Looking through Trusts

Authors

• Adam S. Hofri, Allard School of Law, University of British ColumbiaFollow
• Mark Bennett, Victoria University of WellingtonFollow

Author ORCID Identifier

0000-0002-8272-1498

Keywords

trusts, avoidance, anti-avoidance, henson trusts, welfare, means testing, income tax, family property

Document Type

Article

Abstract

As everyone knows, trusts are often used to avoid or subvert different rules of law. To combat such avoidance, jurisdictions enacted anti-avoidance rules; yet many of these rules do not fully prevent trusts-based avoidance, or in some cases reflect some jurisdictions’ acceptance of such avoidance. We review the anti-avoidance rules applied by Canada, the US, the UK, Australia and New Zealand to try and stymie trusts-based avoidance in three subject areas: distribution of family property on divorce or separation, taxation of income accrued in settlor-controlled trusts, and means-tested eligibility for welfare benefits. We find that anti-avoidance doctrines are often less than fully effective in tackling liability or means testing avoidance by way of discretionary trusts, and offer recommendations to improve the treatment of such trusts for anti-avoidance purposes.

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Citation Information

Hofri, Adam S. and Bennett, Mark. "Looking through Trusts." Osgoode Hall Law Journal 62.2 (2026) : 485-528.
DOI: https://doi.org/10.60082/2817-5069.3935
https://digitalcommons.osgoode.yorku.ca/ohlj/vol62/iss2/4

References

1. Professor, Peter A Allard School of Law, The University of British Columbia. Email: hofri@allard.ubc.ca.

2. Associate Professor, Faculty of Law, Te Herenga Waka | Victoria University of Wellington. Email: mark.bennett@vuw.ac.nz. We thank our research assistants: Cate Barnett, Lucy Kenner, Maddy Nash, Lydia Whyte, Shaun Matos and Samantha Arbor; audiences at conferences where this article was presented, including the 2023 meeting of the Association for Law, Property and Society at Southampton, U.K., Obligations X, “Trusts, Wealth Management & Philanthropy: Innovation and Reform in the Law of Trusts,” held at Singapore Management University, as well as “Inheritance and Inequality,” held at Drexel University; attendees at the faculty colloquium, Allard School of Law; as well as colleagues who have kindly commented on this article. All errors remain ours.

3. See Austin W Scott, “The Trust as an Instrument of Law Reform” (1922) 31 Yale LJ 457 at 458, DOI: .

4. See John H Baker, An Introduction to English Legal History, 5th ed (Oxford University Press, 2019) at 274-75, 305, 309-11, DOI: .

5. See Graham Moffat, Gerry Bean & Rebecca Probert, Trusts Law: Text and Materials, 5th ed (Cambridge University Press, 2009) at 216, 323, 533, DOI: .

6. See Lionel Smith, “Massively Discretionary Trusts” in Richard C Nolan, Hang Wu Tang & Kelvin FK Low, eds, Trusts and Modern Wealth Management (Cambridge University Press, 2018) 130 at 139-43, 158-61, DOI: .

7. See Hanoch Dagan & Irit Samet, “What’s Wrong with Massively Discretionary Trusts” (2022) 138 Law Q Rev 629 at 629-30 [Dagan & Samet, “What’s Wrong”]. See also Hanoch Dagan & Irit Samet, “Express Trust: The Dark Horse of the Liberal Property Regime ” in Simone Degeling, Jessica Hudson & Irit Samet, eds, Philosophical Foundations of the Law of Trusts (Oxford University Press, 2023) 139, DOI: . Dagan and Samet’s examination of trust law’s liberal foundations builds on Dagan’s work on liberal property theory. See e.g. Hanoch Dagan, A Liberal Theory of Property (Cambridge University Press, 2021), DOI: ; Hanoch Dagan, “Autonomy and Property” in Hanoch Dagan & Benjamin C Zipursky, eds, Research Handbook on Private Law Theory (Edward Elgar, 2020) 185, DOI: ; Hanoch Dagan “Liberal Property Theory” in Chris Bevan, ed, Research Handbook on Property Law & Theory (Edward Elgar, 2024) 197, DOI: ; cf James Penner, “Property and Self-Determination: Critical Notice: A Liberal Theory of Property by Hanoch Dagan” (2022) 35 Can JL & Jur 537, DOI: ; Ying Khai Liew “Justifying Anglo-American Trusts Law” (2021) 12 William & Mary Bus L Rev 685, DOI: .

8. See Mark Bennett & Adam Hofri-Winogradow, “The Use of Trusts to Subvert the Law: An Analysis and Critique” (2021) 41 Oxford J Leg Stud 692 at 695, 708, DOI: ; Dagan & Samet, “What’s Wrong,” supra note 7 at 633-36.

9. See discussion in Part II, below.

10. See Dagan & Samet, “What’s Wrong,” supra note 7 at 630, 638-39.

11. For discussion of these internal limits, apropos outrageously drafted trusts, see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev, [2017] EWHC 2426 (Ch) at paras 143-203 [Pugachev]; Clayton v Clayton, [2015] 3 NZLR 293 [Clayton]; Webb v Webb, [2020] UKPC 22 (on appeal from the Court of Appeal of the Cook Islands).

