Enforcing a Judgment Against a Beneficiary of a Trust Against Lands Held in the Trust

 

Can a judgment against a beneficiary of a trust be registered and enforced against land held in the trust? As illustrated by the decision in Clarke v. Braich, 2021 BCSC 121, in British Columbia the answer depends on the nature of the beneficiary’s interest in the trust. If the beneficiary does not yet have the right to the property held in trust, then a judgment may not be registered against the land.

Kenny Braich is both a trustee and beneficiary of a trust that had been settled by his mother, Surjeet Singh. The terms of the trust are that during Ms. Singh’s lifetime, all of the income was payable to her, and no one else was entitled to any of the capital until her death. This is a popular estate-planning tool, often referred to as an “alter-ego trust.” The trust assets, which included four parcels of land (the "Trust Lands"), are to be distributed in accordance with a deed of appointment that she signed. The deed of appointment provides for a “Final Distribution Date,” which was the date of her death, and a “Division Date,” three years later. During the period between the Final Division Date and the Distribution Date, the trustees have the power to distribute income from the trust property to the capital beneficiaries. The trustees and the capital beneficiaries are Kenny Braich and his brother, Bobby Braich. The deed of appointment provides that on the Division Date, the trust property will be divided equally between the Braich brothers, but if either of them dies before that date, his share will go to his children, or if he does not have any children, to his brother.

Ms. Singh died on July 11, 2019. Accordingly, that date was the Final Distribution Date, and the Division Date will be July 11, 2022.

Scott Clarke obtained a judgment against Kenny Braich and registered the judgment against the Trust Lands. Registering a judgment against real estate is a useful way of enforcing a judgment. The judgment takes priority over future registrations such as transfers and mortgages, and the creditor may also apply to court to have the property sold to satisfy the judgment. Kenny Braich brought an application to court to discharge the registration from the title to the Trust Lands.

Madam Justice Baker granted Mr. Braich’s application to discharge the registration. Although Kenny Braich is a beneficiary of the trust, he does not have a beneficial interest in the trust property, specifically the Trust Lands. This distinction is important. A beneficiary of a trust may have a personal claim against trustees if they don’t comply with their duties as trustees, but the beneficiary does not necessarily have a claim to the property held in trust. A personal claim against trustees is referred to as a claim “in personam.”

The reason Kenny Braich does not have a beneficial interest in the Trust Lands is that if he dies before the Division Date, the trust property that he would receive if he were then alive, will go to other beneficiaries, that is his children or his brother. It is only on the Division Date that we will know for sure if he will receive the Trust Lands, and until then, he is only entitled to receive income.

His creditors can have no greater rights to the Trust Lands than he.

Madam Justice Baker wrote at paragraphs 50 and 51:

[50]         Kenny Braich is in no different position than the residual legatee in the case of Hollebone [v. Paterson, (1982), 42 B.C.L.R. 132].  Until the Division Date, his interest in the Trust is strictly in personam. He has no rights against the Trust Lands before the Division Date, and neither do his creditors.

[51]         As such, I do not agree with Mr. Clarke when he argues he is entitled to register his judgment against the Trust Lands pursuant to COEA [Court Order Enforcement Act] s . 86.  Until the Division Date, Kenny Braich does not have a beneficial interest in the Trust property, which includes the Trust Lands, against which Mr. Clarke is entitled to register his judgment.

Madam Justice Baker ordered the registration discharged. If Mr. Clarke wishes to enforce the judgment against the Trust Lands, he will have to wait until July 11, 2022.