One of the reasons people pursue wealth is to render themselves, and their loved ones, less vulnerable. Wealth can protect against unhappy contingencies and mitigate ill fortune, such as loss of employment, sickness, or the death of a provider. With COVID-19, some of the most adversely-affected Canadians are those without any economic cushion to fall back upon. Wealth, however, can also make people more vulnerable, for it can draw the jealous attention of unscrupulous have-nots, as evidenced by the abundance of greed-fuelled elder abuse and power of attorney predation. Our legal system, therefore, has developed safeguards against the improper use of an incapable person’s funds – and as a recent New Brunswick decision demonstrates, as well as checking bad actors, these safeguards also apply to the more innocent missteps of parties with apparently good intentions.
In Public Trustee v. Morley,  N.B.Q.B. 18, the Public Trustee in charge of an infirm person, Norma Morley, sought the Court’s authorization to transfer Norma’s house to her adult daughter, Patricia Morley, on the pretexts that Patricia “suffer[ed] from mental issues that prevent[ed] her from leaving [Norma’s] home” and that Norma, who resided in a nursing home, “ha[d] assets that [could] provide for her maintenance other than the house”. Ostensibly, the Public Trustee’s request was reasonable, for the statute – subsection 13(1) of the Infirm Persons Act – allows for an infirm person’s representative to provide for the infirm person’s dependants, and at first glance, Patricia qualified as a dependant.
The Court denied the request, however, finding that the proposed gift was not in the best interests of Norma. In coming to this decision, the Court was guided by several considerations: (1) it was uncertain whether there were enough assets to provide for Norma following the gift; (2) the proposed gift was at odds with Norma’s Will; (3) Norma had not made similar gifts in the past, when she was capable; (4) there was no evidence tendered as to Patricia’s needs and means; and (5) Patricia’s needs are secondary to Norma’s. On this last point, other than the house, Norma had approximately $70,000 in assets – a thin and precarious economic cushion.
If this case had been adjudicated in Ontario, we could expect a similar result. Subsections 37(1) and 37(2) of Ontario’s Substitute Decisions Act, 1992 dictate that an incapable person’s property can be used to support dependants, but expenditures on behalf of dependants are conditional upon sufficient property remaining to provide for the incapable person. Subsections 37(3) and 37(4) allow for a guardian of property to make gifts to the incapable person’s relatives if, again, enough property remains and there is reason to believe the incapable person, if capable, would make such gifts. In this case, insufficient property remained to justify a gift and there was no reason to believe Norma would have gifted her house to Patricia, for her prior conduct and Will suggested otherwise.
The Public Trustee’s position was unenviable – trying to stretch limited means to cover two vulnerable people – but the cure proposed ran counter to Norma’s previously expressed wishes as well as leaving her exposed to mischance.
Thank you for reading – Have a great day!
Suzana Popovic-Montag and Devin McMurtry
In today’s podcast, Paul and Garrett discuss the decision in Tiedemann v Tiedemann and revisit some legal principles from the Pecore decision that are often overlooked in light of the well-known analysis on the presumption of resulting trust.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
On January 5, 2018, I blogged on the unwillingness of the court to undo a gift made by a father to an adult child. There, the court held that the gift was valid, and that it could not be undone despite the later change of heart of the father. The decision was upheld by the Ontario Court of Appeal.
The issue was considered again, in the context of a marriage breakdown, in the decision of Johnston v. Song, 2018 ONSC 1005 (CanLII). There, the man purchased a home in 2003. He began to cohabit with the woman in 2005. They had a child together, born in 2007. In December 2016, the man transferred the house from himself to himself and the woman as joint tenants. The woman left the man in January 2017.
In the separation proceedings, the woman claimed half of the value of the house. The man sought an order removing the woman’s name from title.
The court considered the presumption of resulting trust. A resulting trust arises when title to property is put in one person’s name, but that party, because they gave no consideration, is under an obligation to return it to the original titleholder. A presumption of resulting trust arises where the transfer is gratuitous. However, the presumption is rebuttable. The recipient must demonstrate, on a balance of probabilities, that a gift was intended.
[Note that in the context of married spouses, s. 14 of the Family Law Act provides that property held in the name of married spouses as joint tenants is proof, in absence of evidence to the contrary, that the spouses intended to own the property as joint tenants. This section ousts the presumption of resulting trust. However, this provision did not apply in this case as the spouses were not married.]
