Tag: Family Law
The laws relating to trusts are complex enough, before issues relating to family law are introduced. Even at the best of times, individuals establishing trusts need the advice and services of professionals to ensure that trust structures are sound and their trust goals are met.
But toss in marital discord or separation, and the picture can get murky.
In Ontario, and some other provinces, family law requires an equalization of net family property when a marriage ends. What would happen then if a spouse, perhaps knowing the marriage is on rocky ground, transfers some assets to an alter ego trust, with a child as beneficiary. The transfer to a trust has the effect of reducing the individual’s net family property.
The issue? If the exclusion of a trust asset is challenged, a court could examine the timing and intention in establishing the trust and include it in net family property because the establishment of the trust was a fraudulent conveyance, or intended to avoid an individual’s family law obligations.
Another complication relating to trusts and the calculation of net family property is valuing a spouse’s contingent or vested interest in a discretionary trust. Unless the interest is excluded (gifts or inheritances received during the marriage are excluded for example), interest in a trust forms part of net family property. How then do you value an interest when distributions from the trust are at the discretion of the trustee? Courts have taken different positions – a good overview of different valuation methods is provided here: http://cswan.com/valuing-interests-in-a-discretionary-family-trust/.
Estate freeze considerations
Other forms of estate planning that don’t necessarily involve a trust – such as an estate freeze – can also be impacted by family law. Because the law in many provinces excludes gifts from family property definitions, courts have ruled that shares received gratuitously as a gift through an estate freeze can be excluded from net family property. What’s not clear is whether shares purchased for a nominal amount would still be considered a gift (and excluded for family law purposes) or considered a purchase (which is not excluded).
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Typically, costs awards are not made until the conclusion of litigation. However, in rare circumstances, courts may order that costs are paid to a party at an earlier point during the litigation to assist them with the funding of the litigation itself, even if it is not yet known which of the party or parties will ultimately be successful at trial.
In what circumstances will a court order the payment of legal fees on an interim basis? The Supreme Court of Canada outlined the test for granting an order for interim costs to fund litigation in British Columbia (Minister of Forests) v. Okanagan Indian Band. The Court summarized the test as follows:
- the party seeking the order must be impecunious to the extent that, without such an order, that party would be deprived of the opportunity to proceed with the case;
- the claimant must establish a prima facie case of sufficient merit to warrant pursuit; and
- there must be special circumstances sufficient to satisfy the court that the case is within the narrow class of cases where this extraordinary exercise of its powers is appropriate.
In the Okanagan Indian Band decision, the Supreme Court considered family law disputes as one of the few unique exceptions to the general rule that the costs of an action or application only be awarded at the conclusion of litigation. One factor that the Court refers to as making interim costs awards suitable in family law matters is the presumption that the property in dispute is to be shared by the parties in some way. Ontario courts have acknowledged this presumption to be the basis of allowing interim payments to fund ongoing legal costs in estate litigation, suggesting that the payment of costs to fund the litigation can be accounted for in the final decision. However, a party to family or estate proceedings still needs to satisfy the above test before an interim costs award will normally be made.
In estate litigation, it is not uncommon for the Court to direct the payment of funds for use toward one or more party’s legal fees out of the assets of the estate while litigation is ongoing. Most often, the party to whom interim costs are paid will be entitled to a share of the assets of the estate whether he or she is successful in the litigation or not. The interim costs award can be deducted from the distributions that are ultimately made to that party. While rarely made within contexts other than family and estate litigation, interim costs orders can allow a party that may otherwise be unable to fund litigation to advance or respond to legal proceedings that affect his or her entitlements as the beneficiary of an estate.
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