Gifts of Cheques

Gifts of Cheques

Teixeira v Markgraf 2017 ONCA 819 dealt with the issue of inter vivos gifts of  cheques.

In the Teireira case the plaintiff was given a cheque to cash as a gift several days before the death of  the bank account holder.

The cheque was for $100,000 but there was only $84,000 in that particular account the cheque was issued on but there were other monies on deposit that the bank refused to transfer to make up the $100,000 without the express permission of the account holder.

The recipient of the cheque sued the bank and lost both at trial and on appeal.

The application judge was correct in holding that that the cheque was a gift inter vivos and that the law of gifts applied to the facts of this case.

37      The absence of consideration is one of the central indicia of a gift at law. By its very nature, a gift is a voluntary transfer of property to another without consideration: McNamee v. McNamee, 2011 ONCA 533, 106 O.R. (3d) 401, at para. 23. In Peter v. Beblow, [1993] 1 S.C.R. 980, McLachlin J. (as she was then) described the “central element of a gift at law” as the “intentional giving to another without expectation of remuneration”: at pp. 991-2.

38      The three elements of a legally valid gift identified by the application judge and referred to at para. 10, above, are well established:

(1) an intention to make a gift on the part of the donor, without consideration or expectation of remuneration;

(2) an acceptance of the gift by the donee; and

(3) a sufficient act of delivery or transfer of the property to complete the transaction: McNamee v. McNamee, at para. 24. All three requirements are essential: Mary Jane Mossman & William F. Flanagan, Property Law: Cases and Commentary, 2nd ed. (Toronto: Emond Montgomery Publications Limited, 2004), at p. 441.

39      The first two elements are not at issue on this appeal. The central issue here is whether the delivery of the cheque for $100,000 into the hands of the appellant could be a sufficient act of delivery of the gift. The wrinkle in this case is that there were insufficient funds in Mary’s account.

Delivery

40      The delivery requirement has been a part of the modern law of gifts since the seminal case of Irons v. Smallpiece (1819), 2 B. & A. 551. The delivery requirement is an important distinguishing feature of gifts as compared to other methods of transferring property, such as by contract. As Mossman and Flanagan note in Property Law: Cases and Commentary, at p. 442:

The delivery requirement marks an important difference between contract law and the law of gifts. A contract involves an exchange of promises. A gift, a unilateral promise, does not. Contract law will enforce an exchange of promises (a “bargain” promise) with expectation damages. On the other hand, the law of gifts attaches no significance to a unilateral promise to pay in the absence of delivery.

41      The delivery requirement in the law of gifts continues to serve several important functions. It forces a would-be donor to consider the consequences of their expressed intention to make a gift and it furnishes tangible proof that a gift has in fact been made: see Bruce Ziff, Principles of Property Law, 6th ed. (Toronto, Thomson Reuters, 2014), at pp. 161-2. See also: Philip Mechem, “The Requirement of Delivery in Gifts of Chattels and of Choses in Action Evidenced by Commercial Instruments” (1926) 21 Ill. L. Rev. 341, at pp. 348-352.

Indicia of delivery

42      The most obvious form of delivery is the actual physical transfer of the subject matter of the gift from the donor to the donee such that the gift is literally given away: see Ziff, at p. 161.

43      However, in certain circumstances, such as where the item is unwieldy, courts have acknowledged that constructive delivery will suffice. In these cases, the critical questions have been whether or not the donor retained the means of control and whether all that could be done had been done to divest title in favour of the donee: see Ziff, at p. 165.

44      Ultimately, in order for a gift to be valid and enforceable, the donor must have done everything necessary and in his or her power to effect the transfer of the property: Kavanagh v. Lajoie, 2014 ONCA 187, 317 O.A.C. 274, at para. 13.

Gifts by Cheque

45      A gift of cash can be readily effected by delivery to the donee. But a gift of money by cheque can be problematic, due to the nature of a cheque. A cheque is not money. Nor is it a transfer of property. It is a direction by the drawer (the bank’s customer) to the drawer’s bank to pay a sum of money to the payee: Re Bernard (1911), 2 O.W.N. 716 (Div. Ct.), at p. 717. The direction can be revoked by the drawer at any time — for example, by a “stop payment” order, referred to in s. 167 of the BEA as “countermand”. Under s. 167, the bank’s authority to pay the cheque is terminated by countermand or when the bank receives notice of its customer’s death: McLellan v. McLellan (1911), 25 O.L.R. 214 (Div. Ct.), at p. 216; Re Beaumont, [1902] 1 Ch. 889, at p. 894.1

46      For these reasons, a gift by cheque is not complete when the cheque is given to the donee. It is only complete when the cheque has been cashed or has cleared: see Ziff, at p. 166. Thus, in Campbell v. Fenwick, [1934] O.R. 692 (C.A.), a cheque given to the donee three days before the donor’s death and cashed a day before her death was found to be a valid inter vivos gift of the amount of the cheque.

47      In Re Swinburne, above, a case strikingly similar to this one, the Court of Appeal for England and Wales held that the death of the donor ruins a gift inter vivos by way of cheque if the cheque is not deposited before the donor dies. There, the donor had given the defendant a cheque shortly before her death. The bank refused to honour the cheque because of concerns about the validity of the signature. Before anything else could be done, the donor died. On the date the cheque was presented, the donor had insufficient funds in her current account, on which the cheque was drawn, but sufficient money to cover the cheque in her deposit account. In light of evidence given by the bank that it might honour a cheque in such circumstances, the court considered the case as though the whole amount was in the current account.

