Tag: beneficial interest
Any estate litigator will tell you that many of the cases that we deal with on a daily bases involve disputes regarding the beneficial ownership of assets, being jointly held assets or assets that are wholly owned by one party and alleged to be beneficially owned by another.
For reference, legal ownership or legal title refers to property held in the name of a person or persons. In contrast, beneficial ownership is what is referred to as “actual” ownership even though the property is registered in someone else’s name.
Without a clear trust agreement, it is often very difficult to argue that beneficial ownership exists and the parties to the dispute will resort to arguments over things like, who is paying taxes for the property, who is collecting rental income and other evidence that relates to the parties’ intention.
The Province of British Columbia appears to have come up with a solution to the question of whether the specific property truly belongs to the person in whose name it is registered.
The Land Owner Transparency Act has been introduced to create a public registry of property owners in the province. Notably, this is the first legislation of its kind in Canada and is aimed towards ending the use of trusts, corporations and partnerships to shield transactions from public view.
The new legislation was positively received at Transparency International Canada whose executive director, James Cohen, noted that Canada has been criticized globally for our apparently lax beneficial ownership legislation.
In accordance with this legislation, corporations, trusts and partnerships that buy land would have to disclose their beneficial owners in the registry. It is interesting to note that failure to do so will result in fines of up to $100,000.00 or 15% of the assessed value of the property, whichever is greater.
The Society of Trust and Estate Practitioners (Canada) submitted certain concerns to the province such as questions of how the new framework is to work with other relevant legislation and raised questions of privacy.
Will Ontario follow suit? Stay tuned.
To learn more about this new initiative, check out this Globe and Mail article on the topic.
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On Tuesday, I blogged about Registered Education Savings Plans (“RESPs”), the statute governing their administration, and the difference between Family Plans and Individual Plans.
When people usually hear about RESPs though, they often think that it is some kind of trust. However, that is most likely not the case.
What Are Trusts?
The general structure of a trust under Canadian law is that a settlor gives property to a trustee for the benefit of some third party. In turn, the trustee holds legal title to the property but is bound by fiduciary duties to administer such trust, on behalf of the beneficiary.
To create a trust, under Canadian law, there must be:
1) A certainty of intention;
2) A certainty of subject matter; and
3) A certainty of object.
How are RESPs Different?
In the case of an RESP, as discussed previously, the subscriber keeps title to the property until the beneficiary uses it for his/her post-secondary education. A promoter, which is the financial institution that is administering the RESP, similarly does not take title to the property in the RESP. As such, the property belongs to the subscriber until such time that the beneficiary attends a post-secondary institution, or a successor subscriber is appointed.
How Have the Courts Treated RESPs?
Multiple courts have held that the RESP does not meet the criteria of “certainty of intention”, and as such, it cannot be considered a trust.
The Alberta Court of Queen’s Bench held that a person who filed for bankruptcy was not holding the RESP for the exclusive benefit of her children but, rather, that she could have cancelled the plan at any time (see Payne, Re (2001), ABQB 894, 109 ACWS (3d) 687). This Court further held that since there was no intention to create a fiduciary relationship in the case of an RESP, it did not meet the certainty of intention. The same result was reached by the New Brunswick Court of Queen’s Bench and the Saskatchewan Court of Queen’s Bench (see Vinneau, Re (2007), NBQB 332, 160 ACWS (3d) 939 and MacKinnon v Deloitte & Touche Inc. (2007), SKQB 39, 155 ACWS (3d) 27).
The Ontario Superior Court of Justice has, however, come to a different conclusion. The Court held that the subjective intent at the time of the creation of the RESP could create a trust (see McConnell v McConnell (2015, ONSC 2243, 252 ACWS (3d) 300). This case dealt with a family law dispute and the question arose whether an RESP belonged to the beneficiary child or the subscriber parent. The Court did not consider certain characteristics of an RESP that are not congruent with the finding that it is a trust, such as the fact that a subscriber may collapse the RESP at any time, as well as use it as security for a loan.
As such, it is possible that McConnell v McConnell could be restricted to the facts at hand and assessed in the context of the circumstances that the Court was presented with; namely, whether or not to attribute an asset to the child or the parent, in a divorce proceeding.
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The concept of the purchase money resulting trust was considered by the Supreme Court of Canada in Nishi v Rascal Trucking Ltd, 2013 SCC 33.
Rascal Trucking Ltd. leased land from Kismet Enterprises Inc. There was a prior dispute between the companies, which resulted in an order being granted requiring Rascal to remove topsoil from the land. Due to non-compliance with the order granted, the City of Nanaimo added the amount of $110,679.74 to Kismet’s tax bill. After this, Kismet stopped making its mortgage payments to CIBC, and as such, CIBC began paying the mortgage payments and added the amount to the mortgage debt. CIBC eventually sold the land to a principal at Kismet. Rascal contributed the amount of $110,679.74 to the purchase of the property, equal to the debt it owed Kismet. In 2008, Rascal sued Kismet’s principal claiming a resulting trust. Rascal lost at trial, won in the Court of Appeal, and lost at the Supreme Court of Canada.
As defined in the decision at paragraphs 1 and 2:
A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. Where the person advancing the funds is unrelated to the person taking title, the law presumes that the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person’s contribution. This is called the presumption of resulting trust.
The presumption can be rebutted by evidence that at the time of the contribution, the person making the contribution intended to make a gift to the person taking title. While rebutting the presumption requires evidence of the intention of the person who advanced the funds at the time of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to consider the possibility of self-serving changes in intention over time.
The Supreme Court of Canada concluded that Rascal intended to make a substantial gift by repaying the cost of the debt. This intention was strong enough to rebut the presumption of a resulting trust, and as such, there was no resulting trust and Rascal did not hold a beneficial interest in the property.
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