Posts tagged ‘resulting’

July 14, 2015

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.

December 18, 2012

Gifts and Resulting Trusts – Lawyers Need to be Aware of Pitfalls

As a recent Manitoba case shows, it is important for lawyers tasked with effecting a gift of property to deal up front with a potential challenge to the gift in the form of a resulting trust claim.

In Hill v. Poquet Estate, the deceased signed a transfer of land adding the plaintiff as a joint tenant to certain real property.  The deceased and the plaintiff “were like brothers” and the consideration for the transfer was $1.  On death, the plaintiff claimed that the transfer was a gift and sought a declaration that he is entitled to be registered as owner of the property by virtue of his right of survivorship as a joint tenant.  The estate of the transferor opposed, taking the position that, as the transfer was without consideration, the plaintiff held the property as a resulting trustee for the deceased.  The Court reviewed the facts and the law regarding resulting trusts and agreed with the estate, refusing to register the transfer.

The Court set out some of the key elements of a resulting trust as stated by the Supreme Court of Canada:

  1. “A resulting trust arises when a title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original owner”;
  2. “In certain circumstances … there will be a presumption of resulting trust or presumption of advancement”;
  3. “The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers.  When a transfer is challenged, the presumption allocates the legal burden of proof.  Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended …  This is so because equity presumes bargains, not gifts”;
  4. “[T]he onus is on the transferee to rebut the presumption of a resulting trust”
  5. “In cases where the transferor is deceased and the dispute is between the transferee and a third party, the presumption of resulting trust has an additional justification.  In such cases, it is the transferee who is better placed to bring evidence about the circumstances of the transfer”.

 

In this instance, the Court found that the presumption of advancement had not been rebutted, despite the deceased having retained and instructed a lawyer to prepare the transfer and have it executed.  The Court found that the actions of the lawyer dealing with the transfer fell “well below the standard of conduct required by a solicitor looking out for the interests of his client”.   The lawyer had known the deceased for many years as both a client and an acquaintance.  The deceased attended his office and instructed him to draft up a transfer of land to add the plaintiff as a joint tenant, a power of attorney giving the plaintiff complete power to deal with the deceased’s assets and a will leaving his entire estate to the plaintiff.  The lawyer made no enquiry of or provided any advice to the deceased as to why he would do this.  When the time came to execute the documents, the lawyer acted for both the deceased and the plaintiff.  The Court found that this was “a situation which called out for the lawyer to make enquiries as to why the deceased was taking this course of action” and “was a situation that required [the deceased] to receive legal advice”.  In light of the failings of the lawyer and the lack of any other evidence to rebut the presumption of resulting trust, the Court found that beneficial title to the property rests in the estate of the deceased. 

If we presume for the moment that the intention of the deceased was to gift the property to the plaintiff, the deceased could reasonably assume that in having his lawyer take care of the matter his intentions would be carried out.  In such situations there is a clear obligation on the lawyer to take measures to ensure that a potential resulting trust claim can be properly rebutted, including assessing the transferor’s wishes and having a written intention to gift as part of the transaction.  While the Court did mention instructions to prepare a will favouring the plaintiff, there was no indication that this was done.  I suspect not as such would have gone a long way to either support the gift in the first place or otherwise result in an eventual transfer of the property to the plaintiff by will.