48      Nonetheless, the court held that a gift inter vivos was not made out. In reaching this conclusion, Warrington L.J. wrote, at p. 44:

[I]n order to make an effectual gift inter vivos there must be an actual transfer of the subject of the gift or of the indicia of title thereto. A cheque is not money. It is not the indicia of title to money. A cheque is nothing more than an order directed to the person who has the custody of the money of the [donor] requiring him to pay so much to the person in whose favour the cheque is drawn.

49      Similarly, in Re Bernard, above, the deceased had written a cheque for $1,000 payable to her sister and put it in her “cash box” with a note that her sister should present the cheque one month after her death. She gave the key to the box to her niece, with instructions to give it to her solicitor after her death. The box was duly opened after her death and the cheque was discovered. Chief Justice Mulock held that the donee could not enforce her claim, stating, at p. 717:

A cheque is not a chose in action, but merely a direction to some one, who may or may not have in his possession funds of the drawer authorising him to pay to the payee a certain sum of money. Death of the drawer before presentation revokes such authority. Thus in this case the claimant is met with two difficulties, each fatal to her claim: one being that the cheque not having been acted upon by acceptance or payment, never lost its primary character of a mere cheque, which is not a chose in action, and is not the subject of donatio mortis causa; and the other being that the testatrix’s death revoked the banker’s authority to pay the cheque.

50      The appellant argues that death only terminates the bank’s authority to pay on a cheque, not the drawer’s duty to pay, citing Crawford’s The Law of Banking and Payment in Canada. While this statement of the law is correct with respect to the authority of the bank, there must still be some independent duty to pay in order for the payee to be able to enforce a claim against the estate. As Crawford goes on to state, in the same passage cited by the appellant, at p. 34-54.1:

However, since the bank has no duty to anyone but its customer to pay, unless it has certified the cheque . . . , the only recourse available to the holder is action against the estate, assuming that the liability continues under the applicable provincial law dealing with successions. If the holder is not a holder for value, as where a gift or donatio mortis causa has been attempted, he may retain proceeds collected before the bank learned of its customer’s death, but will be unable to compel completion by payment thereafter, at least in any common law province. [Footnotes omitted.]

51      The appellant also cites Campbell v. Fenwick, above, in support of the contention that death terminates any power of revocation of a cheque by the estate of the donor and leaves the original gift in full vigour and effect. However, in Campbell v. Fenwick, the donee had successfully deposited the cheque the day before the death of the donor and the estate was trying to recover the funds. The gift inter vivos was therefore complete and death did not intervene. Indeed, the donee in that case had learned that a cheque would be revoked by death and knew the importance of having the cheque cashed during the donor’s lifetime. She deposited the cheque the day after she received it for this reason.

52      I conclude that the application judge was correct. The purported gift of $100,000 by way of cheque failed because it was not delivered before the bank received notice of Mary’s death.

Parental Monies to Children: Loan or Gift?

Parental Monies to Children: Loan or Gift?

Weinhaupt v Paracy 2017 BCSC 1662 deals with an increasing phenomena- the advancement of funds by parents to children in order to assist in the financing of the purchase of a home, and whether the advancement of funds was a gift or a loan when the marriage terminates.

Weinhaupt  reviews  the law and came to the conclusion in that case that the funds were a loan and not a gift.

In T.J.M. v. C.R.M., 2009 BCSC 1122, at para. 81, for example, Joyce J. found that an advance from a spouse’s mother that was used as a down-payment to purchase a family home was in fact a loan, despite the provision of a similar gift letter in that case. Joyce J. relied on the presence of a written promissory note (as apparently exists in this case) as well as the fact that several payments had been made in repayment of the alleged loan (a fact not present in this case) to reach that conclusion.

[55] A similar issue arose in Savost’Yanova v. Chui, 2015 BCSC 516. In that case, Weatherill J. described the issue as follows (at paras. 38-39):

[38] In order for the parties to qualify for mortgage financing for the purchase of the matrimonial home, Mr. and Mrs. Chui signed a letter, drafted by the respondent, indicating that the $60,000 they provided towards the purchase price was not a loan but rather a gift by them to the parties (“Gift Letter”). Mr. Chui testified that, without the Gift Letter, the parties would have had to purchase mortgage insurance, which was expensive. He and the respondent testified that, despite what had been represented in the Gift Letter, the $60,000 advance was always intended and understood to be a loan.

[39] The claimant testified that she knew nothing of any of this. Rather, she testified that the respondent told her that his parents had gifted an additional $25,000 to them for the purchase of the house. As had been the case with the apartment purchase, the claimant had no knowledge of how the balance of the purchase price was financed other than she knew there was mortgage financing. She testified that she had no knowledge of the Gift Letter until it was produced during this litigation.

[56] In concluding, like Joyce J., that the gift letter before him did not negate the intention to grant a loan, Weatherill J. elaborated on the elements of the legal test to be applied in making that determination (at paras. 75-77):

[75] The law regarding whether a transfer made by a parent to an adult child is a loan or a gift was summed up by Madam Justice Brown in Hawley v. Paradis, 2008 BCSC 1255 at para. 30, after a review of the applicable authorities:

[30] Based on the case law presented to me, I conclude:

1. that the presumption of advancement no longer applies between adult children and their parents;
2. that as between adult children and their parents, the presumption is a resulting trust when the parents make gratuitous transfers to children;
3. that the court must consider all of the evidence in determining whether the parent intended the transfer as a gift or a loan;
4. that the factors considered in Wiens and Locke will assist the court in determining whether the advance was a loan or a gift.