12. Luc B Tremblay, “The Legitimacy of Judicial Review: The Limits of Dialogue between Courts and Legislatures” (2005) 3 ICON 617 at 619-20, DOI: .

13. In future work, we hope to treat mechanisms introduced to prevent trusts-based avoidance of other liability regimes, such as capital gains tax, inheritance and estate tax, liability to general creditors (which is to some extent discussed in the present work), liability under anti-money-laundering law, and liability under sanctions regimes.

14. See discussion in Part II, below.

15. See the text accompanying notes 101-102.

16. See the text accompanying notes 98-99.

17. See discussion in Part III, below.

18. See the text accompanying note 143.

19. See the text accompanying notes 135-43.

20. See the text accompanying notes 160-61.

21. See the text accompanying notes 170-74.

22. See David Seipp, “Trust and Fiduciary Duty in the Early Common Law” (2011) 91 BUL Rev 1011 at 1028-34.

23. Supra note 4 at 273.

24. See Joshua Getzler, “Transplantation and Mutation in Anglo-American Trust Law” (2009) 10 Theor Inq in L 355 at 366, DOI: , citing Treason Act, 1534, 26 Hen VIII, c 13, 33; Treason Act, 1541, Hen VIII, c 23; Treason Act, 1551, 5 & 6 Edw VI, c 11.

25. See Re Lord Dacre of the South (1535) YB Pasch 27 Hen VIII, pl 22, fol 7b–10a (Chan & Exch Ch 1535) (1535.026); Baker, supra note 4 at 274; EW Ives, “The Genesis of the Statute of Uses” (1967) 82 Eng Hist Rev 673 at 686-91, DOI: ; Siepp, supra note 22 at 1030-34.

26. See Baker, supra note 4 at 274-75; Siepp, supra note 22 at 1033-34; AWB Simpson, A History of the Land Law, 2nd ed (Oxford University Press, 1986) at 184-88, DOI: ; WS Holdsworth, “The Political Causes which Shaped the Statute of Uses” (1912) 26 Harv L Rev 108, DOI: .

27. Baker, supra note 4 at 275.

28. Supra note 24 at 366.

29. See Adam Hofri-Winogradow, “Protection of Family Property against Creditors in the Enlightenment Era Court of Chancery” (20 March 2008), online: , DOI: [Hofri-Winogradow, “Family Property”].

30. Ibid at 23, citing An Act for Prevention of Frauds and Perjuries (UK), 1904, c 20, s 10.

31. See Getzler, supra note 24 at 372-73.

32. See Hofri-Winogradow, “Family Property,” supra note 29 at 24-25; Davidson v Foley, [1787] 2 Bro CC 203 at 206-207, 29 ER 115 (Chancery (including Collateral Reports)).

33. Thomas Lewin, A Practical Treatise on the Law of Trusts and Trustees, 4th ed (Hodges, Smith & Co, 1861) at 443.

34. See Smith, supra note 6 at 130.

35. See Austin W Scott Jr, “The Revocable Trust and the Surviving Spouse’s Statutory Share in Colorado” (1964) 36 U Colo L Rev 464 at 464; Alan Newman, “Revocable Trusts and the Law of Wills: An Imperfect Fit” (2008) 43 Real Property Trust & Estate LJ 523 at 524; John H Langbein, “The Nonprobate Revolution and the Future of the Law of Succession” (1984) 97 Harv L Rev 1108 at 1109-15, DOI: .

36. See Edward C King, “Trusts as Substitutes for Wills: Advantages and Disadvantages of ‘Living Testamentary Dispositions’” (1941) 73 Trusts & Est 389 at 389-90; James Casner, “Estate Planning - Avoidance of Probate” (1960) 60 Colum L Rev 108 at 109, DOI: .

37. See Milton E Meyer Jr, “The Revocable Trust as a Will Substitute—A Coming of Age” (1966) 39 U Colo L Rev 180 at 181-82; Kent D Schenkel, “The Trust-as-Will Portmanteau: Trill or Spork” (2013) 27 Quinnipiac Prob LJ 40 at 44.

38. Meyer, supra note 37 at 188.

39. See generally Austin W Scott, “Trusts and the Statute of Wills” (1930) 43 Harv L Rev 521, DOI: .

40. See George T Bogert, George G Bogert & Amy M Hess, Bogert’s The Law of Trusts and Trustees (Thomson Reuters, 2024), s 104.

41. See e.g. Newman, supra note 35 at 524; Lauren A Gribble, “Justice Before Generosity: Creditor’s Claim to Assets of a Revocable Trust After the Death of the Settlor” (2015) 48 Akron L Rev 383; Fred Charles, “Rights of a Creditor of a Settlor to Reach the Corpus of a Revocable Trust” (1950) 39 Ky LJ 131; Zackary C Nehls, “Death is Certain but Probate is Optional: How to Transfer Wealth and Dodge Creditors Using a Revocable Trust” (2021) 65 Saint Louis ULJ 431 at 437.

42. See Bogert, Bogert & Hess, supra note 40, s 104.

43. Restatement (Third) of the Law of Trusts (2003), s 25(2) [Restatement].

44. Uniform Trust Code, 2000, s 505(a)(1) [UTC].

45. See Newman v Dore, 275 NY 371 (NY Ct App 1937).

46. See generally Kent D Schenkel, “Federal Transfer Taxes and the Protean Irrevocable Trust” (2022) 85 Alb L Rev 1, DOI: ; Richard C Ausness, “Sherlock Holmes and the Problem of the Dead Hand: The Modification and Termination of ‘Irrevocable’ Trusts” (2015) 28 Quinnipiac Prob LJ 237.

