Trevor Todd and Jackson Todd have practiced law re contested estates for over sixty combined years, including the thorny question of contested gratuitous transfers being either a gift, a loan or a trust.
GRATUITOUS TRANSFERS- LOAN, GIFT OR RESULTING TRUST?
The Gratuitous transfer of assets is a commonplace fact pattern in estate litigation. A small minority of purported gifts are substantiated as to the intention of the donor, which then forces the courts to assess the reliability of the evidence if any as to the intention of the donor why were the transfers made.
The issue of the intentions not being documented is probably most common in family transactions such as the proverbial “Bank of Mom and Dad”.
The most common forms of contentious transfers are made gratuitously through the use of joint tenancy, in both real property and investments such as bank accounts. By reason of the nature of the joint tenancy, upon the death of a joint tenant, the surviving joint tenant automatically becomes the registered owner of the property through the right of survivorship. This happens immediately upon death, and the asset does not form part of the estate of the deceased nor attract probate fees.
Such gratuitous transfers do however attract estate litigation, and the question for the courts to determine is whether the gratuitous transfer was a loan, a gift, or is subject to a resulting trust.
Determinations of whether a gratuitous transfer (usually real property) was a gift or resulting trust are more common in the courts than whether the advancement of funds was a loan or not.
Such cases are all fact determinative; the purpose here is to give an overview of the law relating to each of the three possible outcomes of inter-vivos gratuitous transfers.
WHAT IS A LOAN?
A loan is a specific form of contract. As such, it requires mutual concordance between the parties as to the existence, nature and scope of their respective rights and duties. Like other contracts, it may be evidenced orally, in writing, by conduct or by a combination thereof: Biehl v. Strang, 2011 BCSC 1373, paras. 326-330.
The essential elements of a loan were discussed. in Lee v. 1137434 Alberta Ltd., 2009 BCSC 284:
a principal sum;
i) ii) placed with a borrower;
ii) iii) on agreed terms for the payment of interest; and
iii) iv) liability on the borrower’s part for return of the principal with accrued interest. A loan has also been defined as delivery by one party and receipt by another of money on agreement, express or implied, to repay the money with or without interest:
WHAT IS A GIFT?
Generally speaking, a gift is a voluntary transfer of property to another without consideration. A true and proper gift is always accompanied with delivery of possession, and takes effect immediately.
This is opposed to a loan, which is a form of contract that involves mutual exchanges of obligations, the transfer by way of a gift involves a gratuitous unilateral transaction.
The central element of the gift is the intention of giving to another without any expectation of renumeration. The gift cannot be revoked by the donor or made void by another once the lawful property is vested.
For a gift there must be:
a) an intention to make a gift on the part of the donor, without consideration, or expectation of renumeration;
b) an acceptance of the gift by the donee; and
c) a sufficient act of delivery or transfer of the property to complete the transaction.
To make a valid gift the donor must have done everything that according to the nature of the property, was necessary to be done to transfer the property and make the transfer binding on the donor. McKendry v McKendry 2017 BCCA 48 at para. 31
The court will not perfect an incomplete gift. As a result, where there is a mere promise or unfulfilled intention, the court will not force the intended donor to complete the gift.
The standard for proving a gift is on the balance of probabilities.
WHAT IS A RESULTING TRUST?
A presumption of resulting trust arises where a person makes a voluntary transfer into the name of another person. This is because equity presumes bargains and not gifts.
The intention of the donor at the time of the transfer is key to determining whether the transaction gives rise to a resulting trust.
Generally this can be addressed by answering the following question: did the donor intend to make an immediate absolute gift or did the donor intend the transaction to be merely one of convenience. If it is the latter than the transferor is said to be holding beneficial title of the assets in a resulting trust for the donor
Where there is no consideration for a transfer the law presumes that the transferor intended to create a trust, rather than make a gift.