[76] A determination of whether funds were advanced as a loan or a gift turns on the unique facts of each case. However, the following factors referred to above have been identified in the case authorities as those that should be considered when the advance occurs in a family context:

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 payment before the separation of the parties;
f) whether there has been any partial repayment; and
g) whether there was any expectation, or likelihood, of repayment.

See Wiens v. Wiens (1991), 31 R.F.L. (3d) 265; Locke v. Locke, 2000 BCSC 1300 at para. 20; Gill v. Jaspal, 2010 BCSC 698 at para. 9.

[77] In determining the intent of the person who advances money in a family context, the court must weigh all of the evidence to determine whether the presumption of resulting trust has been rebutted; it will depend on the facts of each case: Pecore v. Pecore, 2007 SCC 17 at para. 55.

I therefore find that both Ms. Paracy and Mr. Weinhaupl signed the promissory note on December 16, 2006 intending the debt to be a joint obligation. I am unable to find that Mr. Weinhaupl told Ms. Paracy that the down-payment was a gift from his mother. The only evidence suggesting that the down-payment was a gift is the Gift Letter and I accept Mr. and Ms. Weinhaupl’s explanation for it.

[64] Applying the test set out in Savost’Yanova in light of the facts as I have found them, I note the following:

a. there is contemporaneous documentary evidence of a loan, i.e., the promissory note and the mortgage;
b. the manner of repayment is specified, inasmuch as the promissory note states on its face that “Upon the sale of this condo, $60,000.00 is due and payable to my mother”;
c. there is security held for the loan (i.e., the mortgage);
d. there has been no partial payment because none has been called for until now; and
e. there was a reasonable expectation, or likelihood of repayment once the property was sold.

[65] In light of those considerations, along with all of the other evidence before me, I find that Ms. Weinhaupl’s advance of the down-payment was a loan, not a gift.

Termination of Trusts: Saunders v Vautier

Termination of Trusts: Saunders v Vautier

Ward v Roberts 2017 BCSC 1768 allowed the termination of a trust on the basis that there was no ” gift over” and thus it violated the rule in Saunders v Vautier.

The deceased executed a will in 2009 that provided that placed equal share of residue of estate in separate trusts for son and daughter. The will provided that if daughter pre-deceased the deceased, then her share would pass to her brother’s children.

The daughter brought a petition for termination of trust which the court allowed as the daughter was the only person with a vested interest in the trust.

Her brother’s children only had contingent interests if she died within 10 years and there was no “gift over” to other persons in the event that she did die within 10 years.

The daughter was entitled to the entire beneficial interest of trust and could terminate trust as the daughter met the requirements for termination of trust in accordance with modern statement of rule in Saunders v. Vautier.

As in Fargey, the petitioner in this case relied on the rule in Saunders v. Vautier (1841), 1 Cr. & Ph. 240, 41 E.R. 482 (Eng. Ch. Div.). Deschamps J. most recently defined the rule in Buschau v. Rogers Communications Inc., 2006 SCC 28 (S.C.C.) [Buschau], at para. 21:

[21] The common law rule in Saunders v. Vautier can be concisely stated as allowing beneficiaries of a trust to depart from the settlor’s original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property. More formally, the rule is stated as follows in Underhill and Hayton: Law of Trusts and Trustees (14th ed. 1987), at p. 628:

If there is only one beneficiary, or if there are several (whether entitled concurrently or successively) and they are all of one mind, and he or they are not under any disability, the specific performance of the trust may be arrested, and the trust modified or extinguished by him or them without reference to the wishes of the settlor or trustees.

23 Bastarache J. concurring with Deschamps J. noted at para. 98 that “[t]he rule in Saunders v. Vautier requires the consent of all parties who have an interest or who own rights of enjoyment in the trust property.”

24 I agree with the petitioner’s submission that Buschau constitutes the modern and broader form of the rule in Saunders v. Vautier.

25 The respondent did not provide authority for his position that the Trust and Settlement Variation Act, R.S.B.C. 1996, c. 463 [Act], restricts application of the rule in Saunders v. Vautier in British Columbia. There is no authority to that effect. Section 1 of the Act empowers the court to consent to trust variations on behalf of persons incapable of consenting due to age or other incapacity, as well as on behalf of those with contingent interests. In Fargey, J, the second petitioner was only 17, therefore under disability due to his age. M’s Petition was disposed of without reference to the Act but due to J’s disability due to his age, the court had to dispose of his interest under the Act.

26 Section s. 1 of the Act does not apply in this case. It does not empower the court to consent on behalf of an adult person who is not legally incapacitated: Buschau at para. 98. As already mentioned, in this case, the petitioner and all potential beneficiaries are adult, none under a disability. The Act does not apply in these circumstances, Saunders v. Vautier does.

27 Further the Supreme Court did not declare the statement of law in Saunders v. Vautier in error; only that it had no application in the context of a statutorily regulated pension plan: Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) p. 1237. In sum, Professor Waters concluded:

In general, then, the rule will not apply to regulated pension plan trusts. It can be said that there are broadly three situations in which the rule in Saunders v. Vautier operates.

28 The petitioner cited those three situations passages which Professor Waters set out at p. 1237 of his text, as follows:

1. Where the “beneficiary . . . is adult, of sound mind, and entitled to the whole beneficial interest may require the trustees to transfer the trust properly to him. [p. 1237.]

2. Where “[s]everal concurrently interested beneficiaries . . . all adult, of sound mind, and between them entitled to the whole beneficial interest may collectively compel transfer.” [p. 1238.]

