Wong v. Wong

2010 BCSC 1331 Wong v. Wong IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Wong v. Wong, 2010 BCSC 1331 Date: 20100920 Docket: S093285 Registry: Vancouver Between: Diane Wong and Wayne Wong, Trustees of the Ben and Quan Wong Joint Partner Trust Petitioners And Raymond Wong, Sam Wong and Ken Wong Respondents Before: The Honourable Mr. Justice Brooke Reasons for Judgment Counsel for the Petitioners: J.L. Leathley, Q.C. Counsel for the Respondents: K.E. Ducey Place and Date of Hearing: Vancouver, B.C. September 17, 2009 Place and Date of Judgment: Vancouver, B.C. September 20, 2010 [1] The petitioners apply, pursuant to s. 86 of the Trustee Act, R.S.B.C. 1996, c. 464 and Rule 10 of the Rules of Court, B.C. Reg. 221/90 for directions concerning the administration of the Ben and Quan Wong Joint Partner Trust ("the Trust") dated May 5, 2006. [2] The petitioners are the Trustees of the Trust and they, together with the respondents, are the five children of Ben and Quan Wong. Ben Wong died on August 27, 2006 and Quan Wong died on June 17, 2007. Prior to the creation of the Trust, Ben and Quan Wong were the registered owners as joint tenants of four properties in Surrey, British Columbia, civically described as: 1. 17379 - 40th Avenue; 2. 17172 - 40th Avenue; 3. 3756 - 168th Street; and 4. 4243 - 184th Street (hereinafter "Property 1", "Property 2", "Property 3" and "Property 4", respectively). [3] Two days before the creation of the Trust, Ben and Quan Wong transferred Property 1 to the petitioner Diane Wong, and Property 2 and Property 3 to the petitioner Wayne Wong. Concurrently with the transfers, each of the transferees gave a mortgage back to Ben and Quan Wong and these three mortgages were then settled on the Trust, together with Property 4, by Ben and Quan Wong. The Trust Deed defines "Division Date" to mean "the date of death of the last of Ben and Quan Wong to die"; on the facts before me that was June 17, 2007. The Trust Deed provides by clause 2.3(b) that the Trust Fund then remaining on the Division Date shall be distributed as follows: (i) to transfer any and all interest of which the Trust stands possessed at the Division Date [Property 4] to such of [the respondents] who are living at the Division Date, in equal shares;...and any expense incidental to any such transfer, including any tax payable under the Property Transfer Tax Act of British Columbia or any successor legislation, is to be borne by the person or persons receiving the benefit of such transfer; (ii) to surrender and cancel any and all interest of which the Trust stands possessed at the Division Date in [Property 1] and to deliver to the registered owner any and all securities or evidence of indebtedness relating to such [property] and any expense incidental to any such surrender and cancellation is to be borne by the person or persons receiving the benefit of such cancellation and discharge. Subparagraphs (iii) and (iv) parallel the language of (ii) with respect to [Property 2] and [Property 3] except that the words "to the registered owner" are not repeated. [4] Finally, subparagraph (v) requires that the Trustees: pay and transfer the remaining balance of the Trust Fund, if any, to [the petitioners] in equal shares [5] The division date, as defined by the Trustee, is June 17, 2007. Upon the Division Date, a deemed disposition of Property 4 occurred pursuant to the provisions of the Income Tax Act and capital gains tax became payable by the Trustee totalling $406,060.40 plus penalties and interest. There were no adverse tax consequences flowing as a result of the surrender and cancellation of the mortgage debt secured against Property 1, Property 2 and Property 3. [6] The issue upon which the advice and direction of the court is sought is whether the tax liability should be allocated only to Property 4 because the liability arose as a result of its deemed disposition, or in some other manner. The Trustees propose to allocate the tax liability solely to Property 4 in part because it is the only trust property to which Canada Revenue Agency could look to enforce payment. This proposition assumes that the mortgages given by the petitioners to Ben and Quan Wong and settled by them upon the Trust have ceased to be assets of the Trust and have no value. The questions put in the petition are these: a) Is Property 4 the only asset of the Trust? b) If the answer to a) is in the affirmative, does the Trust Deed grant the Trustees the power to allocate all the capital gain liability to Property 4 and the respondents? c) If the answers to a) and b) are in the affirmative, is the proposed action by the Trustees to allocate the capital gains tax liability to Property 4 compliant