Link: Case Summary Document
Citation:  BCSC 2099 (Supreme Court of British Columbia, Warren J.)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
This was a summary judgement in response to an application by the administrator of the estate of Lloyd Eugene Norman for:
- A declaration that all amounts advanced by Lloyd Norman and/or Lily Norman to the defendant, Watch Tower Bible and Tract Society of Canada, pursuant to a July 3, 2011 document titled ‘Conditional Donation Agreement’ and not subsequently converted to outright charitable donations (the Conditional Donations) were testamentary dispositions.
- A declaration that the Conditional Donations were invalid for their failure to comply with the Wills Act, R.S.B.C. 1996, c. 489 (the Wills Act).
- An order that the defendant pay to the plaintiff the sum of $250,000 together with interest under the Court Order Interest Act, R.S.B.C. 1996, c. 79.
- An order that the defendant pay the plaintiff’s costs.
The facts of this case were not in dispute. Lloyd Norman and Lily Norman were practising Jehovah’s Witnesses throughout their adult lives. The Normans made regular donations to the defendant, which is the registered charity that represents Jehovah’s Witnesses in Canada. The Normans also financially supported their local congregation of Jehovah’s Witnesses in Abbotsford, British Columbia.
In January 1997, the Normans provided a $250,000 no-interest loan to their congregation to assist in the construction of a local place of worship referred to as a Kingdom Hall. The Normans held a mortgage over the Abbotsford Kingdom Hall property as security, specifying a zero rate of interest, $500 monthly payments and a balance due date of February 1, 2002.
On 17 June 1998 the Abbotsford congregation executed a promissory note stipulating three changes to the loan conditions: monthly payments were waived; the principal was to be repaid by May 1, 2000; and the congregation undertook to reassess its ability to make monthly payments once the construction project was completed. The promissory note made clear that in the event of the death of Lloyd or Lily Norman, the balance owing on the loan was to be paid to the survivor, and if both died, the balance owing would be paid to the estate of the survivor.
On 5 June 2001 Lloyd Norman sent a cheque for $200,000 to the defendant. This was stipulated to be for a ‘no-interest demand loan’. Mr Norman indicated in an accompanying letter that he understood that he could get the money back if needed, but that if he died it would ‘remain’ with the defendant.
In a letter of response dated 18 June 2001, the defendant wrote that both a no-interest loan and a ‘conditional donation’ could be given in a way that meant that the donors could request back the money, or some of it, if they needed it. The difference between these was that a no-interest loan was repaid on the death of the donor, while the amount in a conditional donation was not. The defendant stated that Mr Norman had indicated that he was giving a conditional donation, and enclosed a Conditional Donation Agreement for the Normans to sign. The Normans returned the signed forms on 3 July 2001, and these were executed by the defendant.
Between 5 June 2001 and 24 November 2009, the Normans advanced $310,000 to the defendant under the Conditional Donation Agreement, of which $60,000 was converted to outright contributions for which they received charitable donation receipts in the year of the conversion. Neither Mr. nor Mrs. Norman ever requested the return of any portion of the funds provided by them pursuant to the Conditional Donation Agreement. In addition, between May 1987 and April 2011, the Normans made numerous outright charitable donations to the defendant. The defendant issued a charitable donation receipt for each of those donations in the same year that the donation was made.
Lily Norman predeceased Lloyd Norman. On the date of Lloyd Norman’s death there was a balance of $250,000 in the Normans’ conditional donation. It is this balance that is referred to as the ‘Conditional Donations’ in this judgment. After Lloyd Norman’s death, the defendant issued a charitable donation receipt in the amount of $250,000.
Her Honour held that the conditional donations were not testamentary in effect. There was relevant law on the issue which yielded the following principles:
- The question of whether a disposition is or is not testamentary depends upon the intention of the maker;
- The intention of the maker is a question of fact. In determining the intention, the court is not restricted to the wording of the document alone, but can and should consider extrinsic evidence relevant to the transaction;
- If the document is not intended to have any operation until the maker’s death, it is testamentary;
- If the document is intended to have and does have the effect of transferring some interest in the property or of setting up a trust thereof in praesenti, it is not testamentary;
- The reservation of a right to revoke the transfer or bring a trust to a close does not necessarily have the effect of making the document testamentary;
- Cases where documents are held to be testamentary often include the following factual elements: 1) no consideration passes; 2) the document has no immediate effect; 3) the document is revocable; and 4) the position of the donor and donee does not immediately change;
- Even where an intended disposition is revocable by the maker or where enjoyment of it is postponed until the death of the maker, if, at the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary;
- The level of control the donor exercises over the property during his or her lifetime is a factor to be considered in determining whether a disposition is inter vivos or testamentary and the more control the donor exercises, the more likely the disposition will be considered testamentary;
- The central question is whether the maker of the document intended the document to pass some immediate interest or whether the maker intended the document to have no effect until his death. The degree of control the donor retains over the property during his or her lifetime is relevant to ascertaining that intention. However, if it is clear that the document is intended to have immediate effect it is not testamentary even if the donor retains control, such as the ability to call for the return of the property during his or her lifetime.
Applying these principles to the facts of this case, Her Honour said that the Normans intended the conditional donations to have immediate effect. As such, they were not testamentary in nature. Although Mr Norman usually referred to the donations as ‘conditional loans’, it was clear from his letter of 5 June 2001 that he intended that the money should ‘remain’ with the defendant after his death. The defendant thus had a proprietary interest in the money immediately (at --, -):
I agree with the defendant’s submission that the gift vested in the defendant when the cheque was cashed but could be divested if the Normans exercised the right they reserved to personally request in writing the return of all or a portion of their gift. I also agree with the defendant’s submission that an inter vivos trust is implicit in the Conditional Donation Agreement…In my view, it is clear that by signing the Conditional Donation Agreement, the Normans intended the defendant to hold the funds for the benefit of the defendant and also for their own benefit during their lifetime. The language of the Conditional Donation Agreement is sufficient in my view to establish the certainty of intention…In my view, the other two requirements, certainty of subject matter and certainty of objects, are also established. The subject matter of the trust was clearly the money donated to the defendants pursuant to the Conditional Donation Agreement and the beneficiaries were clearly the defendant and the Normans.
Thus, the conditional donations were a gift with a subsequent condition that created an inter vivos trust. They took immediate effect upon execution, and therefore could not be testamentary.
The plaintiff’s application was dismissed with costs.
The case may be viewed at: http://www.canlii.org/en/bc/bcsc/doc/2013/2013bcsc2099/2013bcsc2099.html
Implications of this case
The defendant in this case was very clear in its correspondence, carefully explaining what the donors were entering into. They also regularly offered to return any of the money if it was needed. This kind of careful explanation and dealing with donors illustrates the benefit of a professional relationship with donors. In this case, the donors may have themselves not used correct terminology in relation to their donations, but they had been well-informed of their effect. Nevertheless, it is always advisable for large donors to obtain legal advice before entering into donation programs.