Penny Wise or Pound Foolish?

As a litigator, I see a lot of the downside to do-it-yourself estate planning.  The recent Ontario Court of Appeal decision in Foley v. McIntyre is a good example.  At issue were certain inter vivos (ie. before death) gifts of proceeds of savings bonds by a father to one of his two children.  While there may have been other reasons for the gifts, the decision appears to indicate that the primary reason for passing on funds before death was to avoid probate and any applicable estate taxes.  Avoiding probate may have valid estate planning objectives.  However, as in this case, consideration should be given to the potential for such gifts to be attacked.  Here, the gifts were left open to a claim by the non-recipient child under the doctrine of resulting trust.  Under this doctrine, the law presumes that on a transfer of money from a parent to a child, the child holds the funds in trust for the parent.  To rebut the presumption, the donee child is required to lead evidence that indeed the parent intended to bestow a gift.  If the gifting parent is now dead, that may not be so easy.

While the trial judge and the Court of Appeal found that there was sufficient evidence to rebut the presumption of resulting trust, I suggest that there were danger signs.  For example, the donee child also held power of attorney.  As well, two of the gifts were made after the parent had suffered a second stroke and was hospitalized.  Fortunately for the donee child, the parent had provided written instructions to his financial advisor regarding the gifts and the trial judge accepted the evidence of a geriatric psychiatrist who found the parent to be competent with respect to his finances (although not with respect to personal care) and rejected the evidence of an expert saying the opposite.

What is also interesting about this case is that the parent’s will left the savings bonds to the donnee child in any event.  Had he left the bonds in his estate, the resulting trust claim could not have been raised.  I suggest that the savings in probate fees and estate taxes were more than offset by the litigation costs incurred in fighting over the gifts made to avoid probate.

Now there may have been other very good reasons for the father in this case to make the gifts that he did.  Perhaps he wanted to see the good that the money could do before he died.  If that was the case – more power to him.  If however, avoiding probate is the only reason for gifting before death, a little professional advice will go a long way.