47. See e.g. Getzler, supra note 24 at 358-61; Gregory S Alexander, “The Dead Hand and the Law of Trusts in the Nineteenth Century” (1985) 37 Stan L Rev 1189 at 1191, DOI: .

48. See Lewin, supra note 33 at 77-81; Getzler, supra note 24 at 372.

49. See George P Costigan Jr, “Those Protective Trusts Which Are Miscalled Spendthrift Trusts Reexamined” (1934) 22 Cal L Rev 471 at 479, DOI: .

50. See Nichols v Eaton, 91 US 716 (1875); Broadway Nat’l Bank v Adam, 133 Mass 170 at 170 (1882); McClelland v McClelland, 37 SW 350 at 358 (Tex Civ App 1896); Erwin N Griswold, Spendthrift Trusts (Matthew Bender & Co, 1936), ss 25-33; Karen E Boxx, “Gray’s Ghost - a Conversation About the Onshore Trust” (2000) 85 Iowa L Rev 1195 at 1202; Allison A Tait, “Trusting Marriage” (2019) 10 UC Irvine L Rev 199 at 220-21 [Tait, “Trusting Marriage”]; Alexander, supra note 47.

51. See Lewin, supra note 33 at 77-78; Snowdown v Dales (1834), 58 ER 690 at 691-92 (ChD).

52. American Jurisprudence, vol 76, 2nd ed (Thomson Reuters, 2001),“Trusts,” s 100 [American Jurisprudence]. Some jurisdictions do not accept spendthrift trusts as a restraint on alienation (ibid, s 101). See also Athorne v Athorne, 100 NH 413 (NH Sup Ct 1957); Matter of Merrill, 174 NH 195 (NH Sup Ct 2021).

53. See Boxx, supra note 50 at 1202-1203; Gilbert v Gilbert, 447 So (2d) 299 at 301 (Fla Dist Ct App 1984); SD Codified Laws s 55-16-15(1) (2016); Restatement, supra note 43, s 59; American Jurisprudence, supra note 52, s 118.

54. Supra note 44, s 503. See also Tait, “Trusting Marriage,” supra note 50 at 222.

55. Ibid at 223; UTC, supra note 44, s 504.

56. See e.g. Pfannenstiehl v Pfannenstiehl, 475 Mass 105 at 106 (MA Sup Ct 2016). See also Bogert, Bogert & Hess, supra note 40, s 228; John Tingley & Nicholas B Svalina, Marital Property Law, 2nd ed (Clark Boardman Callaghan, 2023), s 42:8; Tait, “Trusting Marriage,” supra note 50 at 222-23; Alison A Tait, “Inheriting Privilege” (2022) 116 Minn L Rev 1959 at 1982, DOI: [Tait, “Inheriting Privilege”]; Michael S Hayes, “Trust Law-Beneficiary’s Interest in Open-Class Discretionary Trust Amounts to Mere Expectancy Despite Ascertainable Standard” (2017) 50 Suffolk UL Rev 367 at 367; Richard C Ausness, “Discretionary Trusts: An Update” (2018) 43 ACTEC LJ 231 at 255.

57. See Editors, Law Review, “Standing to Attack Spendthrift Trust Created by Beneficiary” (1950) 17 U Chicago L Rev 516 at 516, DOI: .

58. See Tait, “Trusting Marriage,” supra note 50 at 233.

59. See Fraudulent Conveyances Act 1571 (UK), 13 Eliz I, c 5; Fraudulent Conveyance Act, RSBC 1996, c 163.

60. See 3 Henry VII, c 4.

61. See Tait, “Trusting Marriage,” supra note 50 at 231-32; UTC, supra note 44, s 505. See e.g. In re Goff, 812 F (2d) 931 (5th Cir 1987); In re Tosi, 383 BR 1 (Bankr D Mass 2008).

62. See Tait, “Trusting Marriage,” supra note 50 at 232-33.

63. See Boxx, supra note 50 at 1204.

64. See Tait, “Trusting Marriage,” supra note 50 at 234. That is the law in Missouri, Nevada, Oklahoma, Virginia, West Virginia, and Wyoming. See also David Shaftel, “Thirteenth ACTEC Comparison of the Domestic Asset Protection Trust Statutes” (August 2022), online (pdf): [perma.cc/C99W-FGUT].

65. See Boxx, supra note 50 at 1208.

66. See Yuri Grbich, “Baden: Awakening the Conceptually Moribund Trust” (1974) 37 Mod L Rev 643 at 643, DOI: ; Jessica Palmer & Charles Rickett, “The Revolution and Legacy of the Discretionary Trust” (2017) 11 J Eq 157 at 157.

67. See Smith, supra note 6; Dagan & Samet, “What’s Wrong,” supra note 7.

68. SA v Metro Vancouver Housing Corp, 2019 SCC 4 at para 4 [Metro].

69. Pugachev, supra note 11 at para 178.

70. See e.g. Kent D Schenkel, “Exposing the Hocus Pocus of Trusts” (2012) 45 Akron L Rev 63; Bennett & Hofri-Winogradow, supra note 8; Tait, “Inheriting Privilege,” supra note 56.

