Can a Trust Be Challenged or Set Aside as Invalid in Ontario?

A trust can sometimes be challenged, but whether a court will set it aside depends on the facts and on what can be proved. Creditor-related challenges can turn on whether the person intended to defraud, defeat or delay a creditor, which depends on the evidence. Other grounds depend on the facts, so a lawyer should review the documents early.

Creditor claims have their own federal rule. Under the Bankruptcy and Insolvency Act, a court can void a transfer at undervalue to someone not dealing at arm's length if it was made within one year before the initial bankruptcy event, and within five years if the debtor was insolvent or intended to defraud, defeat or delay a creditor. A transfer to an arm's-length party can be voided only if it was made within one year before, the debtor was insolvent or made insolvent by it, and the debtor intended to defraud, defeat or delay a creditor.

Time limits matter. The general limitation period is two years from the day a claim was discovered, and no proceeding may be started more than 15 years after the act or omission. That 15-year period does not run while the defendant wilfully conceals the loss, which the claimant must prove.