Trustbuster – The Rule in Saunders v Vautier

Trusts are often used to control children and grandchildren from the grave. Sometimes the will-maker (“Testator”) holds back the money until the beneficiary reaches a certain age. Other times the money is held back until the beneficiary graduates from college or gets married. Many a beneficiary resent the conditions attached to their inheritance and they wonder – can we “bust the trust”? Well the answer is maybe – if you fall into the Saunders v Vautier¹ rule.

Consider the following situation: Father wants to leave a portion of his estate to his adult child, Bart. Bart is somewhat inept, and is not particularly trustworthy. He gambles and would without doubt lose any money he inherited. To protect his son against himself, the Father’s will establishes a trust which directs the trustee to pay Bart a reasonable monthly allowance out of the income of the trust. The trust also provides that when Bart reaches a level of maturity at the age of 40 he receives all the money/capital in the trust. Bart is livid because it was clear that his Father did not trust him. He speaks to his lawyer and asks the question – can I bust the trust? His lawyer will immediately think of the English case which has been adopted in Canada – Saunders v Vautier.

So what’s the rule in Saunders v Vautier? Essentially, if all of the beneficiaries of a trust are of age and of sound mind (also known as sui juris), and if those persons represent the full beneficial interests of the trust, the trust can be terminated if those beneficiaries so wish.² In Bart’s case it is really simple. He is of sound mind and the only beneficiary of the trust. But often, real cases are not that simple.

The rule in Saunders v Vautier has evolved over time. Initially, the rule contemplated only one beneficiary being able to terminate a trust. Later interpretations of the rule allowed for a group of beneficiaries to do so as long as together all those beneficiaries accounted for the full beneficial interest of the trust.³

Yet another expansion of the rule is what is sometimes referred to as the rule in Barford v Street.⁴ This applies to a situation where a beneficiary has a life interest (the right to enjoy an asset during their lifetime) in the assets of a trust, as well the general power to appoint how the remainder of the trust will be dealt with after that beneficiary’s death. This is called a general power of appointment. If the beneficiary exercises their general power of appointment in favour of themselves, they become the owner of the entire beneficial interest in the trust. In these situations, the rule in Barford v Street allows for the application of the rule in Saunders v Vautier.

The Ontario Superior Court of Justice considered an interesting argument for the expansion of the rule in Saunders v Vautier in the case of Stoor v Stoor Estate (“Stoor”).⁵ In Stoor, the applicant, Paul, was the only child of the deceased, Lillie, who died in 2012. Lillie’s will set up a trust for Paul, called the Paul Stoor Trust, which included investments, savings accounts, a house, and the remainder of the deceased’s estate. The estate trustee was mandated to invest the assets of the trust and pay amounts of the income or capital to Paul as the estate trustee considered advisable.

Upon Paul’s death, Lillie’s will directed that the estate trustee distribute the remainder of the Paul Stoor Trust to “any and all worthy individuals and or causes who shall be alive or in existence at that time”. This is called the “gift-over”, as it gifts the remainder of the trust property to another recipient if a certain event occurs, being Paul’s death. However, for reasons which are beyond the scope of this blog, the gift-over was found to be void.⁶ This opened up the possibility that the remainder of the trust would be distributed based on the rules of intestacy.⁷

The judge, the Honourable Justice Himel, analyzed whether the rule in Saunders v Vautier would apply if the remainder of the Paul Stoor Trust were distributed according to the Ontario rules of intestacy upon Lillie’s death. ⁸ On this point, Justice Himel stated the following at paragraphs 50-51:

“50 The application of the rule in Saunders v. Vautier has been wide, but not unlimited. For example, in Rogers Communications, supra, the majority of the Supreme Court held that in the context of a statutorily regulated pension plan, the rule in Saunders v. Vautier had no application (at para. 33).

51 Counsel have not referred me to any case, nor have I been able to find one, in which the rule in Saunders v. Vautier was held to apply in a situation like that at issue here, that is, where there is an absolute discretionary trust over the income and capital to a beneficiary for life, with a gift over of the remainder. That gift over is clearly intended to support the testator’s intent to prevent the interest in the income and capital from vesting in the beneficiary. However, as a result of the failure of the gift over of the residue, the beneficiary applies to have the intestacy determined immediately, before the expiration of the life interest, thereby making him the sole potential beneficiary of any trust property.”

While the rule in Saunders v Vautier has evolved, Justice Himel did not find it appropriate to stretch the rule further in the circumstances at hand in Stoor. This decision appears to be partially rooted in Lillie’s intentions, made apparent from the gift-over provision in her will, to prevent Paul from accessing all of the property in the Paul Stoor Trust. This case demonstrates how a testator may be able to protect the trust by simply adding a gift-over provision.