Asset transfers Done for Estate Planning Can Be Voided under Ontario’s Fraudulent Conveyances Act
Asset transfers Can Be Brought Back under Ontario’s Fraudulent Conveyances Act
If you were to transfer property in furtherance of an estate plan, such as money into a trust, Ontario’s Fraudulent Conveyances Act[i] can void that transfer if you also made that transfer with an intent defeat, hinder, delay, or defraud creditors or others who could become future creditors. An Ontario court can infer that you had such intent by examining the circumstances at the time of the transfer. As such, you should do your estate planning in circumstances where so-called “badges of fraud” are not present.
The Fraudulent Conveyances Act
All fraudulent conveyances can be voided under Ontario’s Fraudulent Conveyances Act (FCA). Section 2 of the FCA, which is given a liberal interpretation, states the following:
Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.[ii]
If your transfer is void, that means you can no longer shield the asset from creditors. The property that was fraudulently transferred is available for your creditors. Under section 2 of the FCA, your transfer can be voided if the following three elements are proven on a balance of probabilities:
- A conveyance of property;
- An intent to defeat; and
- A creditor or others towards whom intent to defeat is directed.
Under the FCA, a “conveyance” includes a “gift, grant, alienation, bargain, charge, encumbrance, limitation of use or uses of, in, to or out of real property or personal property by writing or otherwise.”[iii] The FCA has been worded to catch virtually any transaction made with the intent to delay or defeat creditors, and “conveyance” is given a broad meaning. Under the FCA, conveyances include trusts or settlements created for your estate plan.
If you transferred property in furtherance of an estate plan, that transfer is not protected if it was also done with an intent to defeat a creditor or others.[iv] A Court determines whether you intended to defeat a creditor by looking to see whether certain “badges of fraud” were present at the time of the transfer, providing circumstantial evidence of fraudulent intent. Some badges of fraud include the following:
- You continued to posses and use the property as your own;
- You did the transaction in secret;
- You made the transfer in the face of threatened legal proceedings;
- Your transfer documents contained false statements as to consideration;
- You received grossly inadequate consideration;
- You made the transfer in unusual haste;
- You retained some benefit under the settlement;
- You peruse a hazardous venture;
- You had a close relationship with the recipient of the transfer.[v]
Creditor or Others
Your intent to defeat must be directed towards a “creditor or other.” “Creditors and others” is broad enough to contemplate a person who, while not yet a creditor at the time of the conveyance, may become one in the future.[vi] This means that if you transferred property with the intent to defeat someone who is not a creditor but could be in the future, such as someone likely to start legal proceedings against you, then you possessed the requisite intent and that person is protected.[vii]
The FCA has a long reach to reverse conveyances. To make sure the FCA cannot be used to void transfers done for your estate planning, make sure to do the following:
- Obtain professional advice;
- Document everything carefully;
- Make the transfers after careful planning, without undue haste, and at a time when you do not face unsatisfied creditors or threatened legal proceedings.
[i] R.S.O. 1990, c. F.29
[ii] Ibid. s. 2.
[iii] Ibid. s. 1.
[iv] Re Whetstone, 1984 CanLII 1957 (ON SC).
[v] Indcondo Building Corp. v. Sloan 2014 ONSC 4018, 2014 CarswellOnt 10946 at para 52.
[vi] See Beynon v. Beynon,  O.J. No. 3653 (Ont. S.C.J.) Petrone v. Jones (1995), 33 C.B.R. (3d) 17 (Ont. Gen. Div.) and Canadian Imperial Bank of Commerce v. Boukalis, 1987 CarswellBC 513 (B.C. C.A.).
[vii] IAMGOLD Ltd. v. Rosenfeld,  O.J. No. 4690 (Ont. Gen. Div.).