James Kessler, Drafting Trusts and Will Trusts: A Modern Approach, 6th ed.
(London: Sweet & Maxwell, 2002). Pp. iv, 470 plus CD-ROM.
James Kessler & Fiona Hunter, Drafting Trusts and Will Trusts in Canada
(Markham: LexisNexis Butterworths, 2003). Pp. xi, 380 plus CD-ROM.
Drafting Trusts and Will Trusts is an established guide for practitioners. In the
preface to the sixth edition, James Kessler mentions his interest in co-authoring a
series of spin-off trust drafting books adapted to other trust jurisdictions. The
Canadian version of the text is one example; James Kessler and Sheena Grattan have
written Drafting Trusts and Will Trusts in Northern Ireland;1 and forthcoming is
Drafting Scottish Trusts and Will Trusts by James Kessler et al.2
Both of these books include precedents, in print and on CD-ROM, with suitable
warnings in the final chapter against the careless use of such resources. The books are
generally similar to one another and it seems clear that the parent English work was
the template from which the other was written. This makes sense, given that the trust
law of common law Canada is very close to that of England and Wales. The Canadian
text, however, includes many references to Canadian texts and cases, and substantial
original text where necessary. This is most noticeably the case in relation to
perpetuities, and in relation to income-tax-driven structures such as those which the
Income Tax Act calls alter ego trusts, joint spousal trusts, and common-law
partner trusts,3 each of which rightly gets its own treatment in the Canadian book.
Conversely, the Canadian book lacks the chapters in the English text on interest in
possession trusts and accumulation and maintenance trusts; trusts fitting those
labels can certainly be created in Canada, but in England the labels refer to taxation
consequences. These differences confirm what every trust teacher knows but most
prefer to ignore: that trust drafting is enormously influenced by taxation law.
These books take a decidedly progressive approach to drafting. The first three
chapters, substantially the same in each book, are called First Principles, Style,
and Principles of Interpreting Trust Documents. Their aim is to convince drafters
(and perhaps judges too) to abandon the old intellectual baggage4 surrounding the
construction of legal documents and, it would seem to follow, their drafting. The
discussion here is humorous and sophisticated.
The books are very much in favour of trustee discretion, and there has indeed
been an evolution in this direction over the last century. Nineteenth-century trusts left
1 James Kessler & Sheena Grattan, Drafting Trusts and Will Trusts in Northern Ireland (Dublin:
LexisNexis UK, 2004).
2 Ibid., Drafting Scottish Trusts and Will Trusts (West Sussex: Tottel) [forthcoming in 2005].
3 R.S.C. 1985, c. 1 (5th Supp.), ss. 248(1), 104(4) [Income Tax Act].
4 Citing Lord Hoffmann in Investors Compensation Scheme v. West Bromwich Building Society,
[1998] 1 W.L.R. 896 at 912.
[Vol. 50
MCGILL LAW JOURNAL / REVUE DE DROIT DE MCGILL
184
relatively little to the trustees discretion, except perhaps the choice of investments.
Beneficial interests were usually fixed. There might have been a power of
appointment in relation to capital at the end of the trust, but even this was likely to be
held by one of the beneficiaries. Experience since then has shown that it is extremely
difficult to foresee the problems that can arise in the life of a trust, such as changes in
the law, or severe misfortune striking one of the beneficiaries. The solution has been a
widening of trustee discretion. So while the starting point of a trust may be that the
income is payable to A and the capital payable to B on As death, it is now common
that there be a power to withhold incomein order to accumulate it or perhaps to pay
it to B, and a power to encroach on the capital during As lifefor either A or B,
and perhaps others; thus, the actual payments out of the trust may owe nothing to the
starting point that A will have a life interest and then B will take the capital. (In any
event, according to modern investment theory, it is not sensible to maintain a hard and
fast distinction between income and capital.) Perhaps the most striking example of
this trend, in these books, is in the suggested drafting of protective or spendthrift
trusts. The common law (outside of the United States) does not allow the spendthrifts
interest to be inalienable, so the usual solution has been to make it determinable on
certain events, such as the spendthrifts bankruptcy, or his attempt to sell his interest.
When it determines, a discretionary trust arises, whose beneficiaries are a class,
probably including the spendthrift but also his immediate family; the money can be
applied to help the spendthrift, but he has no right to any particular amounts. In this
way, the property is kept out of the hands of the spendthrifts creditors. How shall the
drafter decide which events should bring an end to the spendthrifts determinable
interest? After considering various possibilities, the authors of these books conclude
that the best term is one that makes the beneficiarys interest determinable at the
discretion of the trustees.
Some settlors might think that this takes trustee discretion too far, but it is a
logical step in the progression that makes the rights of the beneficiaries rest, more and
more, on trustee discretion. The preface to the Canadian book suggests that the
authors believe that their approach is the mainstream one in England, while Canadian
practice may not have come quite so far in favour of trustee discretion. As the authors
say in paragraph 10.1 of each book, Drafts in this book are based on the premise that
the trustees should be trustedas their name suggestsand they may be given wide
powers to achieve the settlors intention. Of course trustees must be trusted; but just
because you trust an employee to close up the store, it does not follow that you must
give him the combination to the safe. The choice of trustees becomes especially
crucial in the kind of trust these authors recommend. In Chapter 6 of each book, the
authors devote some discussion to the choice of trustees, and whether they should be
given the benefit of an exemption from liability clause; there is also a discussion of
drafting techniques to control discretions, such as making the settlor a trustee. This is
important, since courts are reluctant to override trustees who exercise their discretions
in good faith.