3. Where “[s]everal beneficiaries . . . entitled in succession, whether their interests are vested or contingent, may combine to require transfer, provided they are all adult, of sound mind, and between them entitled to the whole beneficial interest.” [p. 1238.]

Gift or Loan?

Gift or Loan?

It is often difficult for the court to determine if advancements of funds from one party to another done orally and without witnesses is a gift or loan.

Rosas v. Toca 2016 BCSC 1754 dealt with such a situation. The plaintiff won over $4 million in a lottery and advanced over $600,000 to the defendant to buy a house.

The plaintiff demanded repayment and the defendant asserted the funds were a gift. Alternatively the defendant asserted the claim was statute barred as out of time and succeeded on this point.

The court did however find that the funds were intended as a gift and not a loan largely relying on the corroboration of the bank manager who handled the bank draft.

It was not necessary to resort to the law of resulting trusts as the court determined that the intention of the plaintiff was to make a loan and not a gift.

The Court stated:

As set out in the case of Clifford v. Flores 2004 BCSC 358, the Court must decide whose version of events is most reliable in order to decide the issues.  Mr. Justice Cohen noted at paragraph 39 in that case:
[39]      The credibility of the witnesses must be tested against those facts that are not seriously in dispute, and the preponderance of the evidence and the probabilities surrounding the events.

[40]      Although this task is primarily one of fact finding, some legal principles submitted by defence counsel are of assistance:

a)         First, the plaintiff carries both the legal and evidentiary burden of proving on a balance of probabilities, that the alleged oral contract was made.
b)         Second, the basic contractual principles of offer and acceptance, and certainty of terms are applicable.  These principles are summarized in Friedman, The Law of Contract in Canada (4th ed.). at pp. 16-17, and 20, as follows:
Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract. The law is concerned not with the party’s intentions but with their manifested intentions. It is not what an individual party believed or understood was the meaning of what the other parties said or did that is the criterion of agreement; it is whether a reasonable man in the situation of that party would have believed and understood that the other party was consenting to the identical terms.
…
Sometimes it is a simple matter to decide what the parties have manifested to each other, and consequently, whether they have agreed, and if so, upon what. This is especially true where a document containing their agreement has been prepared and signed by the parties. If the plain wording of the document reveals a clear and unambiguous intent, it is not necessary to go further.
…
It is different, however, where the language is not unambiguous but vague and uncertain. In the absence of the requisite certainty and clarity the courts will not declare that a contract exists.

Signs of Gold-Digger Syndrome

Signs of Gold-Digger Syndrome

Berger was advised to challenge her father’s will not on grounds of “undue influence” but under a section of the B.C. Wills Variation Act that says a “judicious parent” bears a responsibility to provide for biological sons and daughters even if they’re adults.

Vancouver lawyer Trevor Todd who wasn’t involved in this case but writes and lectures on estate issues, says coercion is difficult for family members to prove. If they fail, they’ll usually be stuck with the costs.

Nevertheless, he’s seen a big increase in “undue influence” allegations.

‘I have to warn [elderly men], sometimes that if they lose their wife, they’re just a sitting duck,’ says Todd. “They’re going to be besieged by a lot of well-intentioned women and a whole lot of other women who really are looking for financial gain. They come out of the woodwork and they throw a little bit of sex at the old guy and the next thing you know he’s off his rocker.”

Todd says he’s also heard accusations of health-care professionals taking gifts and bequests from elderly patients. He dealt with one recently in which a woman made a “substantial gift” to her doctor’s wife.

“Her own children reported it to the B.C. Medical Association and that doctor was hauled up on the carpet and he gave it all back,” says Todd. “He gave it back so fast it made your head spin.”

Todd tells his clients to be alert to the early signs of gold-digger syndrome.

“It’s all done on the quiet,” he says. “It’s done by people who have a grand design. They change the locks, the dad’s never available to answer the phone, they estrange people, they speak for them all the time. They deny access to medical [treatment].

They give them lots of medications. They threaten to put them in a home and tell [the elderly person] if it wasn’t for them they’d already be in a home. I could write a book on how to do it. But how to prove it? There are never any witnesses.”

He says some clients use private investigators. He advises others to keep records, to write letters to doctors and other health officials and to document visits, phone calls and financial transactions.

– The Province

Transferor’s Intention Is Key to “Right of Survivorship”

Intention

The Transferor’s Intention when the “gift” in dispute was created is the key indicator as to whether a right of survivorship is valid or not as 2013 BCCA 492 Bergen v. Bergen reviews leading case law confirms.

the case involved a dispute between respondents and their son (‘R’) regarding proceeds of sale of property purchased by respondents for their retirement home.

The son R constructed a house on the property (for which the parents paid) and expected they intended for him to own it. At one point, they made him a one-third owner as joint tenant, but later severed the joint tenancy.

The trial judge accepted the evidence of the mother (the father having died by the time of trial) that the parents had put the property into joint tenancy thinking it would become R ‘s “eventually”, but that they had not intended to give him a beneficial interest in the property during their lifetimes. The property was sold pursuant to court order prior to trial.

Trial judge found that the parents have not intended to “gift ” the property to R and thus that the presumption of resulting trust had not been rebutted. The Court did not refer to Pecore v. Pecore 2007 SCC17.

The  BC appeal Court dismissed the appeal and found that the “gift” was not valid

CA did not agree with R ‘s submission that once the right of survivorship  is conferred (through the setting up of a joint account, or placing a party of title as a joint tenant) a “complete and perfect” inter vivos gift has been made both with respect to the legal title as well as immediate beneficial interest.

