Using power of attorney to create a trust for a attorney

By Doug Carroll | October 21 2014 09:00AM
At issue

A person may grant power of attorney to one or more others to make decisions about the grantor’s property. Such powers may operate concurrent with the grantor’s own capability to make decisions, and may allow such decisions to be made when the grantor is incapable. Though the terminology and rules vary a bit, each province allows the execution of a legally binding document of this nature.

Generally, attorneys’ powers fall short of making testamentary dispositions, the clearest sort being the making of a Will on behalf of the grantor. However, the respective province’s legislation must be carefully considered before coming to a conclusion about what that means.

A recent case and follow-up inquiry to the Canada Revenue Agency shed some light on planning possibilities in British Columbia, and may have implications elsewhere.

Power of Attorney Act, RSBC 1996, c 370

Under s.13, an adult may grant to another person the ability to make decisions and act as agent with respect to the person’s property. The attorney will be able to do anything that the granting adult could lawfully do with the property.

However, a specific limitation is provided in s.21, stating that “an attorney must not make or change a will for the adult for whom the attorney is acting.”

Easingwood v. Cockroft, 2013 BCCA 182

In this case, two adult children acting as attorneys create an alter ego trust for their grantor/father. The effect was to transfer a significant portion of the father’s assets into the trust, thereby removing those assets from distribution via the father’s Will and estate, with the intended effect of reducing probate tax and some income tax. The terms of distribution after the father’s death mimicked the terms of the existing Will.

The father’s wife (a later spouse, not the mother of the attorneys) challenged the validity of the trust settlement. She was also pursuing a claim under the BC Wills Variation Act (in force when the events occurred), seeking an altered distribution of the estate.

This appeal court upheld the trial judge’s finding that there is no legal reason why the attorneys could not establish a trust in the course of their administration. And specific to the trust that was created, it did not diverge from the grantor’s “known intentions as reflected both in the will and the marriage agreement” previously validly executed between the spouses.

2014-0523331C6 E – CALU CRA Roundtable

Following from the Easingwood ruling, at the May 2014 meeting of the Conference for Advanced Life Underwriting, the question was posed to the Canada Revenue Agency whether the purported creation of an alter ego trust would result in tax-deferred rollover of the capital property.

The CRA response is a bit roundabout, first providing a summary of the findings in Easingwood, then stating that the focal issue is whether the transfer of the property is “by the individual” and whether the trust has been created “by that individual”.

While not being definitive as to whether the actions of attorneys qualify in this respect, the closing comment suggests that an attorney should seek affirmation from an applicable court that the attorney has appropriate powers and is properly exercising them. Assuming the attorney takes this action, it appears that the CRA would not oppose it.

Practice points
  1. As noted in Easingwood and by the CRA, there is a uniqueness to those facts, in particular that the trust terms effectively mimicked the existing Will. Generally, attorneys will not be able to take actions that lead to a different testamentary outcome.

  2. The particular province’s legislation will have to be consulted to determine whether attorneys elsewhere may undertake this kind of planning.

  3. Comments from the CRA are administrative in nature, without legal effect, and are not even binding on the CRA itself. Still, in a practical sense, there does appear to be a planning avenue after a person becomes incapacitated, so long as the actions comport with the grantor’s existing plans and known intentions.