Your turn. Any CofI issues? Any reasons to incentivize you to spread misinformation? Obviously anyone can say anything in a chatroom but given how specific, targeted and how persistent your claims are, how regularly they come up it would be very helpful to know if there is a conflict here.

mordko said
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Saying “beneficial ownership is not ownership” is meaningless, it's sophistry. A trust separates legal ownership from beneficial ownership. The beneficiary’s interest is not merely an ordinary unsecured claim against the trustee personally. That's nonsense.
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No, the separate ownership does not exist. Judges, lawyers, and others who actually study Waters' work know what Waters meant and that Waters didn't choose the best wording for the claims that beneficiaries have under their trust.

What Waters described is the structure of a trust. There's no new requirements for banks and other parties to deal with those beneficiaries. Banks and others owe the beneficiaries nothing.

A bank is discharged of its obligations for the balance of a trust's bank account once the bank hands the money over the trust's trustee. Period. A company is discharged of its liability for the dividend on the shares a trust holds once the company hands the dividend to the registered owner of the shares, the trustee. Period.

Not the bank's or the company's problem if trustee takes off with the account balance or dividend and doesn't hand them over to the trust beneficiaries.

You are just taking what Waters wrote out of context and obviously have no understanding of what Waters wrote about. You should take your own advice, get Waters' work, and learn from it instead of making things up!

Your examples (municipal tax liens, Redwater, trustee indemnity) are real concepts, but they are special priority situations. They do not prove the general proposition that Wealthsimple’s creditors could simply take properly constituted client trust funds. These are exceptions which prove the basic case. In your previous post you made a wild claim that the whole act is irrelevant; now you are looking for very special (but likely irrelevant) exceptions.

Saying “beneficial ownership is not ownership” is meaningless, it's sophistry. A trust separates legal ownership from beneficial ownership. The beneficiary’s interest is not merely an ordinary unsecured claim against the trustee personally. That's nonsense. That distinction is exactly why BIA s.67 excludes property held by the bankrupt in trust for another person from property divisible among creditors. The trustee/bankruptcy trustee may administer the process, but the key issue remains whether the funds are valid trust property.

The assertion that the bank and CDIC owe the beneficiary nothing is designed to mislead, very deliberately. The bank may owe the legal account holder (the trustee) rather than you directly, but that does not mean the money belongs beneficially to the trustee or its creditors. Legal title, payment mechanics, and beneficial ownership are different concepts. Focusing on mechanics is a distraction. Denying beneficial ownership = lie. Waters’ Law of Trusts in Canada says so (one of the leading Canadian trust law texts): “The essence of a trust is the separation of legal ownership from beneficial ownership.” Enjoy. https://store.thomsonreuters.c.....69601050!p!!g!!waters%20law%20of%20trusts&gad_source=1&gad_campaignid=12087569492&gbraid=0AAAAADtqfRe-rJ5vOKkslhXKlQZ5wiqBy&gclid=CjwKCAjwgajSBhBEEiwASicJUyoOp0wDC6tuuczl_Z4qBGV-UML3Vfz9EVDOP9iRtd0rLl9QTzgEKRoCCA0QAvD_BwE

mordko said
I don’t care about procedure. You are mixing different things.

Yes, I may have to contact the bankruptcy trustee and file whatever process identifies. That does not mean the trust assets are simply ordinary estate assets available to Wealthsimple’s creditors. That’s completely false and obvious.

The Act clearly says property held by the bankrupt in trust for another person is not property divisible among creditors. So the question is not “does the trustee administer the process?” but whether the creditors have any claim to trust beneficiary’s money. And the law says “no”. https://laws-lois.justice.gc.c.....on-67.html

Yes, certain creditors do have a claim against assets under trust, regardless of section 67.

Many municipalities do for property taxes in arrears, for example. Such creditor municipalities can compel a tax sale of the property. New owner will receive title legally cleared of previous ownership, previous mortgages, previous liens, and claims against previous owner.

There have also been court rulings that certain creditor claims are not technically "claims" under the Canadian bankruptcy laws. Consequently, such a creditor is technically not a "creditor" under those bankruptcy laws, is not subject to section 67, and is not prevented from attaching to assets that the bankrupt was holding in trust. One such case is the 2019 Supreme Court of Canada case involving Redwater Energy Corporation.

There is also the lien that trustees have against assets they hold in trust for their unpaid related expenses and their unpaid trustee fee. That lien comes from their right to indemnity for acting as a trustee, comes ahead of beneficiary claims, and is not subject to section 67.

For CDIC, for reasons known to you, you are going on and on about the legal title, but omitting beneficial ownership. A trustee holds legal title; the beneficiaries hold the beneficial interest. CDIC’s trust deposit regime exists to provide coverage on a per-beneficiary, not to multiply coverage for the trustee personally. Payment mechanics do not change who beneficially owns the trust property. And that's all I care about.

No. "Beneficial ownership" is not ownership. It is just a claim for certain benefits from ownership against the actual owner.

