Trusts Created by Separation Agreements

The issue of undertakings in separation agreements forming trusts on death has received recent judicial consideration.  In the Ontario Superior Court of Justice case of Snider v. Mallon, the court confirmed and applied the principle that an undertaking in a separation agreement creates a valid interest in the beneficiary of the undertaking such that if the undertaking is not carried out prior to death, the subject matter of the undertaking will form a trust in favour of the separated spouse.  Here, the husband agreed in a separation agreement with his first wife to assign to her residual payments that he would receive as income from insurance policies sold by him.  He failed to execute the proper documentation to assign the residuals and a claim to an interest in such income was made by his second wife upon his death .  The court held that as a result of the separation agreement, the residuals formed the subject matter of a trust in favour of the first wife, regardless of any other disposition that might be made.

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