Property Inside a Parent’s Legal Trust Does Not Give Children an “Interest” in a Matrimonial Home
In an Ontario Court of Appeal decision released last week, the court was faced with the question of how property inside a trust vehicle is to be legally characterized, when it comes to settling the trust beneficiary’s family law rights in a matrimonial home.
In this case, a woman named Linda Spencer bought a house “in trust” for the benefit of herself and her four children. Later, she added three more properties into the trust, which they called the “Spencer Family Realty Trust” (the “SFRT”). The underlying trust agreement establishing the SFRT provided that any distribution was not to form part of the recipient’s Net Family Property for family law purposes.
One of her daughters, Sandra, got married and had two children of her own. Sandra and her family lived in one of the property that were part of the SFRT for more than 15 years during her marriage, and paid no rent, although they did pay expenses such as taxes, insurance, utilities and maintenance. The other three children and their respective families were likewise allowed to live in the three other trust properties.
However, Sandra subsequent separated from her husband in 2010. In the context of splitting up their property as part of divorce proceedings, the question arose whether Sandra had an “interest” in the property within the meaning of s. 18(1) of the Family Law Act, which defines a “matrimonial home” as follows
18. (1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.
The trial judge had no difficulty in finding the second aspect of the test had been met; Sandra and her husband had been living in the main trust property when they separated. However, the trial judge had held that Sandra did not have an “interest” in the property within the meaning of this section.
The Court of Appeal agreed.
First of all, Sandra’s interest was merely a contingent, beneficial one that applied to the trust property as a whole – she did not have a legal interest in any specific trust property or asset. Moreover, any interest she did have was conditional or contingent upon Linda’s own death sometime in the future; meanwhile Linda may choose to change the properties that were the subject-matter of the trust as she wished. Finally, although the trust agreement gave the trustees broad powers to administer the property, it did not grant Sandra or her siblings the right to ask for the transfer or delivery of any of the properties held by the SFRT, either before or after Linda’s death.
As a result, neither Sandra nor any of Linda’s other children had any legal interest in any specific property that was part of the SFRT, and they did not represent an “interest” in a matrimonial home for the purpose of Sandra’s family matter.
For the full text of the decision, see:
Spencer v. Riesberry, 2012 ONCA 418 http://canlii.ca/t/frqqc