Unincorporated Associations and Trusts

Unincorporated Associations and Trusts

February 21, 2021

By Brian Babcock

Unincorporated associations are very common creatures. Most of us belong to them at some stage. Sports teams, clubs, and homeowners associations are just a few examples.

You likely do not realize that in the eyes of the law, unincorporated associations do not exist.

As Justice Eileen E. Gillese puts it in her text The Law of Trusts, “there are only two legal entities: human beings and corporations.”

Not being a legal entity means that the association cannot own property. It is simply a group of people whose relationship is governed by a contract between them, which often is not a written contract, though there may a document such as a constitution which attempts to set out the terms of the contract.

Courts however are eager to allow people to accomplish their objectives, if they are otherwise legal, and can be fit within the structures of the law.

The property used by the association is typically owned, in law, by the officers of the association, who act as trustees on behalf of the members of the association.

Property may be received by the trustees by way of a gift or a trust. A gift to the members is a valid transfer. The officers as trustees may then hold it as trustees for the benefit of the members and it must be dealt with according to the association’s rules or constitution.

Where an express trust is created by the person giving the money to the trustees, they must follow the terms of the donation.

In spite of this ‘work around’, using an unincorporated association may create problems. For example, in a recent case the Tillsonburg Scout Association (TSA), an unincorporated association, and Scouts Canada disagreed about who was the true or beneficial owner of a boy scout camp which TSA had operated for many years, but the title to the property was registered in the name of a corporation affiliated with Scouts Canada. The history and constitution of TSA was murky, as is the case with many unincorporated associations. The property had initially been purchased by three individuals, as trustees for TSA in 1960.  In 1979 they transferred it to a local Kinsmen Club, again as Trustee. A third transfer in 1983 transferred the property to a charitable corporation affiliated with Scouts Canada – the intent being to avoid property taxes. The Land Transfer Tax affidavit stated that the transfer was from one ‘bare trustee’ to another, with no change in beneficial ownership.

Issues arose after the camp was closed in 2016. The property is 95 acres in the popular Muskoka region, so this was not a small dispute.

TSA acknowledged that as an unincorporated association, it could not be the beneficiary of a trust. It however claimed to be the “settlor” of the original trust, and had incorporated a successor entity, TSA Inc., which it argued could now take title.

This argument failed because TSA, as an unincorporated association, lacked both the legal capacity to be the settlor of the original trust, or to be the beneficiary of an ongoing trust.

The 1960 transfer to the trustees was found to create a valid charitable purpose trust. That did not change after the 1979 transfer, which in itself did not create a fresh trust. That declaration of trust was invalid as it breached the terms of the trust established in 1960.

The 1983 transfer to Scouts Canada was found not to be subject to any trust, in spite of the Land Transfer Tax affidavit. It was was found to transfer absolute title to Scouts Canada’s affiliated corporation. The reference to a ‘bare trust’ was invalid, because TSA, as an unincorporated association, could not be the beneficiary and could not enforce the trust, if one existed.

The judge did not consider the alternative possibility that Scouts Canada was trustee for individual members of the TSA. It appears not to have been argued.

The case was not appealed. It stands as an example of the complexity of the law regarding the property of unincorporated associations.

If you are an officer or director of an association, you need to ensure that proper documentation is maintained, and that any trust conditions are fully complied with. Where real estate or other significant assets are involved, you need a higher degree of caution, and greater knowledge, than managing the bridge club’s cash flow, but both require care.

Failure to follow the terms of the trust created may lead to members of the association having the right to sue to enforce the terms of the trust. This is only one of the areas in which the officers of the association are exposed to legal liability, as the association cannot be sued in its own name, and the officers are responsible. Before agreeing to be an officer of an unincorporated association, you should carefully consider your responsibilities and risks, and where liability to others might be a risk, obtain adequate insurance that includes coverage for you as an officer or director of the association.

Although many groups function fine as unincorporated associations (who wants to incorporate the bridge club?), for organizations with significant assets, liabilities, or risks of being sued, incorporation might be the better option. Incorporation may also allow the organization to be structured in such a way as to qualify for charitable status, which may have significant tax and fundraising benefits.

 

(In drafting this article I referred extensively to The Law of Trusts: A Contextual Approach, edited by Mark Gillen and Faye Woodman, Third Edition (from Emond Montgomery) and to Eileen E. Gillese, The Law of Trusts, Third Edition (Irwin Law))