71. See Vito Tanzi, The Economics of Government: Complexity and the Practice of Public Finance (Oxford University Press, 2020) at ch 9, DOI: ; Neil Gilbert, Transformation of the Welfare State: The Silent Surrender of Public Responsibility (Oxford University Press, 2002) at ch 5, DOI: ; Margaret Grosh et al, eds, Revisiting Targeting in Social Assistance: A New Look at Old Dilemmas (World Bank, 2022), DOI: .

72. See e.g. sources cited in notes 75 and 102.

73. See e.g. sources cited in note 106.

74. Including the old age pension, parental benefits, and the youth allowance. See Social Security Act 1991 (Commonwealth), 1991/46, ch 2 (Austl) [Social Security Act]; George Kudrna, Means Testing of Public Pensions: The Case of Australia (Michigan Retirement Research Centre, 2014), DOI: .

75. Social Security Act, supra note 74, s 1207(3).

76. Ibid at ss 1207A, 1207V.

77. Ibid at s 1207V(2).

78. Ibid at s 1207V(2)(d).

79. Elliot v Secretary, Department of Education, Employment and Workplace Relations, [2008] FCA 1293 at para 49 (Austl).

80. See Finn Pratt, Commonwealth (Austl), Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017, Department of Social Services (8 March 2017); Secretary Department of Social Services v Thomas, [2022] AATA 2324 (Admin App Trib Austl); Lymberopoulos and Secretary, Department of Family and Community Services, [2005] AATA 801 (Admin App Trib Austl).

81. MLC TechConnect, “Social Security Assessment of Private Trusts” (1 August 2023), online (pdf): [https://perma.cc/5Y4C-HSA9].

82. See Jonathan Barrett & Lisa Marriott, “Trusts and Long-Term Residential Care,” in Mark Bennett, ed, Taming Settlor Controlled Trusts in Aotearoa New Zealand (Bridget Williams Books) at 1-2 [forthcoming].

83. Ibid at 8.

84. Ibid at 4.

85. Ibid at 5.

86. See e.g. Chief Executive of the Ministry of Social Development v Broadbent, [2019] NZCA 201 [Broadbent]. For discussion of Broadbent, see Barrett & Marriott, supra note 82 at 8.

87. See Nicola Peart, “Can your Trust be Trusted?” (2009) 12 Otago L Rev 59 at 63.

88. See Barrett & Marriott, supra note 82 at 6-7.

89. Ibid at 7-8.

90. See Broadbent, supra note 86 at para 84.

91. See [1987] 28 ETR 121 (Ont Div Ct) [Henson], aff’d [1989] 36 ETR 192 (Ont CA).

92. See RSO 1980, c 151.

93. Henson, supra note 91 at para 9.

94. See Novak v McDougall, 2019 SKQB 261.

95. See Baker Estate v Baker, 2018 NSCA 80.

96. See Higgins et al v Arsenau, 2018 NBQB 61, aff’d 2019 NBCA 21.

97. See Metro, supra note 68 at para 2.

98. See Nancy Golding, “Henson Trusts Now Available in Alberta: Good News?,” STEP Inside (October 2018) 14 at 14-15, online (pdf): [perma.cc/L3HQ-ME4E].

99. See Government of British Columbia, “Asset Limits Table” (last modified 21 January 2025), online: [perma.cc/5V3F-S3JC].

100. See Government of British Columbia, “Trusts” (last modified 20 December 2024), online: [perma.cc/GS4X-KURF].

101. Ibid.

102. For clawback of capital and earned income, see e.g. the Universal Credit Regulations 2013 (UK), SI 2013/36, regs 50, 60(1); State Pension Credit Regulations 2002 (UK), SI 2002/1792, reg 21(1) [State Pension]; Council Tax Benefit Regulations 2006 (UK), SI 2006/215, regs 32(1), 39(1); Income Support (General) Regulations 1987 (UK), SI 1987/1967, regs 42, 51 [Income Support]; Jobseeker’s Allowance Regulations 1996 (UK), SI 1996/207, reg 105(1); Housing Benefit (Persons who have attained the qualifying age for state pension credit) Regulations 2006 (UK), SI 2006/214, reg 47; Employment and Support Allowance Regulations 2008 (UK), SI 2008/794, reg 106(1); Civil Legal Aid (Financial Resources and Payment for Services) Regulations 2013 (UK), SI 2013/480, reg 17.

103. See e.g. Income Support, supra note 102, regs 42, 51. Legislation also outlines the exceptions (ibid, regs 42(2)(a), 51(2)(a)). See also Housing Benefit Regulations 2006 (UK), SI 2006/213, regs 42, 49 [Housing Benefit]. Such exceptions are not a universal feature of UK benefits law: Asset transfers subjecting assets to discretionary trusts are not disregarded in the Care Act 2014, providing in s 70 that where an adult whose care needs have been or are being met by a local authority transfers assets with the intention of avoiding charges, they will be required to pay “the difference between the amount the authority would have charged the adult were it not for the transfer of the asset, and the amount it did in fact charge the adult.” See Care Act 2014 (UK), ss 70(1)-(2). Similarly, if an adult deprives themselves of income in order to decrease the amount they are liable to pay towards their care, they are to be treated as possessing that income. See Care and Support (Charging and Assessment of Resources) Regulations 2014 (UK), SI 2014/2672, reg 17(1). Capital receives similar legislative treatment (ibid, reg 22(1)).