Leading authorities, including Pecore, indicate that the transferor’s intention is the key factor. Discussion of right of survivorship  in respect of bank accounts, contrasted with joint tenancy in personalty or realty. In the latter context, any joint tenant may sever the joint tenancy at any time – a fact that undermined R ‘s argument that as a matter of law, a joint tenant receives a “full and perfect” inter vivos gift of the survivorship as well as the property itself. When severance occurs, nothing remains of the right of survivorship.

The presumption of resulting trust not having been rebutted, the respondents had not made an immediate gift of the beneficial interest in the property itself and the mother was entitled to the entire proceeds of sale.

The trial judge had not erred in fact in finding that no gift was intended.

The Appeal Court determined that Pecore SCC would not have changed the decision of the trial Judge despite the fact that it was not argued at the trial level and quoted inter alia:

7]       It is the third major holding in Pecore, however, with which we are concerned in the case at bar. Under the heading “How Should Courts Treat Survivorship in the Context of a Joint Account?”, Rothstein J. considered the operation of the presumption of resulting trust in the context of joint bank accounts. He began as follows:

In cases where the transferor’s proven intention in opening the joint account was to gift withdrawal rights to the transferee during his or her lifetime (regardless of whether or not the transferee chose to exercise that right) and also to gift the balance of the account to the transferee alone on his or her death through survivorship, courts have had no difficulty finding that the presumption of a resulting trust has been rebutted and the transferee alone is entitled to the balance of the account on the transferor’s death.

In certain cases, however, courts have found that the transferor gratuitously placed his or her assets into a joint account with the transferee with the intention of retaining exclusive control of the account until his or her death, at which time the transferee alone would take the balance through survivorship. …

There may be a number of reasons why an individual would gratuitously transfer assets into a joint account having this intention. A typical reason is that the transferor wishes to have the assistance of the transferee with the management of his or her financial affairs, often because the transferor is ageing or disabled. At the same time, the transferor may wish to avoid probate fees and/or make after-death disposition to the transferee less cumbersome and time consuming. [At paras. 45-7.]

Ryan Fights For the Warhol of Farrah Fawcett (worth maybe 12 million)

Ryan O’Neal testifies about disputed Warhol portrait of Farrah Fawcett

Love is never having to say your sorry, and that she gave me the $12 million dollar painting that I talk to each day so I own it and not the claimant University, says Ryan O’Neill..

Ryan O’Neal told a jury that an Andy Warhol portrait of Farrah Fawcett that hangs in his home is one of his deepest connections to his long-time partner and that he does not believe he should have to hand it over to the actress’s alma mater.

The University of Texas at Austin is suing O’Neal to try to gain possession of the portrait. Fawcett left all her artwork to the school and it claims O’Neal improperly took it from her condo days after her death.

The Oscar-nominated actor took the stand for the second time in the trial to assert his ownership of the portrait and why it’s important for him to keep it.

“I talk to it,” O’Neal said. “I talk to her. It’s her presence. Her presence in my life. In her son’s life.”

The actor’s portion of the trial is drawing to a close, with jurors hearing for the past several days from some of Fawcett’s closest friends. Each has said Fawcett told them that one of the Warhol portraits belonged to her and the other one was owned by O’Neal. They also recounted the same origin story for the artwork: Fawcett told them that O’Neal arranged for two portraits to be made, and both actors picked them up from Warhol’s New York studio at the same time.

One of Fawcett’s former caretakers, Maribel Avila, testified on Tuesday that the “Charlie’s Angels” star told her that one of the Warhol portraits of her belonged to O’Neal.

Avila was allowed to testify about Fawcett’s words despite coming forward with her story just days before opening statements began on Nov. 25. Avila saw a story in the New York Post about the case and contacted O’Neal’s attorneys.

O’Neal told the same story about the portrait’s origins on Wednesday, adding that his daughter Tatum O’Neal accompanied him to the photo shoot with Warhol.

The actor does not deny that he took one of the portraits from Fawcett’s condominium in the days after her death, but said he was given permission by her estate’s trustee. The artwork was kept in both his home and Fawcett’s homes over the years.

He said he considers the portrait a family heirloom and he plans to leave it to his son with Fawcett, Redmond. Both treasure the portrait for its connection to Fawcett, O’Neal said.

“We lost her,” he said. “It would seem a crime to lose it too.”

Redmond O’Neal is expected to testify on Thursday.

Jurors will also hear from Karen McManus, a contemporary art appraisal expert who told the panel Wednesday that she estimates that O’Neal’s portrait is worth $800,000 (U.S.) to $1-million. An expert for the university testified last week that the portrait was worth up to $12-million.

The Use of Discretionary Trusts in Estate Planning

1. INTRODUCTION

I always fell asleep during my law school trusts class. I could never have imagined then what an important role trusts would come to play in my day-to-day career as a Wills and Estates lawyer. I suspect that there are many other lawyers, notaries and estate planners who have sometimes been mystified about this area of law.

Over the years the use of trusts has grown dramatically to the point that they are now a major cornerstone of estate planning and commercial law. The purpose of this article is to attempt to explain some basic trust principles, with an emphasis on the use of discretionary trusts in estate planning.

2. WHAT IS A TRUST?

Trusts have been with us for hundreds of years and they are playing an increasingly greater role in estate planning. Trusts are most commonly used to distribute property to family members and others under either a will or an inter vivos agreement. The trust developed through the interaction of England’s two parallel legal systems, being the common law and equity. Its origin lies in the concept of the “use”, which was simply a transfer of property by A to B, who was bound by conscience to hold the property for the use of C. While the common law did not recognize C’s rights under such a transfer, the courts of equity would intervene to enforce the moral obligations associated with the use. Thus, the trust was developed by the courts of equity to overcome the inflexibility and harshness of the common law.

