Vancouver Discretionary Trust Division Lawyers Case Update
The Vancouver Discretionary trust division lawyers at MacLean Law are in the forefront of dealing with and dividing beneficial interests in discretionary trusts and dealing with disputes over family trusts set up by spouses and third parties for the benefit of a spouse. Our Vancouver Discretionary trust division lawyers know that when a BC relationship breaks down, high net worth families often have significant assets in discretionary family trusts. Our Vancouver Discretionary trust division lawyers can be reached at 604-602-9000.
New Family Law Act Deals With Beneficial Trust Interests
Our new Family Law Act makes it clear these beneficial interests in trusts can be family property. How you divide and even how you value these interests has be analyzed by Lorne MacLean, QC who heads our team of Vancouver Discretionary trust division lawyers in various papers he has written for lawyers through CLE BC. Mr. MacLean has successfully obtained the division of a discretionary trust interests in the Fulton v Gunn division and pushed the boundaries of trust division law in Grahame v Grahame. He routinely negotiates settlements and skillfully mediates and arbitrates cases involving multi million dollar trust interests with discretion and tact. Our Vancouver Discretionary trust division lawyers understand keeping matters private is of the utmost importance to our clients.
Vancouver Discretionary Trust Division Lawyer Explains A Key New Decision
Vancouver Discretionary trust division lawyers member at MacLean Family Law, reviewed the recent decision of S.L.M.W. v. M.R.G.W., 2016 BCSC 272 which dealt with the question of whether an increase in value of a spouse’s beneficial interest in trust property could be considered family property under section 84 of the FLA. The respondent husband, who sought to have the trust property excluded, relied on section 84(3).
The Facts Of The Discretionary Trust Case
The wife and husband had been together for around 12 years. Prior to the relationship, the husband owned a property in Whistler and a property in New Zealand as both a co-trustee and a discretionary beneficiary of a family trust (the “Trust”). During the marriage, a second property was purchased by the Trust and one of the original properties was sold.
The wife sought to have the Trust property included as family property. The husband argued that the Trust was not family property as described under section 84(3) and was therefore excluded. Section 84 (3) reads:
(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.
The husband’s New Zealand lawyer testified that the examples enumerated under section 84(3) did not apply in this case.
Court Finds Vancouver Discretionary Trust Is Family Property
In its holding, the Court disagreed with the husband’s reasoning that because the Trust property did not fit within the listed examples under section 84(3), it should be excluded on that basis. It stated that section 84 (3) extends the reach of s. 84 by deeming trust property to be family property in certain specific circumstances. However, the fact trust property does not meet one of the enumerated examples under section 84(3) does not preclude the possibility that such trust property could be deemed to be family property.
In concluding on this point, the Court noted that because the respondent was a beneficiary of the Trust, section 84(1)(a)(ii) which states that “a beneficial interest of at least one spouse in property”, on the date of separation, is family property, applied. Since the husband acquired the beneficial interest before the relationship, only the increase in value would be family property under section 84(2)(g). The underlying trust property itself may not ultimately be family property, however. The parties were directed to provide further submissions to address the issue of the nature of the family interest in the Trust.
Steeves J stated, (see the bolded parts for the key interpretations of the Judge’s decision):
[94] I note that s. 84 is directed to what is family property and s. 84(3) is one example of property that is family property under the statute. Section 84(2) describes other examples. As set out above, the evidence is that the three subsections of s. 84(3) do not apply to the respondent in this case. On this basis I am urged by the respondent to find that the WFT is not family property.
[95] In my view, that is a misreading of s. 84 as a whole and s. 84(3) specifically. Section 84 describes what is included as family property. It cannot, in my view, be interpreted to mean that property is excluded because it does not meet, for example, the description in s. 84(3). In fact, as set out in ss. 84(2) and (3), family property “includes” the enumerated categories and the plain meaning is that there could be other types of family property that is not described in ss. 84(2) or (3) but is captured by s. 84(1).
[96] The general rule is that family property includes all property owned by a spouse on the date of separation (s. 84(1)(a)(i)), all beneficial interests of a spouse in property on the date of separation (s. 84(1)(a)(ii)), and property and beneficial interests derived therefrom after separation (s. 84(1)(b)). Subsection (3) extends the reach of s. 84 by deeming trust property to be family property if any of (3)(a) through (c) apply, whether or not the spouse owns, or has a beneficial interest in, the trust property.