185
BOOK NOTES / RECENSIONS
2005]
It is interesting that neither book makes any reference to the principle of Saunders
v. Vautier,5 by which fully capacitated beneficiaries can terminate a trust contrary to
the settlors intention. Although it has been abrogated by statute in Alberta and
Manitoba, and by judicial decision in most of the United States, the principle remains
important; the leading Canadian text devotes most of a chapter to it,6 and recent cases
confirm its vitality.7 One would have thought that no settlor would want his or her
expensively drafted trust or will trust to be collapsed prematurely. On the other hand,
the books do devote some discussion to making certain that a beneficiary cannot
simply sell his or her interest under a trust for a capital sum, which many settlors
would also want to avoid (see c. 4 of each book, and again para. 10.1). It is true that if
a beneficiarys interest is made so uncertain that it cannot be sold for a capital sum,
then it will also be the case that Saunders v. Vautier will not apply. Again, this is
achieved by giving the trustees extremely wide powers; the recommendation,
effectively, is that the trustees shall have the power to re-settle the property at any
time, on such terms as they see fit.
Although the preface to the Canadian book does not mention it, Drafting Trusts
and Will Trusts in Canada is confined to common law Canada. Of course there are
good reasons so to confine it, since divisions in legal education and practice still
largely follow the common law/civil law divide. But there are more than purely
academic reasons for alerting common law readers to the fact that the civil law of
Quebec has a trust. The authors of these books suggest that there are unlikely to be
any substantial reasons for a settlor to choose another legal system to govern the trust
(see para. 24.3 of the Canadian book, para. 27.3 of the English one). But there are
many features of the Quebec trust which could make it more attractive for settlors
than the common law trust. To give just some examples: a beneficiarys interest can
be made inalienable and unavailable to creditors;8 the principle of Saunders v. Vautier
is unknown;9 and not only is it possible to create a private or non-charitable purpose
trust,10 but moreover such a trust can be created with a perpetual duration.11 Nor is it
clear that a trust needs any special connection to Quebec in order to be governed by
the law of Quebec, at least in some provinces. The common law might not allow a
settlor to choose that the trust be governed by a legal system to which there was no
objective connection, but the common law rules have been displaced by the Hague
Convention on the Law Applicable to Trusts and on Their Recognition (1 July 1985
5 [1841] Cr. & Ph. 240, 41 E.R. 482 (L.C.).
6 D.W.M. Waters, Law of Trusts in Canada, 2nd ed. (Toronto: Carswell, 1984) at c. 23.
7 See e.g. Tod v. Barton, [2002] E.W.H.C. 264, [2002] 2 W.T.L.R. 469 (Ch), cited in the Canadian
book for a different principle; but see Re Campeau Family Trust (1984), 18 D.L.R. (4th) 159, 50 O.R.
(2d) 296 (C.A.).
8 Arts. 1212-17 C.C.Q.
9 Alkallay c. Bratt, [2002] Q.J. No. 6120 (S.C.) (QL), (19 December 2002) Montreal 500-05-
056412-008.
10 Art. 1268 C.C.Q.
11 Art. 1273 C.C.Q.
[Vol. 50
MCGILL LAW JOURNAL / REVUE DE DROIT DE MCGILL
186
[Convention])
in British Columbia, Alberta, Saskatchewan, Manitoba, New
Brunswick, Newfoundland and Labrador, and Prince Edward Island. The Convention
seems to allow a free choice of governing law, and makes no reference to any
requirement of objective connection. In Alberta and New Brunswick, the Convention
clearly does not apply to conflicts within Canada.12 In the other Convention provinces,
the issue is debatable (even in British Columbia, which has a Conflict of Laws Rules
for Trusts Act;13 that Act only applies where the Convention does not apply, but the
International Trusts Act14 does not expressly disapply the Convention in intra-
Canadian situations). It may therefore be that a settlor in, for example, Prince Edward
Island is free to choose that his or her trust be governed by Quebec law, even though
the trustees, the property and all the beneficiaries are in Prince Edward Island.
One final comment: both books have a chapter on trusts for disabled
beneficiaries. The Canadian book mentions the use of discretionary trusts for such
beneficiaries, as a way of maintaining access to state benefits that may be means-
tested. The chapter does not, however, mention the preferred beneficiary election,
by which a trusts income can be taxed at the income tax rate of a beneficiary, even if
the income was not paid in that year to that beneficiary. This election was largely
abolished in 1996, but it does survive and can benefit certain disabled beneficiaries.15
These books will clearly be of tremendous interest and value to practising lawyers
who need to draft trusts, and if widely adopted, they may have an influence on the
style of trust drafting in Canada. While opinions may differ about the drafting style
that favours very wide trustee discretion, everyone should be in favour of clarity and
colloquial English usage. These books are also potentially of great interest to the
student and teacher of trust law. By opening a window into the world of practice, they
provide a welcome perspective that can improve the teaching and learning of trusts.
Lionel Smith
12 International Conventions Implementation Act, R.S.A. 2000, c. I-6, s. 1(2); International Trusts
Act, S.N.B. 1988, c. I-12.3, s. 2.
13 R.S.B.C. 1996, c. 65.
14 R.S.B.C. 1996, c. 237.
15 See Norman C. Tobias, Taxation of Corporations, Partnerships and Trusts, 2nd ed. (Toronto:
Carswell, 2001) at 113-14; Income Tax Act, supra note 3 at ss. 104(14), 108(1) preferred
beneficiary, 118.3(1).