Essentially, a trust is an equitable obligation binding one person (the trustee) to deal with property over which he or she has control (the trust property) for the benefit of one or more other persons (the beneficiary or beneficiaries). The trust arises when the owner of the trust property (the settlor, in the case of an inter vivos trust, or the testator, in the case of a trust created by a will) transfers the property to the trustee on specified terms (the trusts), which the trustee accepts. The trustee may also be a beneficiary and any one of the beneficiaries may enforce the obligation. In law, a trust is not a separate legal entity (as a corporation is), except for specific purposes such as income tax. Rather, it is a relationship where one party holds and administers property for the benefit of others.

3. CHARACTERISTICS OF A TRUST

The most important characteristic of a trust is that it is a fiduciary relationship (i.e. a relationship based on confidence or trust). The fiduciary relationship exists between the trustee, who holds title to and administers the trust property, and the beneficiaries, for whose benefit the trust property is held. As a fiduciary, the trustee is subject to onerous obligations, including the obligation to act only in the best interests of the beneficiaries.

Another distinguishing characteristic of a trust is the dual nature of the ownership of the trust property as between the trustee and the beneficiaries. That is, while the trustee has the legal ownership of the property (i.e. the title and legal control), the beneficiaries are entitled to the beneficial ownership of the property (i.e. the rights to use and enjoyment).

4. REQUIREMENTS FOR A VALID TRUST

Three criteria–commonly called “the three certainties”– must be met in order to establish a valid trust. These are:

1. Certainty of intention: It must be clear that the settlor intended that the property transferred to the trustee be held in trust, as a binding obligation. The language used by the alleged settlor must be imperative and not merely an expression of wishes.

2. Certainty of subject-matter: This “certainty” has two aspects. First, it must be possible to identify clearly the property which is to be subject to the trust. Secondly, it must also be possible to define clearly the interests in the trust property to which the beneficiaries are entitled.

3. Certainty of objects: The objects of the trust–that is, the beneficiaries or the purposes for which the trust property is held–must be clearly identified. The word “objects” is a neutral word since a trust may be created either to benefit individuals or to further a particular purpose (e.g. to support cancer research). In each case, however, the objects of the trust must be defined clearly enough that the trust can be carried out.

All three certainties must be present or the trust will fail.

5. TRUSTS AND ESTATE PLANNING

Estate planning is the process whereby an individual identifies and implements steps to achieve the following:

1. the individual’s personal and family objectives for the control and enjoyment of his or her property during his or her lifetime; and

2. the orderly succession to the individual’s property following his or her death.

Estate planning steps may be implemented to take effect either during the individual’s lifetime or following his or her death. In either case, a primary concern will be to achieve the individual’s objectives with as much certainty as possible. Put another way, the goal will be to ensure that the estate plan will be as free as possible from the interference of others, including the courts. While each family and individual is different, in order to achieve estate planning certainty, the estate plan will often involve the use of trusts.

One reason why trusts are used so frequently in estate planning is that they enable an owner of property to give the benefits of the property to others, without having to relinquish ownership or control of the property.

Another reason for the increased use of trusts in estate planning is that there are generally few compliance or reporting requirements, which allows a significant degree of estate planning privacy.

6. DISCRETIONARY TRUSTS

In appropriate circumstances, the discretionary trust may be a particularly effective estate-planning tool. In his text, The Law of Trusts in Canada, Professor Donovan Waters defines a discretionary trust as follows:

A discretionary trust arises when property is vested in trustees and a class of beneficiaries or named persons appear as the trust objects, but the trustees have complete discretion as to the payment of the income, or the capital, or both. The trust may obligate them to distribute all the trust property among the class, but give them a discretion as to whom they make payments within the class, and as to how much they pay to each.

The essence of a discretionary trust is that the trustee cannot be compelled to pay anything to a beneficiary–that any payment of either income or capital, is completely within the discretion of the trustee. Thus, the beneficiary will have no determinable or vested interest in the assets of the trust.

A discretionary trust may be established during the lifetime of the settlor, or alternatively, through a testamentary disposition made under a will.

7. EXAMPLES OF THE USE OF DISCRETIONARY TRUSTS

The flexibility of the discretionary trust as an estate-planning tool is illustrated in the following estate planning situations.

1. Supplementing Government Disability Benefits

A common use of discretionary trusts in estate planning is to provide additional benefits to a disabled person who is receiving government benefits (e.g. a guaranteed annual income) without disentitling the person to the government benefits. Careful planning is often required to avoid the reduction or cancellation of such benefits. In British Columbia, for example, if a disabled person receives an outright inheritance, the amount inherited is deducted dollar-for-dollar from the amount of the government benefits.

Since a discretionary trust gives the trustee an absolute discretion as to whether or not to pay any income or capital to the beneficiary, it can be successfully argued that the beneficiary does not have an equitable interest in the trust. Accordingly, there are certain payments that can be made for a disabled person that will not disentitle him or her to government benefits. Such payments may include medical costs, certain caregiver costs, home repairs and renovations, educational costs and the like. It may also be possible for the trust to purchase capital assets such as a house or vehicle for the use of the beneficiary, without the beneficiary losing entitlement to benefits.

2. Avoiding Wills Variation Challenges

For many British Columbia residents, estate planning must involve a careful consideration of the potential impact of the Wills Variation Act. However, since the Act contains no anti-avoidance provisions, an individual is free to arrange his or her affairs so as to avoid its provisions.

