A number of months ago, a colleague of mine wrote a blog on
British Columbia's new
Family Law Act (FLA), which came into effect on March 3, 2013.
The FLA deals with the division of assets on the breakdown of a
marriage or a marriage-like relationship of individuals residing in
B.C. It attempts to reduce the number of relationship breakdowns
that end up in the B.C. court system. The FLA provides very
specific legislation on how family assets are to be divided on the
breakdown of a relationship. As is often the case, the wording of
new legislation can lead to unintended consequences.
The FLA is one example of legislation that has had unintended
consequences. In its attempt to provide a reasonable division of
assets, the FLA missed the mark about how a beneficiary's
interest in a discretionary family trust is handled. In very
general terms, when a beneficiary of such a trust has a
relationship break down, the FLA looks through the trust to the
actual assets held by that trust. Any increase in the fair market
value of these assets since the relationship began is then split
between the spouses 50/50. On the surface this may seem reasonable,
but one must keep in mind that these trusts are discretionary,
meaning the beneficiary has no claim to these assets and may never
actually receive them.
As an example, consider a discretionary trust that has four
beneficiaries, each of whose marriage breaks down. The total
increase in value in the underlying trust assets is factored into
the asset split for each relationship. In effect, it tries to split
the pie two ways for each divorce, but with each of the four
beneficiaries and their spouses getting half. That is impossible
and results in two times the increase in trust asset value being
allocated to the spouses of the beneficiaries.
As a result of some of these odd scenarios, there has been
concern about using family trusts in B.C. It was generally assumed
that the FLA would be amended, but until recently, nothing
happened. On March 3, 2014, the B.C. government tabled Bill 14,
Justice Statutes Amendment Act, 2014 which attempts to address the
unintended consequences of the FLA on a discretionary trust. The
amended legislation proposes to look at the increase in the fair
market value of the interest in the trust, rather than at the
increase in value of the underlying trust assets. This is a
positive change, as the fair market value of an interest in a
discretionary trust is a lot less than the fair market value of the
Compared to how the original legislation was worded, these
changes will likely result in more work when trying to determine
the fair market value of an interest in a trust. However, this is
similar to the issue that existed under the old Family Relations
Act, which the FLA replaced.
With the proposed changes to the FLA addressing certain
unintended consequences on the division of assets, it is
anticipated there won't be as much concern regarding the use of
family trusts for tax and estate planning purposes in B.C.
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.
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On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
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