Beneficiaries of a trust have no legal claim against the bank for the balance in a trust account. Their claim is against the trustee only. The bank and CDIC owe beneficiaries nothing and are correct in paying the balance of bank trust accounts to the legal account owner, the trustee, and not to any beneficiaries.

You obviously don't know how bankruptcies, trusts, or trust accounts work.

AltaRed said

The safe solution seems to be to simply use WS Cash as an operating account with minimal financial exposure. Place one's more significant sums with an FI with direct CDIC membership. Financial wizardry is not worth potential risks.  

I agree, a real bank is a real bank with CDIC which has never failed yet. If a person has some significant money, you want your own name on it.
But these new fintechs with all of these trusts and middlemen, and the rest of it, not worth risking too much in case it fails. Maybe it works out ok, maybe it's a big mess, who knows, tell it to the judge.

InterestThis said
Like I said before, this won't be really figured out until one of these main Canadian fintechs go bankrupt, then we'll Find Out, when it hit the courts.

A few dozen financial institutions have failed in Canada, and the CDIC covered them.
Meanwhile fintech XTM Inc. failed, and some people lost money.

So fintech is still in the Find Out stage in Canada.  

The safe solution seems to be to simply use WS Cash as an operating account with minimal financial exposure. Place one's more significant sums with an FI with direct CDIC membership. Financial wizardry is not worth potential risks.

A few dozen financial institutions have failed in Canada, and the CDIC covered them.
Meanwhile fintech XTM Inc. failed, and some people lost money.

So fintech is still in the Find Out stage in Canada.

Yes, I may have to contact the bankruptcy trustee and file whatever process identifies. That does not mean the trust assets are simply ordinary estate assets available to Wealthsimple’s creditors. That’s completely false and obvious.

The Act clearly says property held by the bankrupt in trust for another person is not property divisible among creditors. So the question is not “does the trustee administer the process?” but whether the creditors have any claim to trust beneficiary’s money. And the law says “no”. https://laws-lois.justice.gc.c.....on-67.html

Claiming that reference to BIA “junk” is ludicrous. Again, bringing in irrelevant things like RRSPs/account types. BIA does not talk about account types. What it says, in substance, is that property held by a bankrupt in trust for another person is not property divisible among the bankrupt’s creditors, subject to the Act. It really does not matter what type of account it is. As long as money in chequing account is actually held in trust (as your contract says), it falls under the act.

For CDIC, for reasons known to you, you are going on and on about the legal title, but omitting beneficial ownership. A trustee holds legal title; the beneficiaries hold the beneficial interest. CDIC’s trust deposit regime exists to provide coverage on a per-beneficiary, not to multiply coverage for the trustee personally. Payment mechanics do not change who beneficially owns the trust property. And that's all I care about.

mordko said
What am I going to do? Wait.

…

However, the trust arrangement is very much legally significant in Canada. If Wealthsimple were to become insolvent, the trust funds would not form part of Wealthsimple’s bankruptcy estate and will be returned to customers.

No, you do not wait.

You contact the bankruptcy trustee and file the required creditor claim, as Wealthsimple answered in their FAQ.

Yes, trust funds do form part of Wealthsimple's bankdruptcy estate. When a trustee dies or goes bankrupt, any assets pass to the trustee's executor or trustee's bankruptcy trustee.

The supposed beneficiaries of a bank trust account claim what they owe against the account holder (the trustee), not the bank or CDIC. Beneficiaries have no legal claim for the bank trust account balance, against the bank or CDIC.

When there is a CDIC buyout of the trust account after a member failure, CDIC pays the trustee for the trust account, not any beneficiaries. When the trustee goes bankrupt, the bank provides the funds in the trust account to the trustee's bankruptcy trustee, not to any beneficiaries.

The CDIC trust account regime multiplies CDIC coverage for the trustee, not for the beneficiaries. The trust account and the title to the account's balance belong to the account holder, the trustee, not to any beneficiaries that the trustee may declare to multiply CDIC coverage.

Ditto with that junk reference to the BIA. Under section 96 of the Bankruptcy and Insolvency Act, a bankruptcy trustee can rollback transactions within a year of the bankruptcy filing. That includes transfers of funds to any creditor proofed instruments, like RRSP, life insurance policies, and trusts.

You don't seem to know what you are writing about.

Both Wealthsimple and CDIC expressly describe the arrangement as a trust, not merely a generic nominee arrangement. Wealthsimple states that chequing balances are “held in trust” at CDIC member institutions, and CDIC has a specific legal framework governing deposits held in trust, including disclosure requirements for trustees and beneficiaries.

https://help.wealthsimple.com/.....money-safe
https://www.cdic.ca/depositors.....-in-trust/

The Trust exists. It's in black and white. There are multiple layers of regulation that make it difficult for a firm like Wealthsimple to simply advertise a trust that does not legally exist. And the client agreement is contractual. I am not saying it's impossible for laws and regulations to be broken, I am just saying that they would have be broken with massive oversight failure for the hypothetical you are describing under bankruptcy to become a thing.