The legal presumption of resulting trust applies to most gratuitous transfers, but it is a rebuttable presumption of law. The party who obtains the benefit of the transfer must on the balance of probabilities rebut this presumption that the transferor intended to gift at the time of the transfer, or that there was evidence of the transferor’s contrary intention.
The leading case is Pecore v Pecore SCC 17.
The courts are primarily attempting to determine whether the intention of the donor at the time of the gratuitous transfer was to make a gift or has a resulting trust been created.
The court should only rely on the presumption of resulting trust where there is insufficient evidence to establish the transferor’s actual intent at the time of the transfer: Fuller v Fuller 2010 BCCA 421.
In Franco v. Franco Estate 2023 BCSC 1015, the court confirmed that if the transferee leads evidence showing that it is more likely than not that the transferor intended the transfer to be a gift, the presumption of resulting trust does not apply.
The presumption of advancement rebuts the presumption of resulting trust. Where a person makes a voluntary transfer to their spouse or minor child, it is presumed that the transfer was made with the intent of advancing the property to them, i.e., a gift. The presumption of advancement does not apply when a parent transfers property to an adult independent child. Recent case law indicates that it is increasingly questionable whether the presumption of advancement any longer applies to spouses.
CASES WHERE THE COURT FOUND A LOAN
Grenier v Williams 2020 BCSC 462 is a case where a daughter advanced $23,000 to her father to assist him in purchasing a property. Years later acrimony developed and there was litigation wherein the daughter alleged a loan and the father said it was a gift.
There was no documentation of the financial advancement. The court decided primarily on credibility that there was a loan and not a gift.
Weinhaupt v Paracy 2017 BCSC 1662 is a classic Bank of Mom and Dad situation except for that it was well documented. The apretyns advanced significant funds to a child and spouse in order to assist in the financing of the purchase of a home. The case law can be divided in terms of finding either a loan or a gift depending on the specific findings of fact that are largely based on evidence of the intention of the donors.
The more the transaction is documented the more likely the intention of the parties can be determined.
After reviewing the evidence, the court concluded that the funds were a loan and not a gift. There was contemporaneous documentary evidence of a loan, such as a promissory note, and security for the loan in the form of a mortgage. There was a reasonable expectation or likelihood of repayment once the property was sold.
The court cited Locke v Locke 2000 BCSC 1300 in determining whether it was a loan or a gift. (This passage from Locke was adopted by the Court of Appeal in Kuo v. Chu 2009 BCCA 405):
1. the presumption of advancement no longer applies between adult independent children and their parents;
2. between adult children and their parents, the presumption is a resulting trust when the parents make gratuitous transfers to children;
3. the court must consider all of the evidence in determining whether the parent intended the transfer as a gift or loan;
4. the factors to be considered are:
a) whether there were any contemporaneous documents evidencing a loan;
b) whether the manner for repayment is specified;
c) whether there is security held for the loan;
d) whether there are advances to one child and not to others, or advances of unequal amounts to various children;
e) whether there has been any demand for repayment before the separation of the parties;
f) whether there has been any partial repayment and whether there was any expectation or likelihood of repayment.
GIFT OR RESULTING TRUST?
Anyone who intends to make a gift of real or personal property for little or no consideration must ensure that the intention of the donor is well documented. A deed of gift given under seal, along with the statutory declaration of the intention to gift is probably the best evidence that the courts will rely upon.
If available, the most compelling evidence is direct evidence of the transferor’s intention at the time of transfer, but circumstantial evidence from that time is also important.
Post-transfer conduct is also relevant, but is typically treated in a cautionary manner by the courts as it may be self- serving in the reason for the change in intention.
The courts attempt to determine what the true intention of the transferor was when the gratuitous advancement was made. Only if it is not clear as to the intention do the presumption of advancement or presumption of resulting trust arise.
Where a parent makes a gratuitous transfer to an independent adult child, the presumption of resulting trust arises and the transferee must prove on the balance of probabilities that the transferor intended the transfer as a gift: Pecore v Pecore 2007 SCC 17 at paras 24-26.
