to change their will without meeting the formal requirements for a valid will.  

Relevant case law

The B.C. Court of Appeal in the 2019 decision from Quinn Estate v. Rydland held that the pour-over clause in the will was invalid because, as of the will date, the trust was amendable and revocable and consequently not a “presently existing document.” Therefore, the testator could not use his will to dispose of property not executed as a will.

The case involves the famed Canadian hockey player, head coach and executive Pat Quinn.  Quinn’s will was prepared by a U.S. attorney and executed in B.C., where Quinn passed away in 2014. A clause in his will granted the residue of his estate to a revocable inter vivos trust established by Quinn and his spouse prior to the will execution.

The trust deed had been amended after Quinn and witnesses signed his will. Since the trust deed could be amended, the beneficiaries could be changed without the execution requirements laid out in Section 37 of B.C.’s Wills, Estates and Succession Act (WESA).

Further, the clause could not be cured — that is, saved — with the application of Section 58 of the WESA, which permits the court to cure a non-compliant will, declaring that any “record, document or writing or marking on a will or document” has testamentary effect if satisfied that the “record, document or writing” embodies the testamentary intention of the deceased. The court declined to apply Section 58. It was fact that the trust was amendable, causing it to be unsavable under Section 58, as it contradicted the final and fixed intention that is the very nature of a testamentary document.

Further, the court held that the clause in question was part of a will that complied with the formalities, but the clause sought to get around the formalities entirely.

The result in this decision was Quinn’s estate would be distributed on an intestacy.

A more recent decision came out of the Ontario Superior Court in 2022 in Vilenski v. Weinrib-Wolfman. In this case, the court held that if there was any chance the referenced trust could be amended or revoked, the pour-over clause in the will referring to the trust would be deemed invalid.

In some Canadian jurisdictions, such as Alberta, the courts have not yet had to make an ultimate decision regarding the validity of pour-over clauses in a will. But practitioners should be cautious, as the different jurisdictions have contrasting authority. For example, the Nova Scotia Supreme Court in MacCallum Estate, another 2022 decision, upheld the pour-over clause and distinguished it from Quinn Estate based on the fact that there was no amendment to the trust.  

These cases highlight the importance of obtaining the appropriate tax and legal advice on both sides of the border. It is essential that advisors, lawyers and accountants are aware that estate planning that is valid in the U.S. may ultimately be deemed invalid in Canada. At the very least, contingent testamentary trust language, or alternate beneficiaries, should be used to avoid an intestacy if the court deems the clause to be invalid.

The testator could also create a testamentary trust in the will with similar language to the inter vivos trust with the same beneficiaries. The trustee of the testamentary trust may be given the power to transfer the assets of the testamentary trust to other trusts with the same beneficiaries.

When incorporating pour-over trust clauses in your estate planning, wills should be reviewed to ensure they remain valid in Canada and, in particular, in the jurisdiction in which the client resides.