[97] It is s. 85 which expressly describes what property is excluded from family property and it is conceded by the respondent that s. 85(1)(f) does not apply to exclude the WFT. As above, that subsection states that a “beneficial interest held in a discretionary trust”, to which the spouse did not contribute and that is settled by a person other than the spouse, is excluded from being family property. It was amended in 2014 to substitute “beneficial interest in property held in a discretionary trust” for “property held in a discretionary trust” (Justice Statutes Amendment Act, 2014, S.B.C. 2014, c. 9, s. 13, in force May 26, 2014 as per B.C. Reg. 96/2014). However, the respondent’s beneficial interest in the WFT predates the relationship, and therefore its pre-relationship value is excluded under s. 85(1)(a).
[98] Returning to s. 84, as a matter of evidence, I agree with the respondent that the WFT does not come under s. 84(3). However, that is not the end of the matter and I am required to consider all of s. 84 (as well as s. 85) to determine whether the WFT has some family interest.
[99] In particular I note that s. 84(1)(a)(ii) states that “a beneficial interest of at least one spouse in property”, on the date of separation, is family property. I also note that, under the terms of the trust (s. 1.2), the respondent is one of four “Discretionary Beneficiaries.” I conclude that the respondent has a beneficial interest in the WFT. Since he acquired that interest before the relationship began, only the increase in value of his beneficial interest is family property: s. 84(2)(g).
[100] Some discussion of that interest is necessary. Broadly speaking there is the issue of valuing a beneficial interest in a trust generally and there is an issue as to whether any of the trust property is derived from family property.
[101] More specifically, s. 84(1)(a)(ii) of the FLA states that it is the “beneficial interest” of the respondent which is family property. That is, the underlying trust property itself may not be family property. If it is, it is not clear how and in what form the interest of a discretionary beneficiary of the WFT can be transposed to a family interest in that trust under the FLA. In this regard I note s. 84(2.1) states that, for the purposes of subsection (2)(g), “any increase in value of a beneficial interest in property held in a discretionary trust does not include the value of any property.”
[102] A related issue is whether the bank account or accounts of the WFT are part of the respondent’s beneficial interest in “property” under s. 84(1(a)(ii) of the FLA. The parties have not had the opportunity to make submissions on these issues. This is further complicated because the respondent has intermingled his personal finances with those of the trust in the trust bank account(s). For example, he put money from the sale of a mountain bike into a trust account and then used it to pay a personal credit card debt. As well, he has charged expenses for his business in Whistler to the trust account, even though he is no longer living in New Zealand.
[103] As further discussion of the nature of the family interest in the WFT, there is no dispute that the WFT was settled before the parties met in 2001. On this basis any family interest in the trust is perhaps analogous to the claimant’s interest in Alpine Crescent; the Wanaka property, at least, was acquired by the respondent before the relationship between the parties began. When the parties were living in New Zealand the Diamond Harbour property was purchased in 2004 (during the marriage) by mortgaging the Wanaka property. The Wanaka property was then sold in 2007 when the parties decided to move to Whistler.
[104] Depending on the respective values of Wanaka and Diamond Harbour (and possibly other factors) it may be that the claimant is not entitled to the value of any family interest in the trust prior to the date the marriage-like relationship commenced in late 2001. In that event, she may be entitled to any increase in the value of the family interest in the trust since 2001, as valued on the date of separation in June 2013. The parties have not had the opportunity to make submissions on this point as well.
[105] The parties are directed to provide further submissions to address the issue of the nature of the family interest in the WFT. As above, I have found the increase in value of the respondent’s beneficial interest in the WFT is family property under the FLA and what is now required are submissions about the nature of that interest in the circumstances of this case. The respondent’s beneficial interest in the bank account(s) of the trust will also be addressed in these submissions as will the use by the respondent of the trust account(s) for personal use.
Contact Our Vancouver Discretionary Trust Division Lawyers now if you have a high stakes family trust dispute. Our Top ranked Vancouver discretionary trust division lawyers will analyze the trust deed and assess valuation issues and develop a plan to move you forward with your life successfully and with discretion and compassion. Call us toll free at 1-877-602-9900 to meet with us at any of our 4 offices across BC in Vancouver, Fort St john, Kelowna and Surrey BC.