CASES WHERE A GIFT WAS FOUND
Franco v Franco 2023 BCSC 1015
In March 2014, the deceased transferred monies into a joint account and real property to his third child. The court found that he did so with the intention of gifting the monies to the third child in order to defeat the claims of the first two children with whom he had an acrimonious relationship. Approximately 8 months later, the deceased executed a deed of gift confirming he had gifted one half of the property as a joint tenant to the third child. Affidavit evidence of independent parties confirmed that it was the intention to gift rights of survivorship in real property and bank accounts owned by him at the time he made the transfers. The court followed the reasoning of McKendry v McKendry 2017 BCCA 48 related to the requirements for a legally binding gift.
Wong v Huang 2012 BCSC 975
The plaintiff was an 86-year-old man who is suing his 12-year-old great nephew for the return of property that the plaintiff transferred to the defendant when he was six years old. The plaintiff was estranged from his children and changed his will in 2000 to provide for the defendant who had recently been born. In 2006 the plaintiff transferred his property into joint tenancy with the infant and wrote several letters to his family, explaining that he had gifted the property to the said child, and that he had changed his will to leave everything to him.
The plaintiff presumably had a change of heart and sued to have the property returned, but the court held that the plaintiff had intended to gift the property to the defendant, and thus the gift was not revocable.
CASES WHERE RESULTING TRUST FOUND
The case law seems to indicate that where there are undocumented gratuitous transfers of assets, it is more likely than not that the court will find a resulting trust unless there is clear evidence of intention to gift.
The presumption of resulting trust provides a guide for the courts in resolving disputes over transfers were evidence as to the transferor’s intent in making the transfer is unavailable or unpersuasive.
Flesjer v Butterfield 2019 BCSC 2332
A frail elderly and terminally ill mother of four children transferred all of her financial investments and real property to one of four children who was the most financially successful.
The court found that the mother did not intend to gift the property to that child. The transfer was done for two reasons – to avoid probate fees and because she trusted him as the most financially adept child to share the assets with his siblings. The court rejected the defendant’s defence that the monies were gratuitously transferred to him for payment of all of the services that he had provided to his mother over the years.
TLG v KMG 2019 BCSC 1236
This case involved a dispute between parents and their daughter with respect to the parents advancing $110,000 to assist the daughter in purchasing a home for her use. The parents won the case due to the law of resulting trusts.
The parents advanced $110,000 to their daughter in 2011 to buy a home. The parents stated that it was an investment for their retirement while their daughter said it was a gift. Neither of the parties sought legal advice or documented the arrangement.
The property was registered as to an undivided 99/100 interest in the name of the daughter and an undivided 1/100 interest in the names of the parents.
The parents stated that they trusted their daughter, but in hindsight their evidence at trial was that it was a mistake.
The parents paid a contractor to renovate the basement suite and paid for the appliances. They used funds from their RRSPs to do so, and thus incurred tax consequences for withdrawing the funds.
The matter came to a head after five years when the parents informed the daughter that they wished to sell the property as they had a large tax bill to pay because of the RRSP withdrawals.
In response, the daughter told her parents “No,” and that “it was her house”.
The court found that the parents had been financially supportive of the daughter for many years and had given her a lengthy education. That history of support and its nature, weighed against the daughter’s assumption that the funds the plaintiffs advanced for the purchase of the property was a gift.
The court found that the daughter had failed to rebut the presumption of resulting trust, so the court ordered the property sold and that the defendant held her interest in the property as trustee for the plaintiffs.
CONCLUSION
Disputes frequently arise in estate litigation as to whether gratuitous transfers were a loan, a gift or a resulting trust. This is often the case in family situations which invariably are not documented nor is independent legal advice obtained.
The law is reasonably well settled as to what is a gift, a loan and a resulting trust and the courts have certain presumptions that they will rely upon when it is not clear as to what the intention of the donor was when the gratuitous transfers were made. The overall conclusion is that donors should obtain legal advice and properly document gratuitous transfers as to their intention.
