APRIL 20, LAW 451- Trusts Section 2. Professor John Smith TOTAL MARKS: 100

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1 Write Your Exam Code Here: Return this exam question paper to your invigilator at the end of the exam before you leave the classroom. THIS EXAMINATION CONSISTS OF 6 PAGES PLEASE ENSURE THAT YOU HAVE A COMPLETE PAPER THE UNIVERSITY OF BRITISH COLUMBIA FACULTY OF LAW FINAL EXAMINATION APRIL 20, 2018 LAW 451- Trusts Section 2 Professor John Smith TOTAL MARKS: 100 TIME ALLOWED: 3 HOURS TOTAL (including reading time) ************** NOTE: 1. This is an open book examination. A candidate may bring into the examination room any written materials they wish. 2. ANSWER ALL THREE QUESTIONS. You may answer them in any order. 3. PLEASE budget your time. THIS EXAMINATION CONSISTS OF 3 QUESTIONS JS

2 Question I (continued) 216 MARKS A and B were lifelong friends and long time members of the Narrow Fairways Golf Club (the Club ). A died in He had no children and his widow C was his next of kin. C (who died in 2016) was a wealthy woman who had children from a former marriage, one of whom is her executor. A s will appointed B as his Executor and directed that all the income from his Estate be paid to C for her lifetime, and provided as follows after C s death: My Executor shall divide the first $1 million of my Estate between the Narrow Fairways Golf Club and the United Way in proportions determined by my Executor, taking into account the funding requirements of those organizations to continue their work. My Executor shall divide the remainder of my Estate in proportions determined by the Executor among the people who I considered made the biggest contribution to the success of the Narrow Fairways Golf Club. A s estate had a value of approximately $3 million. In 2012 B invested $1 million of the Estate s funds in a fledgling business that aimed to grow medical marijuana. Unfortunately it failed completely and nothing can be recovered. In the five years between the deaths of A and C, the balance of A s Estate was invested in a diversified portfolio that produced an appropriate income of $100,000 per annum, which B paid to C. During the last ten years of A s lifetime, D, E, and F were the directors of the Club and were generally considered to be the most influential figures in the Club, which thrived in those years. All were respected by A. In the five years after A s death, B, D and G engineered their election as directors of the Club, and in the process ousted E and F as directors. A barely knew G. Following C s death in 2016 B considered how to divide the $1 million between the Club and the United Way. He was aware that the United Way was facing challenges meeting its annual fund raising target, whereas the Club had no immediate need for funds. B approached D and G with a proposition. He could divide the $1 million fund equally between the Club and the United Way, but B proposed to D and G that instead B would distribute $900,000 of the $1 million to the Club, of which the Club would donate $200,000 to the Big Bang Gun Club, of which B was a member. This would result in the Club retaining an extra $200,000 than if B simply made an equal division. D and G agreed with B s proposition, JS

3 Question 2 (continued) Page 316 which was carried out. The Club still retains the $700,000 it received and did not donate to the gun club. B distributed the remainder of A s Estate (approximately $1 million) equally among himself, D and G. B retains his share, and D has spent all of his share. G immediately transferred the amount he received to his three children in equal shares. Two have already spent the entire amount, the other still retains what she received. On the basis of these facts, please answer the following questions. A. What is the legal effect of the provision of A s will dealing with the remainder of A s Estate? B. In what respects has B failed to comply with his legal obligations? C. In the circumstances, what remedies may be available, to whom and against whom? MARKS H s family home is on a large lot in an area of the Lower Mainland where zoning prohibits subdivision, permitting only a single home on each lot, as well as farming and related activities. H inherited the property from her parents but was not otherwise wealthy. She was widowed at a relatively young age with three children whom she raised while working. Her elder two children, J and K, both established careers and families and have owned houses in the lower mainland for several years, but carry a significant amount of debt. When H retired in 2008, she thought that she would have to sell the property because she would be unable to afford its upkeep on her modest pension. Her third child L developed the idea of using a substantial part of the property for a nursery business, as permitted by the zoning. L and her husband M, in conjunction with H, carried out the following between 2008 and 2009: (a) (b) the house on the property was updated and expanded, and a separate suite was added: H continued to live in the existing (updated and expanded) part while L and M lived in the new suite; L and M devoted their full time to creating and growing a nursery business, including constructing the required buildings; JS