For example, an individual may concerned about a substance-addicted or spendthrift child or spouse challenging his or her will. The individual might use a discretionary trust to provide adequately for the addicted or spendthrift beneficiary, so that any challenge brought by that beneficiary under the Wills Variation Act might fail. The trustee, in his or her discretion, could provide for the beneficiary so that he or she is adequately maintained, but not able to have access to the capital and spend it unwisely.

Furthermore, the Wills Variation Act applies only to those assets that form part of a testator’s estate. If an inter vivos trust is established by a settlor prior to his or her death, and assets are transferred by the settlor to the trustee before the settlor’s death, those assets will not form part of the settlor’s estate. Since the assets are not part of the estate, those assets will not be subject to claims under the Wills Variation Act.

3. Protecting Assets

Almost every individual who undertakes to plan his or her estate will seek a plan that protects his or her assets from the claims of general creditors. In appropriate situations, a discretionary trust may be used to achieve that objective.

If an individual establishes a trust primarily for the purpose of protecting his or her assets from the claims of his or her creditors, and if the individual voluntarily transfers of assets to the trust without consideration, then the trust may be voidable under the Fraudulent Conveyances Act.

On the other hand, if the primary reason for creating the trust is estate planning, then achieving protection against the claims of creditors is simply an ancillary benefit flowing from the creation of the trust. Since the primary purpose for its creation is not to avoid creditors, then the trust should be valid and enforceable. The principal goal is to remove assets from the individual’s estate, before creditor problems arise, so that the assets cannot be attacked by creditors that the individual may subsquently acquire. If placed in a discretionary trust, the assets may be used for the benefit of the individual’s family but may also be protected from the individual’s creditors.

4. Avoiding Claims of Spouses Under the Family Relations Act

With careful drafting, a discretionary trust can be a valuable estate planning tool to enable an individual to enjoy the beneficial use of and interest in property while at the same time protecting the property from claims of his or her spouse under the Family Relations Act.

Consider, for example, an individual who is embarking on a second marriage and wishes to shelter certain property from potential claims of his or her intended spouse under the Family Relations Act. The individual could transfer the property to an irrevocable inter vivos trust under which the individual and his or her children from a previous marriage would constitute the class of beneficiaries. The trust could provide for a discretionary distribution of income and capital during the individual’s lifetime and for an equal distribution of the remaining trust property to the children on the individual’s death. The existence of the trust should effectively prevent the trust property from any subsequent claim by the new spouse under the Family Relations Act.

8. CONCLUSION

The discretionary trust is a powerful and flexible legal tool that can be used for estate planning in many different situations and .for many different purposes. Discretionary trusts are increasingly being used to address unique needs and to achieve specific goals that require a flexible vehicle to suit personal estate planning objectives.

Rebutting the Presumption of a Resulting Trust

Dhaliwal v Ollek 2012 BCCA 86 discusses rebutting of the presumption of a resulting trust, and upholds that the recipient done bears the onus of proof, on the balance of probabilities, to rebut the presumption of a trust and to attempt to prove a gift.

Madam Justice Fenlon’s decision in Demir v. Peyman, 2009 BCSC 445, 68 R.F.L. (6th) 319, sets out a useful statement of the legal principles governing the ownership of property. The case arose from the breakdown of the marriage between James Peyman and Seylan Demir. The mother of Mr. Peyman, Elizabeth Peyman, had contributed a large sum of money to Mr. Peyman and Ms. Demir for the purchase of a residential property. Ms. Demir viewed her mother-in-law’s contribution as a gift, but Mrs. Peyman and her son James testified that the mother’s money had been advanced to enable the young couple to purchase a home containing a guest suite to house Mrs. Peyman.

[6] If Mrs. Peyman’s contribution was not a gift, then she would own about 80% of the property and the married couple would own about 20% based on their respective contributions to the purchase price. In the course of her reasons, Fenlon J. said:

[9] I turn first to a preliminary matter, which is the burden of proof in these proceedings. James Peyman and Seylan Demir are registered as the owners of the property and, under the Land We Act, R.S.B.C. 1996, c. 250, s. 23(2), such title is conclusive at law and in equity that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the title. In short, the law begins with the presumption that if your name is on the title in the Land Title Office, you own that property. That statutory presumption is, however, subject to equitable principles, one of which is the enforcement of an agreement between the parties in order to prevent unjust enrichment if the face of the title is upheld.

[10] In a case such as this where property is purchased with funds provided by a third party without consideration the law presumes that the person receiving the funds holds the property in trust. This is known as a resulting trust. As stated by the Supreme Court of Canada in Pecore v. Pecore, [2007] 1 S.C.R. 795, the presumption of a resulting trust is rebuttable. The effect of the presumption, though, is to alter the general rule that in a civil case the person who wants to challenge the names on title in the Land Title Office bears the legal burden of proof.

[11] In the case at bar Ms. Peyman challenges the legal title to the property on the basis that she made a gratuitous transfer of funds to her son and daughter-in-law so that they could purchase the property. A resulting trust is presumed with respect to the portion of the property paid for with those funds. It follows that Ms. Demir bears the burden of rebutting that presumption, that is. she bears the burden of proving that the money was a gift.

[Emphasis added.]

