As referenced in our earlier article, Avoiding Wills Variation Claims: How Far is Too Far?, the Wills Variation Act (“WVA”) permits spouses or children of the deceased who believe the deceased’s will does not adequately provide for them to ask the court to vary the will. The key is that the will only governs assets that pass to the estate – the WVA does not permit the court to reallocate assets that have been placed in a trust prior to death.
One method disappointed spouses and children have used to attempt to bring the assets from a trust into the estate is an action under the Fraudulent Conveyance Act (“FCA”). For example, in the Supreme Court decision of Mawdsley v. Meshen released in 2010, the common law spouse of the deceased attempted to have various estate planning steps taken by the deceased prior to her death set aside as contrary to the FCA. The Supreme Court found as a fact that the estate planning steps were taken by the deceased not to defeat the spouse’s potential claim under the WVA, but rather for other, legitimate reasons. It refused to allow the assets in the trust to become part of the estate.
The common law spouse appealed, and the Court of Appeal handed down its decision on February 28, 2012. Of particular note is the discussion of whether an intention to defeat creditors must be found by the court where the transfer had the effect of defeating creditors, regardless of the actual intention of the deceased. The Court of Appeal held that transfers will be set aside under the FCA only if they were made with an intention to defeat creditors (although it does not have to be a “fraudulent” intention), and that the effect of the transaction alone is not determinative.
The Court of Appeal also considered whether a spouse is a “creditor or other” and confirmed earlier decisions of the Supreme Court that unless the spouses are separated at the time of death, the spouse is not a creditor or other, and thus has no standing to bring a claim under the FCA.
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