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Trusts Under the New Family Law Act
The Relevant Sections of the Family Law Act and Their Effect on Trust Property
Fiona M. Beveridge
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Family Property
84 (1) Subject to section 85 [excludedproperty], family property is all real property and personal property as follows:
(a) on the date the spouses separate, property
(i) that is owned by at least one spouse, or
(ii) in which at least one spouse has a beneficial interest
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Family Property
• S. 84 captures trust property itself as opposed to the beneficial interest
• Whether a spouse’s beneficial interest is property will depend on nature and terms of the trust
• Vested or contingent interest generally property
• Discretionary interest not generally property
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Excluded property
85 (1) The following is excluded from family property:
(e) property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;
(f) property held in a discretionary trust(i) to which the spouse did not
contribute,(ii) of which the spouse is a beneficiary, and(iii) that is settled by a person other
than the spouse;
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Excluded property
• S. 85 excludes broad categories of trust property derived from pre-relationship property, gifts, inheritances, personal injury awards and insurance policy proceeds
• S.85 also excludes property held in certain discretionary trusts
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Control Over the Trust Property
84(3) Despite subsection (1) of this section and subject to section 85 (1) (e), family property includes that part of trust property contributed by a spouse to a trust in which
(a) the spouse is a beneficiary, and has a vested interest in that part of the trust property that is not subject to divestment,
(b) the spouse has a power to transfer to himself or herself that part of the trust property, or(c) the spouse has a power to terminate the trust and, on termination, that part of the trust property reverts to the spouse.
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Control Over the Trust Property
• S. 84(3) refers to the control a spouse may have over trust property
• It appears to include in the definition of family property trust property where a spouse may not be a beneficiary but contributed property to the trust and retains control over the property
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Valuation of the Interest
84 (2) Without limiting subsection (1), family property includes the following:
(g) the amount by which the value of excluded property has increased since the later of the date
(i) the relationship between the spouses began, or(ii) the excluded property was acquired.
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Valuation of the Interest
• The increase in the value of excluded assets is included in family property
• This is where the problems arise:– The growth in the value of the property must
be determined– What do you do where there are beneficiaries
other than the spouse?
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Valuation of the Interest
• The section includes the growth of excluded trust property rather than the growth of a spouse’s interest in the trust property.
• It effectively expropriates the interests of any third party beneficiaries in favour of the non-beneficiary spouse
• There are proposals to amend this section
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Valuation of the Interest
• If the legislation is amended to take into account the spouse’s interest, there is still a valuation problem
• How much is the spouse’s interest?
• This is a particular problem where the trustee can exercise discretion in favour of one beneficiary over the others
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Where to Go From Here?
• Currently, the legislation has left uncertainty
• It appears the legislation will have to be amended to deal with the uncertainty
• There is still concern that it will not eliminate the valuation concerns that existed under the FRA