A common aspect of estate planning is gifting beneficiaries assets prior to the giftor’s death. For instance, parents will often sell their house and provide some or all of their children with large sums of money, while retaining the rest for their own ongoing support. However, whether a child can receive such a gift while acting in a fiduciary capacity can be an ethical quandary. In Derreth (Re), 2024 BCSC 1033 the Court was asked to determine when and on what basis the Court should permit the child of an incompetent parent to use an enduring power of attorney to gift themselves money.
Reinhard and Doreen Derreth had one child, Eugene. Doreen developed dementia and executed a power of attorney appointing Eugene as her attorney should she lose capacity, but did not expressly provide him with the power to make a gift or a loan under that power of attorney. Eventually she did lose capacity and became unable to manage her financial affairs. Reinhard worked to create an estate plan for the couple, and as part of that plan, he intended to distribute money to Eugene out of the proceeds of the sale of a vacation home that had been sold years prior. The proceeds of which had been kept in jointly-held investment accounts for the couple, and Reinhard told Eugene that upon his or Doreen’s death, the proceeds from the sale of the vacation home would pass to the other living parent and Eugene would receive one-half as an immediate gift, which Eugene believed amounted to $250,000. Eugene’s understanding of the promise was corroborated by a detailed memorandum completed by Reinhard around this time.
When Reinhard died, Eugene petitioned the Supreme Court of British Colombia to allow him to transfer the $250,000 to himself, leaving Doreen with approximately $2.7 million, the interest of which was enough to cover the costs of her care home. As Eugene would eventually receive all the remaining money from the sale of the vacation home, the question posed to the Court was when Eugene was allowed to collect some of that money. The Court looked at s. 20(2) of the Power of Attorney Act (“PAA”), and determined that the gift was not lawful, and would not be allowed.
Section 20(2) of the PAA reads as follows:
20(1) An attorney may make a gift or loan, or charitable gift, from the adult’s property if the enduring power of attorney permits the attorney to do so or if
(a) the adult will have sufficient property remaining to meet the personal care and health care needs of the adult and the adult’s dependants, and to satisfy the adult’s other legal obligations, if any,
(b) the adult, when capable, made gifts or loans, or charitable gifts, of that nature, and
(c) the total value of all gifts, loans and charitable gifts in a year is equal to or less than a prescribed value.
(2) An attorney may receive a gift or loan under subsection (1) if the enduring power of attorney permits.
(3) Permissions under subsections (1) and (2)
(a) must be express, and
(b) may be in relation to a specific gift or loan, or charitable gift, or to gifts or loans, or charitable gifts, generally.
The Court determined that gifts are allowed under the PAA only in specific circumstances and that since Doreen’s power of attorney did not give Eugene the power to make gifts, he was not entitled to gift himself the money that Reinhard promised he would receive upon the death of one of the parents, even though the gift would not financially disadvantage Doreen. The Court also held that because Eugene’s petition did not arise from a request for the resolution of an ambiguity in the drafting of the power of attorney or by some conduct on the part of Doreen, he was not entitled to costs from her estate.