104. See State Pension, supra note 102, sched IV, part I, reg 11(1)-(2); Housing Benefit, supra note 103, sched 5, reg 12.

105. See Catherine B McCoy, “The Growing Need for Third-Party Special Needs Trust Reform” (2014) 65 Case W Res L Rev 461 at 468.

106. See The Public Health and Welfare, 42 USC, ss 1396p(d)(2)(C), 1396p(d)(3) (Medicaid); The Public Health and Welfare, 42 USC, ss 1382b(e)(1), (2)(C), (3) (SSI).

107. See McCoy, supra note 105 at 466-67.

108. See ibid at 471-72.

109. Metro, supra note 68 at para 2.

110. See McCoy, supra note 105 at 470.

111. See Social Security Act, supra note 74, ss 1207A, 1207V.

112. See Secretary, Department of Families, Housing, Community Services & Indigenous Affairs v Elliott, [2009] FCAFC 37 at para 27 (Austl).

113. See Egberts v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs, [2007] AATA 2102 (Austl).

114. See State Pension, supra note 102, sched IV, part I, regs 11(1)-(2). See also Housing Benefit, supra note 103, sched 5, reg 12.

115. See McCoy, supra note 105 at 473-76.

116. See Melanie B Holliman, “Special Needs Trusts: What You Need to Know to Help Your Clients and Avoid Client Complaints” (2019) 80 Ala Lawyer 343 at 346.

117. See Mark Brabazon, “Tax Treatment of Trusts” in Mark Bennett et al, eds, The Oxford Handbook of Comparative Trust Laws (Oxford University Press), s 31.4 [forthcoming, on file with the Journal].

118. See generally Income Tax (Trading and other Income) Act 2005 (UK), s 624 [Income Tax Act 2005].

119. Ibid, s 625.

120. See Mark Brabazon, International Taxation of Trust Income: Principles, Planning and Design (Cambridge University Press, 2019) at 35, n 85, DOI: ; Income Tax Act 2005, supra note 118, ss 629(1), (7)(d).

121. See Income Tax Act 2007 (UK), ss 714(1)-(2), 716(1).

122. Ibid, s 716(2).

123. Ibid, s 721(2).

124. Ibid, s 723(5).

125. For discussion of the “transfer of assets abroad” legislation generally, see Rebecca Murray, Tax Avoidance, 4th ed (Sweet & Maxwell, 2020) at para 2-034.

126. See Internal Revenue Code, 26 USC s 674(a) (1954) [IRC]. Some settlor-retained dispositive powers do not render the trust a grantor trust, that is, do not result in settlor attribution (ibid, ss 674(b)-(d)).

127. Ibid, s 675(1).

128. Ibid, s 675(2).

129. Ibid, s 675(4).

130. Ibid.

131. Ibid, s 676(a). An exception is also outlined (ibid, s 676(b)).

132. Ibid, ss 677(a)(1)-(3).

133. See Income Tax Act, RSC 1985, c 1 (5th Supp), s 75(2) [Income Tax Act].

134. CED 4th, Income Tax, “Income Attributed to the Settlor,” s 456 (August 2022).

135. See Income Tax Assessment Act 1936 (Commonwealth), 1936/27, s 102(1)(a) (Austl) [ITAA 1936].

136. Mark L Ascher, “The Grantor Trust Rules Should be Repealed” (2011) 96 Iowa L Rev 885 at 887.

137. See IRC, supra note 126, ss 1(a)-(c), 1(e), 671-679. Section 1(a) imposes the top income tax rate on married individuals filing jointly earning more than $731,201 US Dollars (USD) in 2024 (ibid). Section 1(b) imposes the top income tax rate on heads of household earning more than $609,351 USD in 2024 (ibid). Section 1(c) imposes the top income tax rate on unmarried individuals earning more than $609,351 USD in 2024 (ibid). Section 1(e) imposes the top income tax rate on trusts and estates earning more than $15,200 USD in 2024 (ibid). Income earned on assets subject to settlor-controlled trusts is not subject to the rate schedule in s 1(e): Such trusts are “grantor trusts” for federal income tax purposes, meaning income earned on assets subject to them is liable to tax as if earned by the settlor, and is thus subject to the rate schedules in ss 1(a), 1(b) or 1(c), as applicable (ibid).

138. See discussion in Ascher, supra note 136 at 903-907.

139. Ibid.

140. For personal tax rates, see Government of the United Kingdom, “Income Tax rates and Personal Allowances” (last visited 3 March 2025), online: [perma.cc/DM2C-2QNR]. For tax rates applicable to trust income, see Government of the United Kingdom, “Trusts and Taxes” (last visited 3 March 2025), online: [perma.cc/442F-BDSV].

141. See ibid.

142. See ITAA 1936, supra note 135, ss 97, 99A. For the progressive rate schedule applied to individuals, see Barbara Drury, “Australian Income Tax Brackets and Rates (2024-25 and Previous Years)” (last modified 1 July 2024), online: [perma.cc/U26T-7H8C].

