Trust Funds Belongs to Bankrupts’ Creditors

The Supreme Court of British Columbia recently ruled that a bankrupt’s contingent entitlement to trust funds was property that vested with the trustee in bankruptcy as part of the bankrupts' estate.

In Bolt Estate (Re) 2014 BCSC 2095, Jody Lyn Bolt was named as the beneficiary of a trust under her mother’s will. When her mother passed away in 1994, the terms of the trust were as follows:

a) the income from the trust is to be paid to Ms. Bolt until she reaches the age of 26, provided she is a full-time student;

b) at the age of 26 she receives one quarter of the capital of the trust;

c) that she continue to be paid interest from the trust;

d) at the age of 35 she receives one quarter of the capital of the trust;

e) when she reaches 45 years she receives the balance remaining of the capital of the trust; and

f)  should Ms. Bolt not attain the age of 45, the balance of the trust is to be divided equally amongst her children.

Ms. Bolt made her assignment to into bankruptcy on January 30th, 2014. She does not turn 45 until 2020 and there is $96,409.89 remaining in the trust. She has two children, aged 10 and 17 years.

Counsel for Ms. Bolt argued that a purpose of the Bankruptcy and Insolvency Act (the “Act”) was to protect these types of benefits for the protection of the bankrupt. It was reasoned, however, that the contingent benefits from the trust were clearly “Property” as defined at section 2 of the Act (and not expressly excluded elsewhere such as in section 67), not yet within the grasp of Ms. Bolt’s creditors because it remained contingent on her reaching the age of 45, otherwise the funds remaining in the trust would pass to her children, as directed by the terms of the trust.

The ruling itself  was not surprising because the pertinent legislation is quite clear on the issue, but it was interesting that Master D.C. Baker noted that neither party submitted any precedential cases directly on point.

At paragraph 10 of the Reasons For Decision, Master Baker stated that “it must be, sadly, relatively commonplace for bankrupts to be beneficiaries of trusts or bequests.”

Now there is a precedent that a contingent entitlement to trust property is in fact Property as defined under the Act. Buttressing the legislation that with judicial precedent makes the ruling certain.

Since trust terms can vary widely though, and bankrupt’s are eventually discharged, it would be interesting to have the Court analyze a different, longer and more tenuous condition in a trust that couldn’t possibly take effect until long after a bankrupt was discharged.

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