Settlor of a Trust, Assets & FLA purposes

There is ample case law confirming that the beneficiary of a trust has a property interest for FLA purposes. Black v. Black, [1988] O.J. No. 1975, 18 R.F.L. (3d) 303 (H.C.J.); Brinkos v. Brinkos, [1989] O.J. No. 1140, 20 R.F.L. (3d) 445; and many others. I have never seen a case where a non-beneficiary of a trust was found to have a property interest in the trust for FLA purposes.

In Spencer v. Riesberry, 2012 ONCA 418, 114 O.R. (3d) 375, 17 R.F.L. (7th) 94, 2012 CarswellOnt 7589, the Court of Appeal upheld the trial decision that the parties’ residence was not a matrimonial home within the meaning of s. 18(1) of the FLA. The residence was held on a trust of which the wife’s mother was the settlor and the wife and her sister were the trustees. The wife was also one of the beneficiaries of the trust. The trial judge held, and the Court of Appeal confirmed, that a beneficiary of a trust does not have a property interest in any specific trust asset unless the trust deed so provides or the asset is distributed from the trust.

At paragraphs 45 to 55, the court discusses the duties and powers of the wife as a trustee and addresses the appellant husband’s argument that the court should not enforce the separate entities of trustee and beneficiary. See, I particular, paragraphs 52 to 55:

52 Second, to ignore or conflate the separate roles of trustee and beneficiary would be contrary to the fundamental nature of a trust and would render the trust unworkable.

53 A trust is a form of property holding. It is not a legal entity or person. A trust does not hold title to property nor can it. It is the trustee who holds legal title to the trust property.

54 A trust is also a type of relationship, namely, the fiduciary relationship that exists between trustee and beneficiary. The foundation of the trust relationship is the separation of roles between the trustee and beneficiary with the trustee being the legal owner of the trust property and the beneficiary being the equitable owner of the trust property. The trustee holds legal title to the trust property so that it can manage, invest and dispose of the trust property solely for the benefit of the beneficiaries. A trust can only exist when there is a separation between legal ownership in the trustee and equitable ownership in the beneficiaries.

55 If the court were to ignore or conflate the separate entities, it would destroy the foundation of the trust relationship. Put another way, absent the separate entities, there is no trust relationship and, therefore, no trust. That is not the case when the corporate veil is pierced. In that situation, the corporation as a separate legal entity remains — it is simply that the court can look through the veil, in very limited circumstances, to attribute ownership to the corporation’s alter ego.

If a person was a trustee but not a beneficiary of the Trust, it is would be very difficult to argue that this person has a property interest in the trust. His legal title (along with the other trustees) to the assets held in trust does not give him a beneficial interest in the trust property.

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