In the case of Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, the Supreme Court of Canada established that, as a general rule, ownership will be determined having regard to the intentions of a party at the time the transfer of property occurs:

56 The traditional rule is that evidence adduced to show the intention of the
transferor at the time of the transfer “ought to be contemporaneous, or nearly so”, to the
transaction: see Clemens v. Clemens Estate, [1956] S.C.R. 286, at p. 294, citing Jeans
v. Cooke (1857), 24 Beav. 513, 53 E.R. 456. Whether evidence subsequent to a
transfer is admissible has often been a question of whether it complies with the Viscount
Simonds’ rule in Shephard v. Cartwright, [1955] A.C. 431 (H.L.), at p. 445, citing Snell’s
Principles of Equity (24th ed. 1954), at p. 153:

The acts and declarations of the parties before or at the time of the purchase, [or of the transfer] or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration ….But subsequent declarations are admissible as evidence only against the party who made them….

The reason that subsequent acts and declarations have been viewed with mistrust by courts is because a transferor could have changed his or her mind subsequent to the transfer and because donors are not allowed to retract gifts. As noted by Huband J.A. in Dreger, at para. 33: “Self-serving statements after the event are too easily fabricated in order to bring about a desired result.”

57 Some courts, however, have departed from the restrictive — and somewhat
abstruse — rule in Shephard v. Cartwright. In Neazorv. Hoyle (1962), 32 D.L.R. (2d)
131 (Alta. S.C., App. Div.), for example, a brother transferred land to his sister eight
years before he died and the trial judge considered the conduct of the parties during the
years after the transfer to see whether they treated the land as belonging beneficially to
the brother or the sister.

59 Similarly, I am of the view that the evidence of intention that arises subsequent to a transfer should not automatically be excluded if it does not comply with the Shephard v. Cartright rule. Such evidence, however, must be relevant to the intention of the transferor at the time of the transfer: Taylor v. Wallbridge (1879), 2 S.C.R. 616. The trial judge must assess the reliability of this evidence and determine what weight it should be given, guarding against evidence that is self-serving or that tends to reflect a change in intention.

[40] In the recent case of Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, Cromwell J. writing for the Court, noted that it is the intention of a transferor (or donor of funds) that is significant and that the concept of a joint intention trust is discredited.

Sham Trusts and the Three Certainies

Sham Trusts

The three certainties: certainty of intention and the issue of sham trusts

In order to be valid, trusts must comply with the three certainties at the time of settlement:

It is of course trite law that for a valid trust to come into existence, the three certainties -certainty of intention, objects and subject matter – must be met…. If the first requirement is not met — i.e., a transfer of property is construed as not intended to have been subject to a trust obligation – the transferee takes the property beneficially … If the first test is met but the intended trust fails due to uncertainty of subject matter or objects, then … the property is held on a resulting trust in favour of the settlor…(Lewis v. Union of B.C. Performers, (1996) 18 B.C.L.R. (3d) 382 at para. 21 (C.A.) [Lewis]).

To meet the first certainty, there must be an intention on the part of the settlor to impose enforceable trust obligations on the trustee. The language used by the settlor is critical and must show a clear intention that the recipient of the trust property holds that property on trust: Lewis at para. 22.

The issue of sham trusts is treated in different ways by different authors. WJ. Mowbray et al, Lewin on Trusts, 17th ed. (London: Sweet & Maxwell, 2000) at paras. 4 -19 to 4 – 28 [Lewin] considers that whether a trust is invalid as a sham depends primarily on the intention of the settlor at the time the trust is created (citations omitted):
The sham concept…would appear to involve a finding of fact akin to, but nevertheless falling short of, actual fraud. In the trust context, a finding will be necessary that, whilst an apparent settlor did not in fact intend to part with the beneficial interest in the trust property, nevertheless he executed documentation with the apparent effect of so parting (Lewin at paras. 4-21).

If at the [time of execution] the settlor genuinely intends the documentation to take effect according to its terms, and those terms are such as to create a trust, then nothing the settlor or trustees do thereafter can render a valid trust a sham (Lew/77 at paras. 4 – 22).

Mere examination of the deed itself will, of course, be incapable of revealing its sham nature (Lewin at paras. 4-22).
[Courts have] distinguished between the class of case where parties entered into a written agreement which was “a sham intended to mask their true agreement”, and the distinct class of case where, without any question of sham, there “has been held to be some objective criterion in law by which the courts can test whether the agreement the parties have made does or does not fall into the legal category in which the parties have sought to place their agreement {Lewin at paras. 4-24).
The difference [between a sham and merely an improperly constituted trust] is that between an apparent settlor who has no relevant intention to create a trust, but executes documentation by which he pretends to have such an intention; and the quite distinct settlor who fully intends his documentation to take effect according to its terms, but, as a matter of proper legal analysis, fails to create a trust (Lewin at paras. 4 – 25, emphasis in original).
[A] finding of sham makes it unnecessary for the court to consider the requirement of certainty of intention at all, because it has evidence before it that the settlor’s documentation has been crafted to mislead {Lewin at paras. 4-27).

[7]he mere retention of wide beneficial powers and interests by the settlor does not of itself make the trust a sham, so long as the trustee genuinely has control over the assets and exercises his own independent discretions in respect of those matters where the terms of the trust require him to do so (Lewin at paras. 4 – 28).

Simply put, Lewin distinguishes between a settlor with devious intent and a settlor who signs
a document that does not have the legal effect he or she thought it would have. The discussion in Donovan Waters et al., Waters’ Law of Trusts in Canada, 3rd ed. (Toronto: Thomson Carswell, 2005) at 145-149 [Waters] is consistent with the Lewin approach.

A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it (Lewin at paras. 4-26 citing Miles v. Bull, [1969] 1 Q.B. 258 at 264 [Miles v. Bull]).