Trusts and Family Patrimony: The Supreme Court Rules

By Stewart Litvack and Louis Dessureault, from our Estates, Wills and Trusts Group

December 13, 2019 — The Supreme Court issued yesterday a much anticipated decision on the application of family patrimony rules where a family residence is held by a trust rather than by either spouse.

In Yared v. Karam, 2019 SCC 62, the Supreme Court, in a 5–2 decision, resolved the issue by deciding that the value of a family residence held in a trust can be included in the family patrimony when it is determined that a spouse retains the rights that confer use.

This is a landmark decision, considering that, for a great number of married couples in Quebec, the value of the family residence is the most important asset to partition upon marriage breakdown.

The Civil Code of Québec provides for the existence of a family patrimony, consisting of residences, furniture, vehicles and rights in pension plans accumulated by the spouses during the marriage. This patrimony must be partitioned at the time of divorce, death, legal separation or annulment.

This decision is all the more important because it represents the first opportunity for the Supreme Court to rule on the application of family law rules to trusts constituted under Book Four of the Civil Code of Québec.

The Court of Appeal’s decision, rendered in 2018, had itself generated much discussion and favoured an approach based on contractual freedom and the intention of the spouses.

The Supreme Court has therefore clarified the situation by recalling the public policy nature of the rules on family patrimony.

Trust and Family Law

The division of the family patrimony is not the only aspect of family law where the consequences of the existence of a trust have been analyzed by our courts.

As an indication, it may be noted from the case law of the Quebec Court of Appeal that it considered that:

  • The assets of a trust controlled by a party must be considered in establishing a party’s resources in order to determine the extent of its support obligation (Droit de la famille – 172259, 2017 QCCA 1495);
  • Property held by a trust controlled by a party must also be considered in the calculation of a compensatory allowance (Droit de la famille – 182245, 2018 QCCA 1765).

Since the trust regime came into effect with the reform of the Civil Code of Québec in 1994, our courts will certainly still have work to do to define all the applicable principles in the event of a marriage breakdown such as divorce or death. However, it seems likely that they will adopt an approach that focuses on assessing the effective control of the trust in order to assess the obligations of the parties in the event of a termination.

Follow-up to the Decision

It remains to be seen whether the principles that emerge from it will be applied when matrimonial property regimes such as partnership of acquests are dissolved. In this regard, it is noteworthy that the Supreme Court has chosen not to adopt the principle of lifting the fiduciary veil.

Finally, it should be noted that the family patrimony rules analyzed by the Court may be subject to change as a consequence of the family law reform promised by the Legault provincial government.

You are invited to contact the members of our Family, Trust and Estate Litigation team for any questions regarding trusts and family law, whether due to a recent breakdown or as part of corporate or estate planning.

The authors of this newsletter, Stewart Litvack and Louis Dessureault, members of this team, represented Taki Yared’s estate before the Supreme Court of Canada.

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