Friday August 13 2021
Trusts And Family Law: Can The Rules Of Family Patrimony Be Avoided By The Creation Of A Trust?
A trust is a useful legal mechanism for holding property that allows a person to transfer ownership of property to an independent patrimony so that it can be administered in the interest of the beneficiaries. This independent patrimony is distinct from that of the transferor. Thus, this would have the effect of removing property from the patrimony of a person to include it in a new independent and distinct patrimony.
Does this mechanism for transferring property from the family patrimony to a trust during marriage or civil union automatically exclude the transferred property from the rules providing for the partition of the family patrimony? The answer to this question is “No.”
In 2019, the Supreme Court of Canada rendered a decision that definitively settled the issue, reiterating that the rules of the family patrimony cannot be circumvented by the creation of a trust. Those rules aim, amongst other things, to promote economic equality between spouses and the protection of the most vulnerable, and must therefore be interpreted liberally, to favour the inclusion of property in the said family patrimony, rather than exclusion.
Indeed, if the creation of a trust is used to hide the reality of the assets and bypass the legal rules in family matters, dispositions of the Law on the partition of the family patrimony may find application to compensate the spouse who has been deprived of his or her rights.
The Supreme Court confirmed, however, that there is no comparison to be done between the notion of the “lifting of the trust veil” and the notion of the “lifting of the corporate veil” as the notion of “lifting of the trust veil” does simply not exist in Québec law.
Therefore, if the creation of a trust is intended to conceal certain assets of the family patrimony, the courts should redress this concealment by relying on the necessary remedies provided for in the Law on the partition of the family patrimony (for example, an unequal division of assets or the payment of a compensation), which are available to the spouses to counter trust documents that do not respect the intentions of the spouses and provisions of public order.
The specific facts of each situation will be analyzed by the courts who must determine the real intentions of the parties and decide if the trust was created for the sole purpose of bypassing the public order rules of the family patrimony or not.
Therefore, although the creation of a trust can be an interesting mechanism, particularly from a tax point of view or for the protection of assets, it must not be used for protection against the dispositions providing for the partition of the family patrimony.
Me Vanessa Anastasia De Minico, Attorney at-Law
In cooperation with Me Marie-Janou Macerola, Attorney-at-Law
Alepin Gauthier Avocats Inc.
Cette chronique contient de l'information juridique d'ordre général et ne devrait pas remplacer un conseil juridique auprès d'un avocat ou d’un notaire qui tiendra compte des particularités de la situation de vos clients.