For high-net-worth families at the helm of family-owned enterprises, retirement planning is a multifaceted challenge…
The formalities of creating a valid trust and a valid will should not be underestimated. Oftentimes the statute of frauds or wills legislation applies where the formalities are not met.
Courts of Equity generally look to a person’s intentions rather than the form in which they expressed their intention and as such have not required that a trust be created in any specific form. However, there is obvious merits to formalizing a trust in written form and in some cases, the lack of formalities and written form will render the trust void.
Formalities of a Written Trust
Formalities for trusts go back centuries. Since the decree of the English Statue of Frauds 1677 (section 4), enforcement on contracts for land have been required to be proven by some note in writing and signed by the person to be charged or their agent. This requirement extends to contracts that require performance over a prolonged period. Furthermore, the English Statue of Frauds 1677 (section 7) notes the creation and declaration of trusts with respect to land must be proved by some writing and signed by the person enabled to declare the trust. The result is that all trusts with respect to land have to be proven by writing and signed by the settlor or risk being void.
The English Statue of Frauds 1677 (section 9) notes all grants and assignments of equitable interests in trusts must be in writing and signed by the party (but not their agent) making the grant or assignment. This includes land and personal property. If the grant is not in writing, the grant or assignment is void.
Formalities for a Trust Created in a Will
The Wills Act in England (1837) and legislation in Canadian provinces note if the formalities required to create a valid will are not met, any testamentary trusts are also invalid.
The Alberta Wills and Succession Act (2010) require a will to have the following to be valid:
- It must be in writing;
- It must contain a signature of the testator that makes it apparent that it was intended, by signing, to give effect to the writing in the document as the testators will;
- The testator must acknowledge his signature in the presence of two witnesses who are both present at the same time; and
- The witness must also sign the will in the presence of the testator.
A testamentary trust must comply with wills legislation to be valid. However, a court may interpret a trust to be a constructive trust if it does not fall within the testamentary trust legislation.
Formalities of a Secret Trust
There are instances where a testator may not want the names of the persons to whom the gifts have been made to be known. A secret trust is one that arises where a will may not indicate the trust – however may be detailed in a letter separate from the will. This is done as the contents of wills become know.
- The donor or testator must have intended to impose a trust obligation;
- The donor or testator must have communicated that the property should be held in trust for others and communicated the intended beneficiaries of the trust to the trustee;
- The trustee acquiesced or accepted to hold the property in trust for the specified beneficiaries; and
- The communication of the trust obligation by the donor or testator to the trustee must be timely. For a secret trust this should be before the donor’s death. For a semi-secret trust this should be before or at the time of the trust obligation (execution of the will).
In assessing if a will has been validly created, one should ask:
- Has the will received probate?
- Are the three certainties met?
- Have requirements of a secret or semi-secret trust been met?
- If land is involved, is this in writing and signed by the person who is required?
What if Formalities Have Not Been Met?
Factors in a particular scenario that suggest the formalities of execution have or have not been met are usually pursuant to statute of frauds legislation or wills legislation. This could be a costly mistake, however the doctrine of part performance is alternative to proving a contract. The case of Rouchefoucauld v. Boustead may also be considered along with the doctrine of fraud which underlined the statute of frauds cannot be used to commit a fraud, resulting in the opportunity to use other evidence to prove the trust.
However, why let it get to that…. Adhere to the formalities of a trust if that is truly your intent.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2022 Shajani LLP.
Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.