143. For federal tax law, see Income Tax Act, supra note 133, s 122(1). For provincial tax law, see e.g. Income Tax Act, RSBC 1996, c 215, s 4.1(3)(a).

144. See Brabazon, supra note 120 at 106.

145. See Income Tax Act 2007 (NZ), 2007/97, Sched 1, Part A, ss 1, 3 (NZ) [Income Tax Act (NZ)], as amended by Taxation (Income Tax Rate and Other Amendments) Act 2020 (NZ), 2020/65, s 16 (NZ); James Coleman et al, New Zealand Taxation 2021: Principles, Cases and Questions (Thomson Reuters New Zealand, 2020) at 677. New Zealand increased the tax rate applicable to trustees to 39 per cent. See Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024 (NZ), 2024/11, s 121(2)(b) (NZ).

146. See Income Tax Act (NZ), supra note 145, ss HC 25(2), 25(4), 25(5), 29, 33; Brabazon, supra note 120 at 105.

147. Ibid at 106.

148. See Parry Field Lawyers, “Trust that Trust: A Practical Guide for Family Trusts in New Zealand” (October 2019) at 5-6, online (pdf): [perma.cc/5XJ3-U6HH].

149. See e.g. Julia Kagan, “Intentionally Defective Grantor Trusts (IDGT) in Estate Planning” (last modified 24 February 2024), online: [perma.cc/9UZ8-DQP9].

150. David Thompson, a leading BC tax lawyer, wrote that this is the case with most discretionary family trusts used in BC estate planning. See “Property Held by Discretionary Trusts and the Family Law Act” (March 2014) at 1-2, online (pdf): [perma.cc/GX9W-BHEG].

151. For a discussion of tax planning, see e.g. Canada (Attorney General) v Collins Family Trust, 2022 SCC 26 at para 2.

152. See e.g. Emma Chamberlain & Chris Whitehouse, Trust Taxation and Estate Planning, 4th ed (Sweet & Maxwell, 2014) at paras 9.84-9.89.

153. See generally John Wojtowicz, “Trust Distributions to Non-Beneficiaries and the Doctrine of Fraud on Power” (10 March 2020), online: [perma.cc/W3S2-JLFY].

154. For Australia, see Income Tax Assessment Act 1936 (Commonwealth), 1936/27, Part IVA (Austl). For the United Kingdom, see Finance Act 2013 (UK), Pt 5. For Canada, see Income Tax Act, supra note 133, s 245. For New Zealand, see Income Tax Act (NZ), supra note 145, ss BG 1, GA 1. For the US GAAR equivalent, see IRC, supra note 126, s 7701(o).

155. Inland Revenue, “Tax Avoidance and the Interpretation of the General Anti-Avoidance Provisions Sections BG 1 and GA 1 of the Income Tax Act 2007” (3 February 2023), online (pdf): [perma.cc/8KC7-EUPR]; Inland Revenue, “Income Tax: Scenarios on Tax Avoidance – 2023 No 2” (3 February 2023), online (pdf): [perma.cc/ZUR3-MRRK].

156. See Income Tax Act (NZ), supra note 145, s HC 35.

157. See Alex C Evans, “Why We Use Private Trusts in Australia: The Income Tax Dimension Explained” (2019) 41 Sydney L Rev 217 at 235.

158. See e.g. Jessica Palmer et al, Law and Policy in Modern Family Finance: Property Division in the 21st Century (Intersentia, 2017), DOI: [Palmer et al, Law and Policy]; Joanna Miles & Jens M Scherpe, “The Legal Consequences of Dissolution: Property and Financial Support between Spouses” in John Eekelaar & Rob George, eds, Routledge Handbook of Family Law and Policy (Routledge, 2020) 144, DOI: ; John Eekelaar, “The Financial Consequences of Divorce: Law and Reality” (2018) 32 Austl J Fam L 28; Joanna Miles, “Property Division on Relationship Breakdown: A Theoretical Analysis of the New Zealand Legislation” (2004) 2 NZULR 268.

159. For Alberta, see Family Property Act, RSA 2000, c F-4.7, ss 7-8. For British Columbia, see Family Law Act, SBC 2011, c 25, s 81(b) [BC Family Law Act]. For Manitoba, see Family Property Act, CCSM c F25, ss 13, 15(1) [M Family Property Act]. For Nova Scotia, see Matrimonial Property Act, RSNS 1989, c 275, s 12(1) [NS Matrimonial Property Act]. For New Brunswick, see Marital Property Act, RSNB 2012, c 107, ss 2, 3(1), 4(1). For Newfoundland and Labrador, see Family Law Act, RSNL 1990, c F-2, ss 19, 21 [NL Family Law Act]. For Ontario, see Family Law Act, RSO 1990, c F 3, s 5 [O Family Law Act]. For Prince Edward Island, see Family Law Act, RSPEI 1988, c F-2.1, s 6(1) [PEI Family Law Act]. For Saskatchewan, see Family Property Act, SS 1997, c F-6.3, ss 20, 21(1) [S Family Property Act]. For Québec, see art 416 CCQ.

160. See The Law Commission/Te Aka Matua o te Ture, Review of the Property (Relationships) Act 1976: Preferred Approach / Te Arotake i te Property (Relationships) Act 1976: He Aronga i Mariu ai (The Law Commission/Te Aka Matua o te Ture, 2018) at para 6.3.

