Family Trusts Under the Family Law Act

People are turning more frequently to family trusts for estate and tax planning purposes. While trusts are good tools for this purpose, care needs to be taken to examine how those trusts may be handled by the Courts when beneficiaries of the trust face their own marital separation. 

The Family Law Act that came into force on March 18, 2013 states that a beneficiaries' interest in a family trust is an excluded asset, not subject to division. The growth of the value of the assets held by that trust, however, may be subject to division. This will prove problematic where beneficiaries are unable to force the creator of the trust to pay out the division, and where there may be multiple beneficiaries to the trust. The beneficiary is normally not entitled to liquidate the assets of the trust, resulting in a problematic situation where the former spouse may have a claim that the beneficiary is unable to pay. Part of the solution may be to require beneficiaries to have marriage agreements that set out how the family trust will be treated upon marital breakdown.

If you are considering setting up a family trust, entering a relationship as a beneficiary of a trust, or are facing separation and are concerned about the treatment of your interest in a trust, contact Paine Edmonds LLP for a consultation to discuss what options are available to you.