April 2018
PFD | Family

The fiduciary veil should not be lifted

By Amélie Dupras Lawyer

That is the conclusion reached by the Court of Appeal of Québec in Karam c. Succession de Yared (2018 QCCA 320) on March 1, 2018. In this case, the Court was called upon to determine whether the value of a residence purchased by a trust but in which spouses lived during the time they cohabitated should be considered when partitioning the family patrimony. The facts of the case are as follows.

On October 4, 2011, the parties created a family trust under which the wife and the couple's children were the beneficiaries. On June 18, 2012, the trust purchased a residential and commercial building in which the family chose to live. On July 2, 2014, the wife petitioned for divorce. But she passed away on April 6, 2015, before the divorce was granted. In the circumstances, the liquidators of the woman's estate sought to have the value of the residence taken into account in the family patrimony and, in turn, in the succession.

The trial judge, the Honourable Serge Gaudet of the Superior Court of Québec, concluded that the residence was part of the parties' family patrimony, despite the fact that it was not the property of either spouse. Following case law in which parties cannot avoid family patrimony rules through a corporation they control, Justice Gaudet therefore lifted the fiduciary veil. He added that even if he had not done so, the value of the rights that confer the use of the residence should be included when determining the family patrimony when the residence itself is not part of it by application of article 415 of the Civil Code of Québec.

For majority reasons drawn up by the Honourable Marie St-Pierre, the Court of Appeal reversed the trial judgment, ruling that neither the market value of the residence nor the value of the rights that confer its use should be included in the determination of the family patrimony.

The Court affirmed that the ruling by Justice Gaudet deprived the parties of the characteristics and benefits of instituting the trust, which the couple had chosen to establish freely and in good faith during their marriage. Indeed, the evidence that was submitted in no way pointed to the fact that the trust was created with the aim or intent of avoiding legislative provisions related to family patrimony.

In sum, Karam c. Succession de Yared serves to recall that there is no authority in law to require that spouses purchase property to make up the family patrimony. Indeed, spouses are free to include their assets in a patrimony by appropriation that is separate from them. That said, it is up to the courts to ensure that such trusts are not constituted to circumvent family patrimony rules, which are rules of public order. 

For more information on family patrimony and trusts, do not hesitate to contact one of our family law experts.