161. BC Family Law Act, supra note 159, s 85(1)(f).

162. Ibid, s 96.

163. See Thompson, supra note 150 at 2. For the attribution triggers, see Income Tax Act, supra note 133, s 75(2). See also text accompanying notes 133-34, above.

164. NS Matrimonial Property Act, supra note 159, s 4(1)(a). Manitoba excludes from the application of its asset equalization regime “any asset acquired by a spouse or common-law partner by way of gift or trust benefit from a third person, unless it can be shown that the gift or benefit was conferred with the intention of benefiting both spouses or common-law partners.” See M Family Property Act, supra note 159, s 7(1). Newfoundland and Labrador simply exclude from “matrimonial assets,” “trusts or settlements received by 1 spouse from a person other than the other spouse.” See NL Family Law Act, supra note 159, s 18(c)(i).

165. NS Matrimonial Property Act, supra note 159, s 13.

166. See Angela M Vallario, “The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust” (2017) 45 Capital UL Rev 333.

167. See Raymond O’Brien, “Integrating Marital Property into a Spouse’s Elective Share” (2010) 59 Cath U L Rev 617 at 640-51; see also Barnett v Barnett, 2010 Tenn App Lexis 170 (Tenn Ct App).

168. See Restatement, supra note 43, s 59.

169. See Amy J Amundsen, “Domestic Asset Protection Trusts in Divorce Litigation” (2016) 29 JAAML 1 at 14.

170. See the text accompanying notes 62-65. See also Amundsen, supra note 169 at 8-10. Such client-pleasing trust law reforms generally fail in increasing the amount of trust business enjoyed by resident service providers. See Adam Hofri-Winogradow, “The Statutory Liberalization of Trust Law across 152 Jurisdictions: Leaders, Laggards and the Market for Fiduciary Services” (2020) 53 UC Davis L Rev 2313 at 2343-51.

171. The Law Commission/Te Aka Matua o te Ture, Some Issues with the Use of Trusts in New Zealand: Review of the Law of Trusts: Second Issues Paper (The Law Commission/Te Aka Matua o te Ture, 2010) at para 3.23.

172. See Palmer et al, Law and Policy, supra note 158 at 193-94. See also Ryan v Unkovich, [2010] 1 NZLR 434 (NZHC) at para 42, citing Regal Castings Ltd v Lightbody, [2008] NZSC 87 at para 5.

173. See The Law Commission/Te Aka Matua o te Ture, Review of the Property (Relationships) Act 1976: Report 143 (The Law Commission/Te Aka Matua o te Ture, 2019) at para 11.22 [The Law Commission/Te Aka Matua o te Ture, Review].

174. See Property (Relationships) Act 1976 (NZ), 1976/166, s 44C.

175. Ibid, s 44C. See also The Law Commission/Te Aka Matua o te Ture, Review, supra note 173 at para 11.

176. See ibid at 280-93.

177. See Family Law Act 1975 (Commonwealth), 1975/53, s 106B (Austl) [FLA Australia]; Kennon v Spry, [2008] HCA 56 [Kennon].

178. See Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd, [2011] UKPC 17 at para 62.

179. See supra note 11.

180. Ibid at paras 104-107.

181. See Murrell v Hamilton, [2014] NZCA 37; Vervoort v Forrest, [2016] NZCA 376; Hawke’s Bay Trustee Co Ltd & Anor v Michelle Kerrian Judd, [2016] NZCA 397.

182. For attribution in extreme cases, see Brkic v White, [2021] NZCA 670; Cooper v Pinney, [2021] NZHC 394. For non-attribution in less extreme cases, see Higgins v Higgins, [2020] NZFC 9654; Gill v Gill, [2020] NZFC 10231.

183. See e.g. Matrimonial Causes Act 1973 (England & Wales), s 24(1)(c) [Matrimonial Causes Act]. See also Matrimonial Proceedings and Property Ordinance (HK), c 192, s 6(1)(c) [Matrimonial Proceedings Ordinance].

184. See Family Proceedings Act 1980 (NZ), 1984/94, s 182; FLA Australia, supra note 177, s 85A. For New Zealand, see also Clayton v Clayton [Claymark Trust], [2016] NZSC 30 at para 34.

185. See Grant T Riethmuller, “The Search for Property in the Labyrinth of the Discretionary Trust” (2020) Intl Survey Family L 1 at 9, DOI: .

186. See e.g. PEI Family Law Act, supra note 159, s 4(1)(c).

187. See e.g. S Family Property Act, supra note 159, s 2(1).

188. Tremblay v Tremblay, 2016 ONSC 588 at paras 31-32 [Tremblay]. See also Sagl v Sagl, 1997 CanLII 12248 at para 37 (ONSC).

189. See Tremblay, supra note 188 at para 32.

190. Kachur v Kachur, 2000 ABQB 709 at para 32. The court also provides details on how the valuation is implemented (ibid at para 39).

191. See Purtzki v Saunders, 2016 BCCA 334 at para 68; Negus v Yehia, 2018 BCSC 604 at para 114; Jadavji v Khadjeva, 2021 BCSC 2267 at paras 50-56.