As the presumption applied, the woman had to establish that the transfer to joint tenancy was a gift. To establish a gift, she had to show: 1. an intention to make a gift on the part of the donor; 2. acceptance of the gift; and 3. a sufficient act of delivery. The court held that these elements were established, and that the transfer was a gift, thereby rebutting the presumption of resulting trust.
To support this conclusion, the court observed that the man was not misled or pressured into making the transfer. There was no evidence that the transfer was conditional upon their relationship surviving. There was no evidence of undue influence or coercion that would invalidate the gift. Finally, there was no evidence that the man retained any right, express or implied, to revoke the transfer.
Importantly, the court stated that “While [the man’s] intentions may have changed after December 6, 2016 and, in particular, after January 6, 2017, it was his intention at the time of the transfer that governs.” The court quoted from Griffith v. Davidson, a similar transfer to joint tenancy case, where the court stated: “the fact that the donor comes to regret the gift based on an unexpected turn of events cannot cause an otherwise absolute gift to morph into a conditional one”.
The man also asserted the doctrine of unjust enrichment. The court rejected this argument by stating that the finding of a gift fully rebuts any “presumption” of unjust enrichment. Put another way, the gift is the juristic reason for the enrichment.
A lesson from this line of cases is to be careful of what you give. If you make an unconditional gift, you will not likely be able to get it back.
Have a great weekend.
Dr. Gertrude Ewart died at the age of 93, leaving a son and a daughter. Prior to her death, she gifted a cottage to her son having a value of $145,000. In her Will, she made a bequest to her daughter of $145,000. The balance of her estate was divided equally between her son and daughter.
Subsequently, Ewart established a family trust. The trust provided that upon her death, her daughter was to receive $150,000, and the balance of the trust assets were divided between her son and her daughter.
Does the daughter get the $145,000 bequest in the Will, AND the $150,000 provision in the trust?
This question was decided by Justice Lococo in Campbell v. Evert, 2018 ONSC 593 (CanLII).
There, the court considered the principles of ademption by advancement, and the presumption against double portions. The court also considered the impact of extrinsic evidence on these principles.
The court considered case law regarding the reliance on extrinsic evidence as to intention. As there was no ambiguity or equivocation in the words of the will or the trust, extrinsic evidence as to Ewart’s intentions was not admissible.
The son argued that the principle of ademption by advancement applied. An ademption is the failure of a bequest of property due to the non-existence of the property at the time of death. An ademption by advancement occurs when the testator, after making the Will, gives the beneficiary all or part of the property that the beneficiary would have received under the Will.
In the present case, there was no adempetion as the property (the $145,000) existed.
As to the presumption against double portions, the court questioned whether the presumption arose at all. The court noted that Canadian courts placed a narrow construction on the principle. Further, the presumption only applied “to a gift to a child made with a view to establishing him or her in her life.” In the present case, the daughter was already “established”. The court also noted that the presumption against double portions “is not strong, and is easily rebutted”.
In any event, the court held that even if extrinsic evidence was admitted (which supported a conclusion that Ewart wanted to treat her two children equally), it would not have assisted the son. The court observed that the gift of the cottage was made 21 years before Ewart’s death. Therefore, it was possible that the extra gift to the daughter was to take into account the rise in value of the cottage over time.
Finally, the court noted that Ewart did not take any steps to amend her Will after establishing the trust.
A lesson to be learned from this fact situation is that estate plans must be reviewed whenever there is a significant change in circumstances. The litigation may have been avoided if the testator made it clear, in her Will and trust document, as to whether the daughter was entitled to both the $145,0000 and the $150,000, or just one of the gifts.
Thank you for reading.
“This is one of too many cases that appear in our courts demonstrating family disputes over what the preceding generation has left behind. In coming to court for resolution, the parties risk any potential for a continuing, friendly or at least cordial relationship amongst siblings; the present generation. At times the problem is over the failure of the children to acknowledge the intention of their parent as expressed in a will. Here, unhappily, the problem arises from the actions and apparent change of heart by the father … .”
This lament comes from the opening paragraphs of 1268223 Ontario Limited v. Fung Estate, 2016 ONSC 8020 (CanLII). There, the father incorporated a company, being the plaintiff. His daughter was sole officer, director and shareholder of the company. The company then purchased a building in Toronto with funds provided by the father. Years later, the property was sold. The father said that he needed money in order to cover other debts, and received a cheque from the company for $1,070,000.
