A former telecommunication executive’s attempt to shield family properties from his bankruptcy proceedings provides a textbook example of a sham trust, Toronto corporate lawyer Marlin Horst tells AdvocateDaily.com.

In a recent decision, an Ontario Superior Court judge ruled the trusts holding a farm and cottage for the benefit of the man’s children and stepchildren were void, relying in part on expert evidence that showed the font used in the text of the trust did not exist at the time he claimed to have drawn them up.

But Horst, partner with Shibley Righton LLP, says the font discrepancy was just the “icing on the cake” for the successful trustee in bankruptcy, whose motion to have the bankrupt’s interest in the properties declared assets of the estate — and therefore available to creditors — was granted.

“There were so many other things that pointed to the trust being a sham, and the decision lays those out in great detail,” he says. “There was very little evidence to suggest that the property was ever held genuinely in trust, and I think the result would have been the same, even without the font element.”

According to the decision, the two properties were bought in 1994 and 2003 respectively, long before the bankruptcy of the man, who claimed he had created the trusts one year after each purchase.

But the 1995 document relating to the cottage used a font named Cambria, which an expert testified did not exist until its creation for Microsoft in 2002, and even then, was not made publicly available until 2007. That year was also the earliest that a non-employee of Microsoft could have selected the font used in the trust document for the farm.

The man at the heart of the case was a senior executive at a telecommunications firm but ran into trouble in 2009 when he was removed from the board over payments to himself and other executives. In 2017, after the firm won a $5.6-million judgment against him, he filed for bankruptcy.

The trustee in bankruptcy moved for the declaration that the properties in the trust should be part of the estate, and the judge agreed that they were void as shams.

The judge cited a series of red flags surrounding the purchase of the two properties that suggested the trust lacked the requisite intention to create a valid trust, including the following:

• the purported trust was not registered on title
• mortgage documents made no reference to any trust
• the bankrupt and his wife had free reign to use the cottage and paid for all related expenses without any accounting to their children
• the lack of evidence that the existence of a trust was mentioned to anyone other than one of the couple’s sons, until years after it was allegedly created

Horst says it’s not uncommon for a vacation property to be held genuinely in trust.

“It doesn’t have to be acquired that way, but when there is a trust, it is usually either mentioned on title, or it’s made clear to the lender that it’s a trust property,” he says. “Neither happened in this case.”