News/Press

LOTA Compliance: Clarifications and Considerations for Family Trusts and their Beneficiaries

Under British Columbia’s Land Owner Transparency Act (“LOTA“), every application to register an “interest in land” in B.C. pursuant to the Land Title Act must be accompanied by a “transparency declaration” confirming whether the entity receiving the interest is a “reporting body” as defined under LOTA. Any reporting body must subsequently file a “transparency report” providing information regarding the reporting body and each of its individual “interest holders”.  For further information on complying with LOTA requirements, click here.

In November 2021, the deadline for reporting bodies, including existing owners that are reporting bodies, to file a transparency report was extended by B.C.’s government to November 30, 2022.  With this extension, we encourage those who will need to file transparency reports to plan ahead and understand what information they will need to disclose under LOTA and consider any opportunities to simplify what will need to be disclosed.

 

Discretionary Family Trusts and Contingent Interests

Where a discretionary family trust owns B.C. real estate, LOTA raised questions as to how the family trust as a “relevant trust” (and therefore a reporting body) under LOTA would comply with LOTA’s requirements, and in particular, under what circumstances the beneficiaries of a trust would be considered interest holders who needed to disclose personal information about themselves in a transparency report.

Beneficiaries of a discretionary family trust are often “contingent” beneficiaries who have no fixed interest or entitlement from the family trust.  Generally, any benefit derived from the trust would be contingent on the happening of a triggering event: namely, the trustee exercising their discretion to make distributions to one or more beneficiaries.  In making such distributions, trustees can (and often will do) exclude other beneficiaries.  Many family trusts are discretionary and structured to maximize flexibility and to avoid giving any particular beneficiary a fixed interest.  Beneficiaries of family trusts are often only contingent beneficiaries who may (or may not ever) benefit from the trust or receive any trust assets, which may include land or an interest in land.  On this basis, generally an individual being merely named or included as a beneficiary of a discretionary family trust does not in itself equate to that individual having any fixed ownership interest or entitlement from the trust or its assets.  Nevertheless, with the enactment of LOTA and transparency reports filed for family trusts, the question arose as to whether the trust’s beneficiaries would be considered “beneficial owners” of the trust’s interest in land if the beneficiaries might only receive (or benefit from) the trust’s interest in land on a contingent or discretionary basis.

In January 2022, the B.C. government provided important clarifications for family trusts.  The government distinguished between beneficiaries who are included specifically by name in a trust deed versus beneficiaries who are included not by name but based on being part of a class of beneficiaries.  For example, a class of beneficiaries might be described as “the children of A” or “the descendants of A & B” and include individuals as trust beneficiaries without expressly including their names.  Any individual referenced by name as a beneficiary of a family trust and who may receive the benefit of the trust’s interest in land, whether on a contingent or discretionary basis, would be considered a beneficial owner and would need to have their information disclosed under LOTA.  However, the government’s January 2022 clarification suggests that an individual only referenced as part of a class of beneficiaries would not be considered a beneficial owner and would therefore not need to have their information disclosed.

Where family members such as children, grandchildren or great grandchildren are each included in a trust deed as beneficiaries by name, LOTA also requires that the family trust update its transparency report each time beneficiaries are added (for example, by birth) or removed. Depending on the structure of the trust, the shift in beneficiaries can take many forms and place an administrative burden on the trust to constantly update the LOTA report.  In contrast, the government appears to suggest that no LOTA update would be required where beneficiaries are described in the trust deed broadly as a class. For example, individuals subsequently born into a class are added simply by fitting within the description of that class.

 

Practical Considerations for Before November 30, 2022

The enactment of LOTA has given many families cause to reconsider owning B.C. real estate through a family trust or continuing to have the family trust exist at all.  In many circumstances, trust assets such as real estate can be distributed out of a family trust and to a beneficiary on a tax-deferred basis.  This is one of a range of different options to consider in advance of the November 30, 2022 filing deadline.

In the interest of simplifying your transparency report and maximizing confidentiality, if your family trust deed includes beneficiaries listed by name, the B.C. government’s January 2022 clarifications suggest that it may be worthwhile to consider whether the trust deed can be amended to have as many of the beneficiaries described instead as part of a class of beneficiaries.  The ability to make such an amendment however depends on several factors including the terms that are specific to each family trust.

Changes to family trusts also commonly trigger income tax implications, updates to related estate planning or a review from a family law or creditor’s perspective.  As such, we strongly advise that you obtain proper legal advice before implementing any changes to your family trust or the assets that it owns.

 

Looking Ahead

We encourage owners of B.C. real estate to turn their minds to LOTA well in advance of the November 30, 2022 deadline as it is anticipated that the volume transparency reports being filed towards the end of the deadline will be large.  The preparation of these reports also often require an in-depth analysis of interest holders and beneficial owners of reporting bodies that can take some time.

A failure to file a new transparency report by the deadline, or a failure to file a change to relevant information may result in a fine of not more than the greater of (i) $25,000 for individuals or $50,000 for persons other than individuals, and (ii) 15% of the assessed value of the property to which the transparency report relates. Therefore, we recommend taking immediate action well in advance of November 30, 2022. For more information, please contact your Boughton lawyer or Connor G.W. Watt of our commercial real estate group for assistance.