An interest in a family trust and gifts can be the subject of
disclosure orders in family law disputes. This was illustrated in
the recent Ontario Superior Court of Justice decision in Clapp v.
Clapp 2014 ONSC 4591. In this case, Mrs. Clapp had an interest in a
non-resident trust named the "Oceana Trust" which
apparently had been created by her mother for the benefit of Mrs.
Clapp and her siblings and their respective children. In the
divorce proceedings, Mr. Clapp sought spousal support from Mrs.
Clapp as well as equalization of their net family property. Mr.
Clapp sought disclosure of Mrs. Clapp's interest in the Oceana
Trust. He wanted her interest to be included among her assets for
purposes of equalization and for purposes of determining
entitlement to spousal support.
Mr Clapp alleged that Mrs. Clapp received regular gifts of over
$100,000 per year from her mother as well as distributions from the
Trust. He argued that they relied on these gifts and distributions
to maintain their lifestyle which included a home and cottage (each
valued at over $800,000), private school for their son and two
cars. Mrs. Clapp denied receiving regular distributions from the
Trust other than specific amounts received to renovate the
matrimonial home of approximately $200,000. She acknowledged gifts
from her mother which she claimed were made at her mother's
discretion and not sourced from the Trust. Mrs. Clapp was not
employed outside the home during the marriage.
The court made reference to the Spousal Support Advisory
Guidelines and noted that the determination of income under the
Federal Child Support Guidelines was equally applicable to claims
for spousal support. The latter guidelines provide that the court
may impute an amount of income to a spouse in appropriate
circumstances including where a spouse is a beneficiary under a
trust and will be in receipt of income or other benefits from the
trust. The question was whether the gifts received by Mrs. Clapp or
the distributions from the Oceana Trust should result in some
imputed income to Mrs. Clapp. To determine whether an amount
received should be included in income for purposes of calculating
spousal support, the court considered seven questions:
Is the amount included in income for income tax purposes?
Is the amount capital that generates income?
Is the amount, if capital, compensation for loss of
Has the amount, if capital, been equalized?
Is the payment of the amount gratuitous?
Is the payment of the amount recurrent?
Were the funds typically used to finance a significant portion
of the recipient's living expenses?
Based on the materials provided, the court found that the
amounts received had not been included in Mrs. Clapp's income
for tax purposes. The amounts received were commingled with family
property and were not used to generate income. The court seemed to
suggest without explanation that the amounts received from Oceana
Trust were on account of capital. The court found no basis for an
order of interim support to Mr. Clapp.
The parties were ordered to disclose all gifts received in
excess of $1000. While Mr. Clapp sought such disclosure for the
duration of the marriage, the court order was limited to the three
years prior to separation.
Mrs. Clapp disclosed a copy of the Deed of Settlement for the
Oceana Trust and a number of years of financial statements and the
court noted that the three most recent year's statements were
sufficient, denying Mr. Clapp's request for statements for the
duration of the marriage. He also sought Oceania Trust's tax
returns, disclosure of the Trust's interest in a named limited
partnership, and disclosure of any benefits paid on behalf of Mrs.
Clapp and any loans to Mrs. Clapp. Mr. Clapp's request was
denied on the bases that the materials filed with court did not
establish the relevance of such additional information. The court
considered that the financial statements should be sufficient as
they disclosed the assets of the Trust and any distributions
Limited information was provided in the judgement regarding the
terms of the trust or its underlying assets. There was an
institutional trustee of the Oceana Trust and the judgement
indicated that Mrs. Clapp was "one of several
beneficiaries" without indicating where the Trust was
discretionary or otherwise. While gifts and an interest in a trust
can be structured so that they may be excluded from "net
family property" for equalization purposes under the Family
Law Act, these structures do not exclude support obligations. The
case serves as a reminder that amounts received could affect
imputed income calculations for support and shows that a
beneficiary may be faced with disclosure requests.
Originally published by STEP Inside, October
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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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