Undue Influence, Mental Illness, Trusts and Life Estates

This case raised issues of mental illness, trusts, life estates, and the presumption of undue influence.

The case concerned the estates of Annie Sanofsky and her daughter, Tzina. Tzina suffered from bipolar affective disorder and immature personality. Annie also had three sons and one of them, Jack, helped Annie execute a will in 1968 providing a life estate in her home to Tzina and directing that on Tzina’s death the estate should be distributed among Annie’s grandchildren.

When Annie died, the siblings were surprised to learn that she’d executed a second will in 1975 in which she left the house outright to Tzina, provided bequests of $1000 to each of the sons, and directed that the rest of her estate be held in trust for Tzina and upon Tzina’s death pass only to Tzina’s children. The siblings were all in agreement that this was not a fair division of the estate among Annie’s grandchildren, and the brothers in particular were worried that Tzina’s mental illness would interfere with her ability to act responsibly regarding the property.

The siblings sought legal advice, with Jack acting as family spokesman, and eventually a lawyer prepared a trust deed for them. Two of the brothers and one of their sons became trustees. The property was transferred to them on terms that Tzina retained a life interest in the home and that, on her request, the trustees would consider a sale of the property if it was in her best interests. The trust agreement also provided that upon Tzina’s death the trust property would be equally divided among all of Annie’s surviving grandchildren, and not just Tina’s children. When Tzina died, she left her entire estate to her own children.

Was undue influence used?

Tzina’s son, who was also the executor of her estate, thought that his uncles had used undue influence to make his mother enter the trust agreement. The trial judge disagreed. He noted that Tzina had little contact with her brothers, and that she did not rely on them for assistance. He also found that if there was a presumption of undue influence in the case, it was rebutted because Tzina sought independent legal advice.

At the court of appeal, the majority did not think the trial judge adequately addressed the presumption of undue influence. Given Tzina’s mental health, when her brothers decided to take the lead in obtaining legal advice with the intention of securing benefits for their own children, this created a presumption of undue influence. The majority did not accept that the presumption of undue influence was rebutted, because the legal advice Tzina received was from the same lawyer who assisted all the siblings in preparing the trust agreement. The five Supreme Court of Canada judges who heard the case wrote three different sets of reasons, but they all agreed there was no undue influence.

When deciding whether the presumption of undue influence arises, the courts must consider whether there is potential for dominance in the relationship between the parties. Then the analysis moves to the nature of the transaction. In a situation like this one, where the transaction is not commercial but is more like a gift, the nature of the relationship is enough to establish the presumption of undue influence. In a commercial transaction there must also be undue disadvantage or benefit. In this case, although the presumption of undue influence arose, Tzina’s distant relationship to her brothers and the legal advice she received were enough to rebut the presumption.