with their fiduciary duties? d) If the answer to a) is in the negative, do the mortgages have a zero value for the purpose of ascertaining the burden of the capital gains tax of the Trust? [7] The parties agree that in considering the interpretation and proper construction of the Trust the rules of construction for Wills and estates apply. In the interpretation of Wills, the court usually begins the process of construction with the ordinary or dictionary meaning rule. The court will generally be guided by the meaning given to a word by dictionaries. The intention of the testator is to be ascertained from the whole Will and the meaning of the words in every part of the Will is to be determined according to the testator's general intention (Feeny's Canadian Law of Wills, 4th ed. (Toronto: Butterworths, 2000) c. 11, paras. 11.2, 11.3 and 11.4). [8] The petitioners submit that debits forgiven by the testator are not assets of the estate. They rely on Barrett (Re), [1996] N.J. No. 54 (S.C.) at para.31 where this is said: 31 Debts that are forgiven by a testator are not assets of an estate. See Re Watt, [1958] O.W.N. 418. In that case Stewart, J. of the Ontario High Court of Justice made the following observation at p. 419: The direction for cancellation of the debt owing to the deceased should be given effect and since the debt was forgiven it was not an asset of the estate. [9] Thus, the petitioners submit that the Trust Deed itself effectively cancels the debt, evidenced by each of the mortgages given the Trustees and does so in clear and unequivocal language which admits of no acception: to surrender and cancel any and all interest of which the Trust stands possessed at the Division Date and to deliver any and all securities or evidence of indebtedness relating to such lands Thus, say the petitioners, the Trust Deed is clear with respect to the settlors' intentions that the mortgages and any debt evidenced by those mortgages were to be forgiven. [10] The petitioners submit that they are given, as Trustees, express discretion, power and authority which authorized them to allocate the burden of the capital gains tax owing in respect of Property 4, the sole remaining asset of the Trust. The Trust Deed, by clause 2.1(e) defines discretion in this way: "Discretion" means absolute and uncontrolled discretion to the extent enabled by law. Thus, this manifests the intention of the settlors to give the widest possible discretion to the Trustees unless prohibited by law. The petitioners then set out examples in the Trust Deed of specific discretionary powers given the Trustees. In clause 4.1(n), the Trustees are given discretion: to make any designation, allocation or apportionment in respect of capital gains to, among, or between the Beneficiaries and the Trust itself. Clause 4.1(q) of the Trust Deed says this with regard to the discretion accorded the Trustees: to make any designation, allocation, apportionment, and election permitted by any taxing statute affecting the Trust, and such exercise of the Discretion by the Trustees is conclusive and binding upon all the Beneficiaries [11] Counsel for the Trustees submits that the Trustees both understand and accept that in exercising even the broadest discretionary power that they have a fiduciary obligation and they are required to act in an even handed manner unless the instrument granting the power expressly authorizes the Trustees to act otherwise. The specific discretion granted by clause 4.1(n) and 4.1(q), submits the Trustees, is unambiguous and provides clear authority to act other than in a transparently even handed manner. [12] In the event that I find the discretion given the Trustees to be ambiguous, then I may consider the intentions of Ben and Quan Wong as those are set out in the letter of instructions to the solicitors for them from Adrien Lee, chartered accountant, dated December 16, 2005 where he said that the mortgages were to be forgiven over five years and that the balance of the mortgages "will be completely forgiven if they die before the five year[s]". [13] The petitioners submit that it is not necessary for the court to apply the rules for abatement because they have the authority to attribute all of the capital gains tax liability to Property 4, and Property 4 is the only asset of the Trust from which that liability may be paid. [14] In answer, the respondents submit that the mortgages held by the Trust on the Division Date are assets of the Trust and that any capital gains taxes on the deemed disposition of Property 4 should be paid firstly from the debts secured by the mortgages or alternatively shared rateably by all the beneficiaries of the Trust. [15] The issues stated by counsel for the