In the last few years, trusts have been growing in popularity
among business people, including as an asset protection mechanism.
Since a trust is a patrimony by appropriation, neither the settlor
nor the beneficiaries have any ownership rights in the property
transferred, and therefore the property cannot, in theory, be
seized by their creditors.
A tangible proof of the growing popularity of trusts? In the
past year, Quebec courts have rendered two decisions involving
trusts that may have been constituted for the purpose of asset
protection (although other objectives may have been simultaneously
achieved, including tax objectives).
In each of these cases, a creditor brought an action to obtain a
declaration that certain transactions executed between his debtor
and a trust may not be set up against him, in order to seize the
property transferred to the trust as debt repayment.
In the case Empire, compagnie d'assurancevie c.
Thibault1, the Superior Court allowed the
action, declared that several legal instruments could not be set up
against the creditor, authorized the creditor to seize all known
trust assets and ordered trustees not to compromise certain trust
assets. It is worth mentioning that the settlor of the trust had
been, at the time of the transactions, crippled by debt and subject
to legal actions (existing and threatened). In its decision, the
court observes the apparent fraudulent nature of the transactions
and further observes that the debtor had no intention of repaying
In Levasseur c. 9095-9206 Québec
inc.2, the Court of Appeal declared the
inoperability of only a few transactions. With respect to the
operations that led to the creation of the trusts, the Court
concluded that the creditor failed to establish on a balance of
probabilities that such acts were committed in fraud of his rights
nor that the defendant rendered himself insolvent or attempted to
render himself insolvent. However, with regards to transactions
that occurred four years after establishing these trusts, at a time
when the parties were referred to arbitration by the Superior
Court, the Court of Appeal accepted to declare that these
transactions could not be set up against the creditor, after having
noted that they jeopardized the chances of the creditor to ever be
reimbursed. In addition, the validity of these trusts was analyzed
by the Court, which upheld them. However, the Court ordered the
trustees to report to the creditor twice a year on the use of trust
property and to inform the creditor in writing 48 hours before
making any payment in favour of the debtor. The money thus received
by the debtor, as beneficiary of the trusts, may be seized by the
These two decisions illustrate the trust's limitations as an
asset protection tool. They also demonstrate the importance of the
facts and circumstances surrounding the establishment of a trust
and the transfer of property in its favour. The debtor's intent
and its financial situation at the time of the transactions will be
scrutinized by the court. The trust will be maintained and the
property transfer will be set up against the creditors of the
assignor, if the court concludes that, at the time of the transfer,
the assignor was not insolvent and that by this same transfer he
did not render himself insolvent or attempted to render himself
1 2011 QCCS 3556 (in appeal).
2 2012 QCCA 45.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Today (May 2, 2013), Ontario Finance Minister, Charles Sousa tabled the province’s 2013 Budget. This year’s budget, titled "A Prosperous and Fair Ontario" is committed to eliminating the deficit by 2017-18 and then reducing the net debt-to-GDP ratio to the pre-recession level of 27%.
Canada’s 2013 federal budget released on March 21, 2013 introduces a number of measures to strengthen the ability of the Canada Revenue Agency to address international aggressive tax avoidance and to combat international tax evasion so as to maintain and protect Canada’s tax base.