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For many clients, estate planning is not just about transferring wealth. It is also about preserving values and personal priorities. For individuals focused on legacy planning, a purpose trust may capture these intentions.
What is a Purpose Trust?
Purpose trusts are an exception to the rule that valid trusts must have identifiable beneficiaries. Purpose trusts fall into two main categories: charitable trusts and non-charitable purpose trusts. Non-charitable purpose trusts can be a useful estate planning tool where an individual wishes to designate property to fulfil a specific purpose instead of designating it for the general benefit of identifiable beneficiaries.
In order for purpose trusts to be a useful and effective estate planning tool, it is vital they be drafted with clear and unambiguous language so that trustees do not have to apply to the court to determine the settlor’s intended purpose.
Background
In Re RM Plasterer Education Trust, 2025 BCSC 1204, a generous grandmother established a purpose trust to fund the educational expenses of her grandchildren and their descendants. Throughout her lifetime she had been an ardent supporter of her family receiving private education and she wanted this legacy of education to continue amongst her family.
The issue in this case arose out of specific language included in the trust deed which defined the type of educational expenses that the grandmother intended to be covered by the purpose trust. The trust deed defined such “approved costs” as:
… the tuition or other direct program attendance fees of an Educational Program in which a Secondary Beneficiary is enrolled and attends in a Year, provided that:
a. the cost of supplies, materials, reference materials, books, food and accommodation expenses in respect of the Educational Program will not be taken into consideration in calculating the value of the Approved costs; and…
[Emphasis added.]
When one of the grandmother’s great-granddaughters was accepted as a boarding student at a private school, the trustees decided the trust would only apply to expenses that would be incurred by a day student attending that same school. The trustees’ reasoning for this decision was their belief that the language in the trust deed prevented them from covering the cost of a program that also provided food and accommodation.
To mitigate the risk of family conflict, the trustees sought direction from the court as to whether the cost of enrolment of a boarding student at a private school would be an approved cost covered by the terms of the trust.
The Court’s Interpretation of the Trust Deed
To determine the grandmother’s intended purpose, Justice Taylor first applied the “four corners” approach to the interpretation of testamentary documents and examined whether the grandmother’s intention could be determined from the language of the trust deed alone.
Justice Taylor concluded that the trust deed was ambiguous as to whether the program costs of a boarding school that provides food and accommodation, would qualify as an approved cost. In part, this was because the trust deed did not specify a difference between “direct attendance fees” and “tuition”, and because the phrase “other direct attendance fees” could arguably include a wider category of fees than tuition alone. Further, Justice Taylor considered that many schools do not separately invoice various costs and instead charge a single global tuition or program fee. Justice Taylor noted that the trustees would be put in an impossible position if they had to reverse engineer costs that are bundled into the tuition or program costs of a private school in order to determine which would constitute approved costs under the trust.
Justice Taylor then applied the “armchair” approach to the interpretation of testamentary documents, where the court puts itself in the shoes of the settlor at the time the trust is established.
In doing so, Justice Taylor considered the following:
- that education was important to the grandmother, and she wanted her descendants to have the best education they could;
- that five out of the six of the grandmother’s children had attended boarding school;
- that the grandmother had previously said she believed the boarding school experience was valuable because it encouraged independence and self-motivation;
- that the grandmother had historically helped finance boarding school educations for some of her grandchildren;
- that the grandmother had previously said she was willing to pay for any grandchild to attend private school as a boarding or a day student;
- that the grandmother had previously expressed concern about having to pay the living costs for students pursuing post-secondary educations in cities with a high cost of living; and
- that the grandmother had previously said that the parents of a university-aged student should be responsible for the student’s room and board, and that the student should seek scholarships or obtain part-time jobs.
Relying on the armchair approach, Justice Taylor concluded that the grandmother would have fully supported the trust being used to fund the cost of her great-granddaughter’s boarding school, as well as the cost of food and other program expenses for pre-university education. The exclusionary language in the definition of approved costs was held to apply to costs relating to post-secondary education and not to primary or secondary education costs.
Key Takeaways
While the court’s ultimate interpretation seems to align with this grandmother’s generous intentions, this litigation could have been avoided altogether if the trust deed had been drafted using clear language.
If you are considering settling a trust to effect a specific purpose, it is vital that the language you use clearly sets out your intention. Any vague or ambiguous language in the trust instrument could result in your trustees having to spend time and money applying to the court for direction, instead of simply executing your intended purpose.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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