respondents are these: a) Is Property 4 the only asset of the Trust? b) If so, does the Trust Deed grant the Trustees the power to allocate all the capital gains tax liability to the land and to the three respondents? c) If so, is the proposed action by the Trustees compliant with their fiduciaries as Trustees? d) If the answer to a) is no, do the mortgages have a zero value for the purpose of ascertaining capital gains tax liability of the Trust? [16] The respondents submit that the question of what assets did the Trust hold on the Division Date requires consideration of the moment in time that one identifies and values the assets. Referring to the decision of the Saskatchewan Court of Queen's Bench in Brown Estate (Re), [1992] S.J. No. 535, the respondents argue that on a time continuum there are three possibilities to consider: the moment before the event, the moment of the event, and the moment after the event. The event is the Division Date, and that is defined as the date of death of the last of Ben Wong and Quan Wong to die. The respondents say that the petitioners must premise their argument on a finding that as of the Division Date ("the Event"), the Trust forgave the debt owed by the petitioners and as a consequence the mortgages are of no value and should not be considered an asset of the Trust. But, say the respondents, the same could be said of the land and the value of the land if the respondents' beneficial interest vested on the same event, the land would no longer be of value to the Trust and the Trustees would no longer have the right to call upon the land to pay the taxes owed by the Trust. The only reasonable conclusion that can be reached is that the value of the mortgages must be the value immediately prior to the death of the last of the parents to die prior to the forgiveness of that debt. [17] I find that the language of the Trust Deed is clear and unambiguous, and taken as a whole manifests the settlors' intentions. The Trust Deed provides for a division of the Trust Fund on the date of death of the last of the two settlors to die. [18] Paragraph 2 sets out the purposes of the Trust Deed, and paragraph 2.3 says: The Trustees shall, and hereby agree, to hold the Trust Fund in trust and administer it for the following purposes: a) until the Division Date: b) upon the Division Date, the Trustees shall distribute the Trust Fund then remaining, if any, as follows: (i) to transfer any and all interest of which the Trust stands possessed at the Division Date in [Property 4] to [the respondents] and any expense incidental to any such transfer, including any tax payable under the Property Transfer Tax Act is to be borne by the person or persons receiving the benefit of such transfer; And subparagraphs (ii), (iii), and (iv) go on to say that the Trustees shall: surrender and cancel any and all interest of which the Trust stands possessed at the Division Date in [Property 1, Property 2 and Property 3] and to deliver any and all securities or evidence of indebtedness relating to such lands and premises, and any expense incidental to any such surrender and cancellation is to be borne by the person or persons receiving the benefit of such cancellation and discharge. [19] I am satisfied that the petitioners and the respondents are treated differently with regard to the division of the Trust fund, but that the settlors' intention is that any expenses incidental to any transfer or to any surrender and cancellation is to be borne by the person or persons receiving the benefit of such transfer or such cancellation and discharge. It may be inferred that the settlors intended to prefer the petitioners, by paragraph 2.3(b)(v) which provides for the payment and transfer of the remaining balance of the Trust Fund, if any, to the petitioners in equal shares. [20] In the decision of the Ontario Court of Justice, Ontario (Public Guardian) v. Hodgins Estate, [1996] O.J. No. 1005, the opinion and direction of the court was sought in circumstances where the testator left a life interest in his farm to H.M. and on his death to the sons of H.M. alive at his death. The residue was given to charity. Revenue Canada took the position there would be a deemed disposition for capital gains purposes and this led the executors out of an abundance of caution not to distribute the residue to charity. The court was asked: to ascertain the intention of the testator as manifested by the language of his will and in light of the circumstances in which it was made. The Will was silent as to the payment of future capital gains tax. At paragraph 16 Hockin J. held: the property, once segregated, ceased to be an asset of the estate and it is only right and fair that those who may benefit