BC Supreme Court approves early termination of family trust on behalf of unborn beneficiaries

The BC Supreme Court has approved the early termination of a family trust for unborn or adopted children who may become entitled to an interest under the trust.

In Molnar v. Molnar, 2023 BCSC 1911, Michael Molnar is a beneficiary of a family trust, which his father settled. Michael sought an early windup and termination of the trust with the funds paid to him. He also asked the court to approve the termination of the trust on behalf of any person unborn or adopted who may become entitled to an interest under the trust. The court’s approval is required because the terms of the trust include potential beneficiaries yet unborn or adopted by Michael or his son, Jonathan Molnar.

In addition, Michael also asked to be appointed as the sole trustee. The executors of the estate of Michael’s father opposed the petition. They argued that early termination of the trust is not for the benefit of the unborn and unascertainable beneficiaries. They further contended that a windup and distribution of the trust is inconsistent with the settlor’s intentions in settling the trust.

Ultimately, the BC Supreme Court approved the termination of the Michael Molnar Family Trust and the termination on behalf of persons unborn or adopted who may become entitled to an interest under the trust. The court also appointed Michael as trustee.

The court noted that Michael’s father, Dennis Sr., set up the fund after Michael was severely injured in a serious car accident. The father was concerned that due to Michael’s injuries, he may not have sufficient career earnings to build a fund to generate sufficient retirement income.

The court explained that under common law, trust beneficiaries may vary the trust terms if they all have full legal capacity, they unanimously consented to the variation, and they are the only persons entitled to the trust properties. As the common law test requires unanimous consent of competent beneficiaries, variation under the common law is not permitted where the beneficiaries include unborn persons, minors or adults lacking capacity.

Nonetheless, the court noted from case law that the court has the authority to consent to an arrangement on behalf of deferred, contingent, or potential beneficiaries who are unidentified, unborn, or not of full age and legal capacity.

Before the BC Supreme Court, the main issue was whether the trust should be terminated before the distribution date. The court noted that Michael is 62 and will be 74 at the distribution date. Michael said he does not plan to have any further biological children nor to adopt any children.

Michael sought early termination of the trust to access the funds rather than waiting 12 years. The court noted that under the trust, the only way an unborn beneficiary will inherit from the trust is if Michael and his son Jonathan die before the distribution date and either of them leaves a child behind.

The respondents argued that the possibility that both Michael and Jonathan will die before the distribution date and leave children behind is not so remote. The court rejected this argument, finding that it is “a very remote possibility that both Michael and Jonathan will die before the distribution date with children left behind.” As a result, the court concluded that the possibility of any contingent beneficiaries receiving a share of the trust is “extremely remote.”

The court balanced this remote possibility against the non-pecuniary familial benefit to possible unborn beneficiaries in supporting their grandfather, Michael, with financial security in his retirement years. The court concluded this outweighs the risk of there not being a trust in 2035.

Ultimately, the court was persuaded that “a prudent adult motivated by intelligent self-interest, after a careful consideration of the potential benefits and risks, would be likely to accept the proposed variation.”

Furthermore, the court said that Michael’s appointment as trustee will not impede but will promote the execution of the trust. Michael claimed that nobody else was interested in the appointment, and those who were interested were not appointed because the respondent trustees could not agree. The court found that the failure to appoint a trustee is impeding the execution of the trust.

The court concluded that since the trust could be wound up early, there was no detriment to appointing Michael as trustee.