Estate freezes are commonly utilized for sophisticated tax and succession planning in Ontario. However, some clients may want to reconsider this strategy in light of the Ontario Court of Appeal’s recent decision in Lang-Newlands v Newlands, 2026 ONCA 530, in which the Court included property placed in a trust as part of an estate freeze in a spouse’s net family property for the purposes of equalization.
While Lang-Newlands is a family law case, this decision could have important ramifications for the wills and estates bar. Under the Family Law Act, a surviving spouse may elect to receive an equalization payment, rather than take a gift under the will of their deceased spouse, if the deceased’s net family property exceeds the net family property of the surviving spouse. Such an equalization payment essentially divides the difference between each spouse’s net family property. If the Court’s reasoning in Lang-Newlands is applied in the estates context, trust property forming part of an estate freeze could, depending on the facts, be included in a deceased spouse’s net family property. As a result, a surviving spouse’s equalization entitlement could increase substantially.
Background
Lang-Newlands v Newlands is a high net-worth family law case. Prior to the parties’ marriage, the wife’s father settled a trust solely for her benefit which held shares in his business. At the date of marriage, the trust was worth approximately $16 million.
During the marriage, the wife received her father’s shares and owned them outright, but several years later, her father requested that they be reorganized as part of an estate freeze. The estate freeze was implemented as follows:
- the wife’s father settled a new family trust using $100;
- the wife and her two brothers became trustees of the new trust, whereas the wife and the parties’ four children were the beneficiaries of the trust;
- a holding company, 4MyKidz Inc., was incorporated, with the wife serving as the sole director;
- the new family trust purchased 10 common shares in the holding company for $100; and
- the wife transferred the shares originally gifted to her by her father to the holding company in exchange for fixed-value preferred shares in the holding company worth approximately $24.5 million.
The intended effect of the freeze was for the future growth in the value of the original shares to accrue through the common shares owned by the new family trust.
The estate freeze proved to be quite successful. Between the implementation of the freeze and the parties’ separation, the value of the original trust property increased from approximately $24.5 million to roughly $670 million.
The wife also benefitted substantially from the new family trust. She and her brothers, acting as trustees, had discretion over trust distributions. Prior to her separation, the wife received more than 90% of the distributions made from the trust. At trial, the wife’s one-fifth beneficial interest in the new family trust was valued at approximately $134 million.
The Central Issue
The central issue in Lang-Newlands was whether a trust created as part of an estate freeze after marriage could be characterized as a “gift after marriage” where a third party made only a nominal contribution to the trust, and the trust otherwise consisted of property given to the wife prior to the marriage. The characterization of the gift was the central issue because it was determinative of whether the husband could share in the increase in value of the shares originally gifted to the wife by her father.
Under the FLA, a gift received before marriage will not be included when calculating a spouse’s net family property, but any increase in that property’s value during the marriage will be included for the purposes of equalizing the spouses’ net family property. By contrast, certain gifts or inheritances received from third parties during the marriage are generally excluded from the recipient spouse’s net family property.
The wife argued that the estate freeze and new family trust gave rise to a new gift after marriage, and that her interest in the new trust ought to be excluded from her net family property. The husband, on the other hand, argued that he was entitled to share in the wife’s interest in the new family trust, as the property placed in the trust had been gifted to her before marriage, meaning he was entitled to share in any increase in its value.
The Trial Decision
At trial, the judge excluded the wife’s interest in the new family trust from her net family property due to the Ontario Court of Appeal’s decision in Shinder v Shinder, 2018 ONCA 717, a case in which property was placed in a trust as part of an estate freeze during the parties’ marriage, but was ultimately excluded from the calculation of their net family property.
However, in the event that Shinder was not binding, the trial judge undertook an alternative analysis, holding that the wife’s one-fifth share of the new family trust should be included in her net family property, less the original value of the father’s gift to the wife. In reaching this conclusion, the judge emphasized that the wife’s father had not transferred any meaningful value into the new trust, apart from the $100 used to settle it. As such, the value of the new family trust was attributed to the trust property originally gifted to the wife prior to the marriage.
The Court of Appeal’s Decision
In keeping with the alternate analysis of the trial judge, the Court of Appeal found that the estate freeze in Lang-Newlands did not transform the father’s pre-marital gift to his daughter into a new gift during the marriage. Accordingly, the wife’s interest in the new family trust, which could be traced to pre‑marriage shares, was included in her net family property, less the $100 used to settle the trust.
A key reason for this conclusion was that the wife’s father did not transfer any meaningful value into the new family trust. Apart from the nominal $100 used to settle the trust, virtually all of the new trust’s economic value was derived from the trust assets that had been gifted to the wife before the marriage.
On this basis, the Court of Appeal distinguished Lang-Newlands from its decision in Shinder. In the latter case, the trust considered by the court had been a mixed-asset trust, containing not only property previously held by the spouse, but also additional assets transferred into the trust by the husband’s father during the marriage. Those substantive third-party contributions gave rise to genuine gifts that could properly be characterized as gifts or inheritances received after marriage.
There were no comparable transfers in Lang-Newlands, as the contribution made to the new trust by the wife’s father was merely de minimis. Moreover, when the new trust was established, the father no longer owned the shares sold to the holding company, and could not be said to have gifted them. Rather, the assets were traceable to the shares previously owned by the wife. Given these circumstances, the Court of Appeal held that treating the wife’s entire interest in the new trust as a post-marital gift merely because her father settled the trust with $100 would “allow form to overwhelm function.”
The Court also held that it would be artificial to characterize the wife’s beneficial interest in the new family trust as a new gift received after marriage since she was named a beneficiary of the new family trust before she even transferred the original trust assets to the holding company. At all times, the wife knew that she would continue to enjoy the benefit of the future growth of the property.
Practical Takeaways for Estates Practitioners
Since a surviving spouse may elect to receive an equalization payment under the FLA where their spouse passes away with a will or intestate, the Court of Appeal’s decision in Lang-Newlands could have indirect ramifications for estate cases if the Court’s reasoning is applied in the estates context. If trust property from an estate freeze is included in the deceased’s net family property, it could materially increase the value of the equalization payment that the surviving spouse could elect to take.
That said, it also seems improbable that every estate freeze involving a family trust, created after the deceased was married, will be included in the deceased’s net family property. Whether such property will be included remains fact‑specific, but will likely turn on whether third‑party post-marriage contributions are meaningful or only nominal, and whether the trust’s value can be traced to pre‑marriage assets. Moreover, it is unclear how more complicated scenarios may be handled by the courts in the future. The Court of Appeal expressly left scenarios, like a spouse divesting themselves of gifted property for an extended period before receiving the same traceable property through a later transaction, for future consideration.
Whether the Court’s reasoning in Lang-Newlands will ultimately be extended to equalization claims arising on death remains to be seen. Regardless, this decision highlights the importance of considering the potential family law consequences of an estate freeze when advising clients on succession and estate planning strategies.
Thank you for reading, and have a wonderful rest of your week,
Suzana.