4 Question 2 (continued) Page 416 (c) (d) L and M borrowed the funds ($300,000) required for the foregoing, with H guaranteeing the debt and securing it by a mortgage on the property, which remained in H s name alone; L and M would make the mortgage payments and pay all the outgoings on the entire property (including property taxes, utilities, insurance, repairs and maintenance) and pay $1,000 per month to H as rental, the payment of which, with H being relieved of the other obligations, meant that H could manage comfortably from a financial perspective. No formal agreements were entered into with respect to any of the foregoing (except for the external financing). When J asked H and L whether they had a written agreement, both replied that it was unnecessary for them to have legal contracts and that they would work out any issues as they arose. Prior to the work on the property, it had been assessed at $850,000 land value and $50,000 for the building. After the work was done the land assessment remained at $850,000 and the buildings were valued at $350,000. Thanks to the hard work of L and M, the nursery business succeeded and has allowed them to reduce the mortgage to $250,000. They have started a family with children born six years and three years ago. The children attend a school and a preschool which are both very close to their home and the nursery where both L and M work full-time. Shortly after L and M s first child was born, H suggested that they switch the living arrangement, so H moved into the suite and L and M occupied the main part of the home, as they still do. It would be highly unlikely that L and M could duplicate their home/work/childcare proximity anywhere else. H became ill a year ago. J asked H how the property would be handled if she were to die, to which H responded that she was thinking about it. L then asked the same question, saying that while H and L had never needed a contract, things might need to be different if L had to deal with J and K. L added that L expected that H would protect L s interest in the property, without specifying what L thought that interest was. H replied Leave it to me. I will take care of it. H then had her will prepared by a lawyer, its contents remaining unknown to any of her children until H died late last year. The will appoints J and K as Executors and provides equal powers of sale and retention with respect to the property, and powers to manage the property while still held by the Estate, adding the following: JS

5 divided, and that L and M would then have to work out a new how the property should be handled? B. What steps may be taken to resolve the disagreement over proposed alternatives after 2 years. house and the nursery to L and M on reasonable terms, including L purpose the interests of L and M are completely aligned.) and M continuing to pay all the outgoings. The suite should be rented out, with all rental income being divided between J and K. otherwise against A s Estate? (Please assume that for this million, and the buildings at $300,000. There have been proposals for present. The residuary clause of the will provided for equal division among J, K and In exercising these powers I trust that my Executors will if at all possible L. Even with the zoning restrictions, the land is now assessed at $2.2 the property could be sold, provided the buyer accepts a L and M should buy out J and K for two-thirds of the A. What claims if any may L and M have to the property, or assessed value. transition period on the terms proposed by L, after which: or long term arrangement with L and M to rent the nursery land, arrangement about the nursery with the new owner if they can. Paqe 516 ensure that L and M can continue to operate their nursery business as at JS H s will.) (Please ignore the possibility of any of the children seeking a variation of On the basis of the foregoing, please address the following. (d) J does not agree with retention for two years or with either of K s (c) K says that the property should be retained for two years as a (b) J says that the property should be sold so that the Estate can be (a) L says that J and K must retain the property and rent both the Following discussion, the following positions have been taken. the property, but no firm indication that the municipality will rezone. potential rezoning in the area, which could materially increase the value of Question 2 (continued)

6 MARKS END OF EXAMINATION owned a home prior to the events described below. States. N is a Canadian citizen and resident, P is a US citizen and years lived in rental properties in the Lower Mainland and had never resident. P has from time to time referred business to N. N has for many N and P were friends since they attended college together in the United Page JS What can P do about this situation? The property was leased to a tenant in January 2017, and through 2017 N received the rents and applied all of them to the payment of necessary outgoings on the property, including property tax, insurance and repairs and maintenance. (N has not yet had to file a tax return in which the Vancouver housing market is about to fall, has directed N that N must sell and will continue to reside there. the property. N has responded that he does not wish to sell the property out, and N decided that he should move into the property. A month ago P realizing that this is not the best arrangement, and being afraid that the asked N what the rental arrangement was. N responded that since he is the registered owner of the property, he does not need to pay rent. P, rental income might have to be reported.) Late in 2017 the tenant moved P thought that this arrangement would also assist with hiding money from a residential property be purchased in N s name with funds provided by P. completed with title registered in N s name, and with PPT paid on the funds to be a loan, so no charge in favour of P was registered on title. transfers is the same as in British Columbia.) Earlier in 2016 the accepted. P provided the funds to cover the purchase price, the regular basis that N, a Canadian, was the buyer. Neither N nor P considered the a business failure. He decided to move money out of the jurisdiction, to the extent relevant, the U.S. law on fraudulent conveyances and Provincial government had introduced the so-called loreign buyers tax, which required non-canadian purchasers to pay an additional 15% not wish to pay the additional tax, so P approached N and suggested that his creditors. N consequently made an offer for a property which was PTT and additional legal and other expenses. The transaction was Late in 2016 P was having problems with creditors in the U.S. because of property transfer tax ( PTT ) on the purchase of residential property. P did using it to buy a residential property in Vancouver. (Please assume that, Question 3 (continued)