At its core, a trust is a legal arrangement wherein a person, known as the settlor, transfers assets to one or more trustees, who manage those assets in accordance with the terms outlined in the trust document on behalf of one or more beneficiaries. Trusts may arise in various scenarios, including under a Will, or by agreement between the settlor and trustees.
A roadmap for distribution
Typically, these terms are fixed, providing a roadmap for the management of the trust as well as the distribution of the income and property of the trust. The traditional perception of trusts often conjures images of rigid structures set in stone, designed to distribute assets according to a predetermined plan. However, there may be instances in which the terms of a trust are required to be amended – whether this be in order to make corrections to the trust or to make operative a provision that was seemingly inoperative.
Generally, the terms of a trust cannot be varied. There are, however, two exceptions to that rule. First, the trust agreement may provide the trustee with the power to amend the terms of the trust. If this is the case, the trustee will be able to change the terms of the trust as may be permitted by the amendment provisions of the trust agreement.
The second way to vary a trust is with Court approval. If the trustee wishes to change the terms of the trust, but was not given the power to do so, they will need to apply to the Court for approval. The Court may grant an order approving a proposed amendment that varies the whole trust or only parts of the trust, that resettles any interest in the trust, that merges the trust with another trust or that enlarges the powers of the trustee to manage or administer any of the property of the trust (ss. 59(4) of The Trustee Act).
In order for the Court to approve a proposed amendment, the Court must receive the consent in writing of all persons who have a beneficial interest in the trust.
Approving an amendment
In approving any amendment, the Court has the ability to consent to the proposed amendment on behalf of individuals who cannot otherwise provide consent, namely:
- If they are a minor or lack capacity;
- If they have an interest at a future date or on the happening of an event;
- If they are unborn;
- If the person with an interest in a trust is missing or their whereabouts are unknown;
- If the person has an interest which may arise from any discretionary power;
- If they are a corporation without someone who can consent;
- If there is no one to benefit from the trust; or
- If the benefits to the trust are to be administered under another trust and there is no one to consent on behalf of all those persons (ss. 59(5) of The Trustee Act).
The Court may only approve a proposed amendment if it is satisfied that the amendment is for the benefit of each person on whose behalf the Court may consent and that the amendment is of a justifiable character (ss. 59(7) of The Trustee Act).
In determining whether the amendment is of a justifiable character, the Court will need to be satisfied that the amendments are both justifiable and beneficial for each of the beneficiaries. An amendment will generally be beneficial if it would enhance the financial, social, moral or family wellbeing of that person or if it would advance the purposes of a corporation.
Further, the Court will consider several factors when determining whether the proposed amendment is of a justifiable character. These include, but are not limited to, whether the amendment keeps the basic intentions of the settlor intact, whether there is a benefit to be obtained by an infant and persons who are or who may become interested under the trust and whether “the benefit to be obtained on behalf of those for whom the Court is acting such that a prudent adult motivated by intelligent self-interest and sustained consideration of the expectancies and risks and the proposal made, would be likely to accept.” (Irving, Re (1975), 11 OR (2d) 443 (Ont HC))
Key takeaways
Varying trust terms is not a departure from a plan but a strategic maneuver to ensure the trust operates effectively. Drafting and interpreting these documents should be done with the assistance of a legal advisor. The trust and estates advisers at MLT Aikins would be happy to assist should you require assistance with the drafting or interpretation of a trust.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.