Can a Trust Be Challenged in Ontario? Grounds and Time Limits

If you were left out of a family member's plans and they moved assets into a trust, it is natural to ask whether the trust can be undone. People often raise concerns such as pressure on the person who made the trust, doubts about their mental capacity, or a trust that looks like a front with no real purpose.

This article explains how to think about a challenge, which time limits apply, and which other court routes may be open to you. Whether a particular ground succeeds turns on evidence, and a lawyer can assess that for your situation.

What does challenging a trust actually mean?

People use the phrase for several different goals. The ground you rely on, such as undue influence, lack of capacity or a sham arrangement, depends on what happened when the trust was created and what proof exists. Those questions are fact-heavy, and a lawyer can tell you whether your evidence is likely to be enough.

It helps to be clear about what you want, because different goals use different routes:

• Setting the trust aside, in whole or in part.
• Changing its terms, for example because circumstances have changed.
• Holding the trustee accountable for how the trust is run.
• Replacing a trustee who cannot or should not continue.
• Reaching assets that were moved out of a debtor's hands.

Time limits that can end a claim

The general limitation period in Ontario is two years from the day a claim was discovered. A claim is discovered when the claimant knew, or reasonably ought to have known, of it. No proceeding may be started more than 15 years after the act or omission.

There are exceptions. The 15-year period does not run while the defendant wilfully conceals the loss, but the claimant must prove the concealment. The two-year period does not run while the claimant is a minor, or is incapable of starting a proceeding, and is not represented by a litigation guardian.

If a claim involves a deceased person, a separate deadline may apply. Tort actions by or against a deceased person's executor or administrator must be brought within two years of the death. Because the right deadline can depend on how your claim is framed, get advice early.

Other court routes that may be open

Sometimes the practical goal is not to undo the trust but to change or supervise it. The Superior Court of Justice may approve an arrangement varying or revoking a trust, or enlarging the trustees' powers, on behalf of people who cannot consent themselves, such as minors, incapable persons and unborn persons. The court will not approve a variation for a minor, incapable or unborn person unless it appears to be for that person's benefit.

If you appear to have a financial interest in an estate, you may bring a motion for an order requiring the estate trustee to pass accounts. The court can also appoint a new trustee, replacing or adding to existing trustees. For executors and other personal representatives, the court may remove them on any ground on which it could remove any other trustee.

Transfers into a trust and creditors

Sometimes a trust is used to move assets away from creditors. Under the federal 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. A transfer made within five years before can also be voided if the debtor was insolvent or intended to defraud, defeat or delay a creditor.

For an arm's-length party, the test is stricter. The transfer must have been made within one year before the initial bankruptcy event, the debtor must have been insolvent or made insolvent by it, and the debtor must have intended to defraud, defeat or delay a creditor.

For Estate Administration Tax, Ontario includes in the estate value any property the deceased owned that was held in another person's name. Putting legal title in another name does not by itself remove a beneficially owned asset from that tax.

What to do next

• Write down when you first learned of the trust and what you learned, since discovery can affect your deadline.
• Gather the trust document, the will, and any records about the person's health and finances at the time.
• Note who was involved in setting up the trust and who benefits from it.
• Decide whether you want the trust undone, changed, or the trustee held accountable.
• Speak with an Ontario estates lawyer soon, because time limits may already be running.

Frequently asked questions