The father never repaid the money. The daughter then sued the father for repayment. The father defended, alleging that the property and the sale proceeds were held in trust for him. After he died, his estate continued the defence.
At trial, the judge found that the father gifted the company and the purchase money for the property to the daughter. There was extensive evidence to support this, including the fact that the father had made similar gifts to his other two children, the fact that the father had told the daughter that “I am going to buy you a property.”, the fact that the mother referred to the property as being the daughter’s property or the daughter’s mall; the fact that none of the documentation surrounding the purchase of the property suggested that it was a purchase in trust for the father, and the fact that, although the father remained involved in the operation of the property, it was the daughter who determined that the property should be sold. Perhaps most tellingly, in an alleged exchange between the father and one of his sons, the son said “you gave it to her…you can’t take it back”, to which the father said “so what…I want it back”.
The trial judge concluded that “There is no basis upon which [the father or the father’s estate] can claim the ownership of the money taken. There is no evidence that there was any intention that the company or the property it purchased, operated and sold, was for the benefit of anyone other than [the daughter].”
It is not clear if the presumption of resulting trust was argued. The presumption is not addressed in the reasons for decision. However, it is likely that the daughter’s evidence could have rebutted the presumption.
The decision was upheld on appeal. The Court of Appeal found that the evidence supported the three criteria for a gift set out in McNamee v. McNamee, 2011 ONCA 533 (CanLII), being an intention to make a gift, an acceptance of the gift by the done, and a sufficient act of delivery or transfer.
Thank you for reading.
In the spirit of the holidays, today I thought I would write about a recent decision related to gifting. In Grosseth Estate v Grosseth, 2017 BCSC 2055, the British Columbia Supreme Court considered whether the presumptions of resulting trust and undue influence were applicable to various inter vivos gifts made by a deceased uncle to one of his nephews. Ultimately, the court concluded that both presumptions were rebutted, and the gifts were valid.
In Grosseth Estate, the deceased, Mort, left a Will providing that the residue of his estate was to be distributed equally amongst his 11 nieces and nephews. However, most of his estate had been gifted to one particular nephew, Brian, and his wife, Helen, prior to Mort’s death. This left only about $60,000.00 to be distributed in accordance with Mort’s Will. One of Mort’s other nephews, Myles, who was the executor of Mort’s estate, brought a claim against Brian and Helen following Mort’s death, seeking to have the money that had been gifted to them by Mort, returned to the estate.
About 10 years prior to Mort’s death, he moved from Alberta, where he had lived most of his life, to British Columbia, where he moved into Brian and Helen’s basement suite. Mort became a full participant in the family; he was included on family outings, attended family dinners every night, and became like a grandfather to Brian and Helen’s children.
For the first couple of years after Mort moved in, he gave Brian and Helen money each month, on an informal basis, as contribution to household costs. Around 2 years after Mort had been living with them, Brian and Helen had decided to purchase a commercial property for Helen’s chiropractic practice. Mort insisted on gifting $100,000.00 towards the purchase price, making it clear that he did not want anything in return. Following this payment, Mort did not make further contributions to the monthly household expenses. The court concluded that there was a tacit agreement amongst Mort, Brian, and Helen that Mort’s generous gift had cancelled any notion that further payments would be required. Several years later, Mort also gifted $57,000.00 to Brian and Helen to pay off the balance of their mortgage.
The court found that the nature of the relationship between Mort, Brian, and Helen gave rise to the presumption of resulting trust as well as the presumption of undue influence. However, both of these presumptions are rebuttable.
The court acknowledged that, with respect to undue influence, Mort did depend on Brian and Helen, but based on the evidence of a number of individuals, concluded that he remained independent and capable throughout. Accordingly, the presumption of undue influence was rebutted.
The presumption of resulting trust was also rebutted as the court was satisfied that Mort intended the transfers to be gifts motivated by “a natural and understandable gratitude to Brian and Helen for the happiness and comfort of his final years.”