192. Grosse v Grosse, 2015 SKCA 68 at para 28.

193. See Matrimonial Causes Act, supra note 183, s 25(2)(a); FLA Australia, supra note 177, ss 75(2)(b), 79(4)(a). See also Kennon, supra note 177; Public Trustee v Smith, [2008] NSWSC 397 at para 125 [Public Trustee]. For Hong Kong, see also Matrimonial Proceedings Ordinance, supra note 183, s 7; Kan Lai Kwan v Poon Lok To Otto, [2014] HKCFA 66 (HK Ct Final App).

194. Thomas v Thomas, [1995] EWCA Civ 51 at para 3.

195. See Public Trustee, supra note 193 at para 125; Davidson v Davidson (1990), 14 Fam LR 817 (Austl FamCA); Romano v June, [2013] FamCa 344 (Austl); Diana Bryant, “Heterodox is the New Orthodox—Discretionary Trusts and Family Law: A General Law Comparison” (2014) 20 T&T 654 at 657, 669, DOI: ; Kennon, supra note 177; Australian Securities and Investments Commission v Carey (No 6), [2006] FCA 814 (Austl); Goodwin v Goodwin (1990), 14 Fam LR 801 (Austl FamCA); Stephens v Stephens, [2007] FamCa 680 (Austl); Riethmuller, supra note 185; Lee Aitken, “‘Control’, ‘Ownership’ and the Beneficiary of the Discretionary Trust: Case Note” (2008) Austl Bar Rev 128.

196. [2016] HCA 23 at para 54 (Austl).

197. Ibid at paras 54-55.

198. Ibid at para 54. See also Kerr v Christie, [2021] FedCFamC1F 313 at para 11 (Austl); Conrad v Conrad, [2019] FamCa 106 (Austl).

199. See Charman v Charman (No 4), [2007] EWCA Civ 503 at paras 47-58; Whaley v Whaley, [2011] EWCA Civ 617.

200. See Dovgan v Dovgan, [2021] FamCA 306 at para 279 (Austl).

201. Ibid at paras 268-92.

202. Ibid at paras 305-306.

203. See Barrett & Marriott, supra note 82 at 9-10.

204. See discussion in Part II, above.

205. See the text accompanying notes 102-103.

206. See the text accompanying notes 99-100.

207. See Brabazon, supra note 120 at 106.

208. See the text accompanying note 135.

209. See the text accompanying notes 161-62.

210. See Income Tax Act, supra note 133, s 122(1).

211. See the text accompanying notes 161-62.

212. See the text accompanying notes 171-75.

213. For the pro-avoidance position, see KU McKay, “Family Trusts” (1960) 36 NZ L J 121. An advertisement from 1965 read: “Income Tax and Death Duties can be High. Is the answer to this problem a Family Trust? Let one of our trust officers explain the workings of a Family Trust next time you are in town.” See Pyne, Gould, Guiness Ltd, “Income Tax and Death Duties Can be High,” The Press (28 May 1965), online: [perma.cc/K623-FVKW].

214. A prominent instance of such removal was the abolition of Gift Duty, which constrained the settling of property into trusts. Before its abolition, this duty was avoided by selling assets to the trust in return for a debt liability, and gradually forgiving that debt over time, in tranches smaller than the 27,000 NZD per year threshold for gift duty. See Michael Littlewood, “The History of Death Duties and Gift Duty in New Zealand” (2012) 18 NZ J Tax L & Pol’y 66, DOI: .

215. See Taxation Review Committee, Taxation in New Zealand (Government of New Zealand Printer, 1967) (LN Ross) at ch 46.

216. In future work, we intend to further analyze the political economy of MDTs in New Zealand, comparing it to developments in US trusts practice, which, while generally taking a robust approach to look through, has been tracking towards the accommodation of MDTs through the development of “domestic asset protection trusts” in a number of states. See the text accompanying notes 62-65.

217. See Dagan & Samet, “What’s Wrong,” supra note 7 at 637.

218. For probate fees, see e.g. Probate Fee Act, SBC 1999, c 4, s 2; Estate Administration Tax Act, SO 1998, c 34, Sched, s 2. For discussion of the use of trusts to avoid probate fees, see Donovan WM Waters, Mark R Gillen & Lionel D Smith, Waters’ Law of Trusts in Canada, 5th ed (Thomson Reuters, 2021) at 38-39, 682-83.

219. See e.g. BC Family Law Act, supra note 159, ss 85(1)(b)-(b.1); O Family Law Act, supra note 159, s 4(2)(1).

220. See e.g. Shari Motro, “Labor, Luck, and Love: Reconsidering the Sanctity of Separate Property” (2008) 102 Nw UL Rev 1623 at 1625.

221. See Ian Ayres & Robert Gertner, “Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules” (1989) 99 Yale LJ 87 at 94, DOI: .

222. As was done in at least three cases in British Columbia. See Whittall v Whittall, 1987 CanLII 2489 (BCSC); Grove v Grove, [1996] BCJ No 658 (BCSC); M (H R) v B (D M), 2004 BCSC 147. For a case citing all three, see Cottrell v Cottrell, 2023 BCCA 471 at para 50.

223. Some of the ideas in this and the previous paragraph are derived from Adam Hofri-Winogradow and Ram Rivlin, “The Use of Trusts in the Relationship Property Context: Challenges and Solutions” (2023) 52 Mishpatim 489 at 521-24.

224. This formula was proposed in a different context. See Motro, supra note 220 at 1652-58.