And this is what Canadian statute says under Bankruptcy and Insolvency Act, s. 67(1)(a): The property divisible among creditors does not include “property held by the bankrupt in trust for any other person.” https://laws-lois.justice.gc.c.....on-67.html

I agree that it's a poor subject for social media. Also agree that it's largely irrelevant for practical purposes. It's just that there is obvious misinformation being presented as if it were a fact. It's being done at regular intervals. And I have a feeling that there might be a conflict of interest which hasn’t been spelled out.

CDIC primarily uses the word "nominee-name" for this stuff (although they do add phrases like "i.e. in trust"). "Nominee-name" is also how securities firms hold your securities. Those are indeed part of a bankruptcy estate, albeit in a special "customer pool", where the beneficial owners have first dibs. Either this is bringing in nominee-name items into the bankruptcy estate that would have been excluded in a non-securities-firm bankruptcy, like WSP would be, or they aren't actually excluded. It is also possible that a formal trust with trustee discretion over the contents and all that might be excluded, but that isn't what these bare, title-holding nominee setups are. But if they aren't part of the estate, it isn't obvious that it is the bank's responsibility to bypass the bankrupt company and the bankruptcy trustee to return the deposits to the beneficiary.

Without a bankruptcy lawyer to weigh in with real knowledge, this is just hypothetical back and forth on the internet. I'm happy with my choices regarding Wealthsimple, and people who don't want to make a call can avoid the Chequing account.

I think this is the point Norman is trying to make - in the event of Wealthsimple Payments going bankrupt, your Chequing deposits where they are the trustee would indeed be part of the WSP bankruptcy estate.

Yes, and it's false. It would only be true if:

- the trust was invalid,
- there was a shortfall caused by fraud or operational failure, or
- there were disputes about identifying or tracing the trust property.

The key point is that if the funds are actually held in a valid trust for customers, then under trust law they are not assets beneficially owned by the trustee.

In other words Wealthsimple can’t just go bankrupt for your money to magically become “wealthsimple’s estate”. There must also be fraud and/other serious illegal activity as well as regulatory failure for this scenario to become an issue.

Assuming the laws are being followed, if Wealthsimple Payments became insolvent, assets it holds in trust are not available to its creditors - they belong beneficially to the customers. That's what “trust” means by law.

As I mentioned earlier, high HISA type balances do not provide much, if any, real return after tax. WS is a brokerage first and foremost, not a bank. Supposed $1M in CDIC coverage seems to be a marketing ploy rather than a useful metric.

AltaRed said
I don't see any financial risk in WS due to Power Corp's ownership but I do not consider deposits with WS as CDIC protected. At the same time, I do not know why anyone would have large amounts of cash sitting around in HISA type accounts anyway since a yield less than 4% is likely dead money on an after tax, real dollar basis.  

Unless Wealthsimple is not actually doing what is undertaking to do, providing the banks with the CDIC-mandated trust info, the deposits should indeed be covered by CDIC, with the separate "trust" $100K pooling. That info is purely to help CDIC determine coverage in the event of the bank failing, and CDIC and the banks have no involvement in the trustee/beneficiary relationship outside that case, but the coverage would be there. That case would only cause major client problems if WSP failed in the trust reporting, and a Canadian bank they were using went insolvent. If just WSP went kaput, the trust reporting wouldn't be an issue, unless WSP also didn't have accurate internal records of their client deposit liabilities, which would be an in-house Synapse sort of situation.

mordko said
If there is a fraud that creates a shortfall in the trust assets, then CDIC may not make me whole for that shortfall - the issue becomes recovering assets through the insolvency or fraud process. CDIC is not insurance against embezzlement.

However, the trust arrangement is very much legally significant in Canada. If Wealthsimple were to become insolvent, the trust funds would not form part of Wealthsimple’s bankruptcy estate and will be returned to customers.  

I think this is the point Norman is trying to make - in the event of Wealthsimple Payments going bankrupt, your Chequing deposits where they are the trustee would indeed be part of the WSP bankruptcy estate. They wouldn't even be the separate and distinct sort of "client pool" that brokerage "in trust" shares and obligations form in the estate of a brokerage insolvency. CIPF insurance would make up shortfalls there, but in the hypothetical WSP bankruptcy case for Chequing accounts, neither CIPF nor CDIC are involved. The trust relationship is significant, but not a ring-fence around your funds in case of WSP bankruptcy.

G&M believes that WS brokerage has poor response times from WS support for customers with low account values.

I have no idea if it's true. Personally in the last 5 years I tested Questrade, RBC and TDDi. RBC was fine but expensive. TDDi was the worst. Very fast and helpful support but you have to call them non-stop because the service is riddled with errors. Questrade and WS both fine.

WS fits my needs better, the interface is perfect, buy/sell superfast, I can extract the exact data I need quickly, and I like that they keep getting better very fast. Their service has been excellent but I am “generation” so can’t comment on G&M claim. One needs just 100k in total assets with WS for a family to qualify for faster response times so G&M’s test might not have been representative for most investors.