It is not uncommon for this type of situation to come up. Where a deceased lived with one niece or nephew (or sibling), or where the niece/nephew/sibling is the primary caregiver prior to the deceased’s death, any gifting that was done in the context of this relationship may be vulnerable to challenge on the basis of resulting trust or undue influence. Unfortunately, in some instances, the relationship dynamics involved in these kinds of arrangements can result in suspect gifts or transfers. Transfers made without clear evidence of an intention to gift can also raise questions. In this case, the court did not find that there was any improper behaviour on the part of the giftees, did find evidence of an intention to gift, and the transfers were ultimately upheld.
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In a perfect situation, a deceased person’s estate would correspond exactly with the gifts as set out in his or her last will and testament. However, it is sometimes the case that the assets of an estate are insufficient to pay all of a testator’s debts, as well as all gifts set out in his or her will, or where the object of a specific bequest no longer exists at the time of the testator’s death.
In the former situation, the principle of abatement would apply to the distribution of the estate to beneficiaries, meaning that the gifts set out in the testator’s will are reduced rateably and in order depending on the type of bequest. If the estate has insufficient assets to pay the testator’s debts, it would be insolvent and the legacies described in the testator’s will would be unable to be paid. If there are assets leftover after payment of debts, but they are not sufficient to fully satisfy all gifts, then some or all of the gifts will abate.
If the testator’s will does not specifically provide for the order in which gifts are to abate, the order of abatement of bequests is as follows:
- Residuary personalty.
- Residuary real property.
- General legacies, including pecuniary bequests from the residue.
- Demonstrative legacies, meaning bequests from the proceeds of a specific asset or fund not forming part of the residue.
- Specific bequests of personalty.
- Specific devises of real property.
The abatement of gifts in each category will occur in equal proportions so that no single beneficiary will be made to bear the full burden of the abatement.
Ademption occurs when a specific legacy in a testator’s will cannot be satisfied due to the lack of existence of the property that was the subject of the bequest. When a specific gift adeems, it fails, and the beneficiary will not receive the gift.
In Ontario, there are a number of statutory provisions that affect the doctrine of ademption, including ss. 20 and 22 of the Succession Law Reform Act, R.S.O. 1990, c. S.26 that permits a will to operate on substituted property, and s. 36 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (the “SDA”) which provides that ademption does not apply to property disposed of by a guardian under the SDA.
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I recently tweeted this article from the Financial Post, which discusses different methods of charitable giving and the tax benefits associated with each method.
With respect to inter vivos charitable gifts, the methods include:
- A one-time gift using cash, cheque or credit card;
- Gifting publicly traded securities;
- A one-time gift using flow-through shares; and
- Gifting real estate or private shares.
One-time gifts using cash, cheque or credit card, which are familiar to most individuals, are the most common type of gift and are often gifts of smaller amounts. The other type of one-time gift, which makes more sense for larger gifts, is a gift of “flow-through shares”. These are a particular type of stock involved in materials or energy exploration that qualify for significant government credits. This option is better for individuals comfortable with advanced tax strategies and high taxable incomes. The two remaining inter vivos methods of gifting publicly traded securities, private shares, or real estate, are best for large gifts and result in tax benefits with respect to capital gains.
With respect to testamentary giving, the article discusses leaving money in a will, leaving money through an insurance policy, and donating RRSPs and RRIFs. Gifting money to charities via a bequest in a will is familiar to many individuals. However, there are often more tax-efficient ways to give, since money in your estate has been fully taxed and probated along the way.
The other methods of testamentary giving discussed are less common. Leaving money through an insurance policy involves paying premiums on a policy for which a charity is the beneficiary, and receiving a tax receipt on the payment of that premium. This method is said to often deliver a higher rate of return than investing and leaving money to a charity in your will. It also has the benefit of providing certainty with respect to the amount you will be donating to the charity. Donating your RRSPs or RRIFs has a benefit in that, often, the taxes on an RRSP or RRIF may be the largest tax liability on an estate. By donating the balance of the RRSPs or RRIFs, you can effectively use a charitable gift to cancel out the tax.
If charitable giving is something that you consider important, consider gifting in a tax-efficient way so as to gain a benefit yourself, and to provide even more of a benefit to your chosen charity.
Thanks for reading.
Listen to Developments in Will Changes.
This week on Hull on Estates, Ian and Suzana discuss developments in will changes. They reference cases from Key Developments in Estates and Trusts Law in Ontario ed. 2008.
Listen to The Business of Being an Estate Trustee.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the business side of being an Estate Trustee and talk about what to do with assets.