from its devise should bear the expense of any tax which may accrue following death The learned judge declined to find that the charity, as the residual beneficiary, should pay any tax without that clearly being intended by the Will itself. Here I am satisfied that the settlors intended to give Property 4 to the respondents so long as the respondents shouldered any expense incidental to any transfer. The qualifying word "any" is not limited by the specific reference to the Property Tax Act. It is not necessary that the settlors declared the specific intention that the respondents pay the capital gains tax on the deemed disposition in light of the general and inclusive word "any" which extends, I find, to such a tax as well as to any interest or penalties which may be imposed, absent gross neglect on the part of the petitioners. [21] I am satisfied that despite the broad discretion given the Trustee by the Trust Deed that the Trustees are charged with executing the trusts contained in paragraph 2.3 and may require satisfactory undertakings from the respondents to pay and satisfy the capital gains tax and to indemnify and save harmless the Trustees against all such claims, as a necessary adjunct to their duty. [22] I point out, however, that the powers and authorities given the Trustees by paragraph 4.1 of the Trust Deed "without limiting or derogating from the powers, authorities, discretions or immunities, otherwise available", the Trustees shall have the power: (e) to deal in any way with any and all of the assets comprising the Trust Fund from time to time during the administration of the Trust in the same manner as they might personally do if they were the beneficial owners of the assets comprising the Trust Fund. And, I have previously referred to paragraph 4.1 subparagraphs (n), (p) and (q). [23] Any fiduciary duty which the Trustees may owe the respondents is to maintain an even hand between them, both of whom are beneficiaries under the Trust, when exercising a discretionary power, unless the instrument expressly authorizes the Trustee to act otherwise (Widdifield on Executors and Trustees, 6th ed. (Scarborough, Ont.: Carswell, 2002) p. 8-7). [24] I am satisfied that the Trust Deed gives the power and the discretion to the Trustees in executing the trusts imposed, to require that any expense incidental to any transfer is to be borne by the person receiving the benefit of such transfer. The Trust Deed itself is equal between all of the beneficiaries in imposing a parallel requirement with regard to any expenses incidental to any surrender and cancellation. [25] With regard to the contention of the respondents that despite the forgiveness of the debt secured by the mortgages I find vest in the executors, I refer to the decision of the Saskatchewan Court of Queen's Bench in Brown (Re). There the issue was probate fees levied on "property of the deceased at the time of death". Baynton J. held that it was a ludicrous construction to find that the words "at the time of death" mean the property that the deceased owned just before he died. Substantial receivables were forgiven by the Will and it was contended that those forgiven receivables were not captured by the definition. Justice Baynton, at page 5, says this: a Will does not take effect, nor does property vest in the executors, until death is an accomplished fact. Upon death, the debts remained fully payable, and as property of the deceased, became vested in his personal representatives. By the terms of the Will, (and only through its effect), are the debts forgiven. And in the following paragraph the court says this: Property vests on death as a matter of law. The provisions of a will are directions to the executors as to what is to be done with the property vested in them. A forgiveness is in effect a disposition of property by way of gift. It is the relinquishment, giving up, and disposition by the donor of his rights to repayment of indebtedness owed to him by another person [26] Thus, applying the principle that the law with respect to Wills and estates is applicable to the circumstances here, I find that the lands comprised in Property 4 are not the only asset of the Trust. [27] I am satisfied that the mortgages remain an asset of the Trust at the Division Date, but that by virtue of the surrender and cancellation of those mortgages in execution of the Trust they are of no value. Thus, in answer to question d), they have no value for the purpose of ascertaining the value of capital gains tax liability of the Trust. It is not necessary to consider the rules of abatement. In the result, costs will follow the event, unless there are matters which need to be brought to my attention. "T.R. Brooke J."