Tag: inter vivos gifting
In November 2017, my colleague, Sayuri Kagami, blogged about the Ontario Court of Appeal’s decision in Teixeira v Markgraf Estate, which considered the validity of a gift in the form of a cheque cashed after the death of the payor. Today’s blog discusses similar facts in the court’s decision in Rubner v Bistricer. That is, whether pre-signed blank cheques cashed after the payor is declared incapable of managing property constitute either an enforceable promise to gift or, in the alternative, a valid inter vivos gift.
In the late 1960s, the patriarch of the Rubner family, Karl, purchased a 10% stake in a real estate development in Oakville known as the Lower Fourth Joint Venture. Karl kept legal title to this interest in the name of his wife, Eda, with the intention that their three children, Marvin, Joseph, and Brenda, each receive beneficial ownership of a one-third share in the Lower Fourth interest.
Brenda subsequently renounced her share in the Lower Fourth interest to avoid triggering certain tax consequences. Accordingly, her share reverted back to Eda, who then set up an account into which the income generated by Brenda’s former share would be deposited. Notwithstanding that she had disclaimed her share, however, Brenda nonetheless wanted to retain the income that her share generated. In 2014, Eda agreed to sign several blank cheques for the benefit of Brenda and her husband, allowing them to collect the income from Brenda’s former share without incurring the tax liability.
In November 2016, Eda was assessed as being incapable of managing property. Shortly thereafter, Brenda’s husband filled in and deposited two of the blank cheques previously signed by Eda in order to prevent Brenda’s brothers from using those funds to pay for Eda’s expenses.
Brenda’s brothers subsequently commenced an application seeking, amongst other relief, a declaration that the funds withdrawn by Brenda after Eda became incapable were held on a resulting or constructive trust for Eda’s benefit. Brenda took the position that Eda had intended that these funds be considered gifts for Brenda’s benefit. She claimed that at a family meeting in 2012 or 2013, Eda had specifically agreed to gift to Brenda all future income generated by Brenda’s former share in Lower Fourth.
The court was tasked with considering whether a purported promise of future gifts could constitute valid inter vivos gifts. In order to establish a valid inter vivos gift, the recipient must show:
- An intention to make a gift on the part of the donor, without consideration or expectation of remuneration;
- An acceptance of the gift by the donee, and
- A sufficient act of delivery or transfer of the property to complete the transaction.
The court held that the first step and third steps in this analysis could not be satisfied once Eda had been declared incapable of managing her property. Eda was deemed to have been unable to formulate the necessary intention to make a gift with respect to the blank cheques. Moreover, the court held that the delivery of “signed, blank cheques cannot amount to a complete gift”, as the drawer retains an interest in the amount of the cheque until it is cashed. Once Eda became incapable of managing her property, the gift could no longer be perfected. The blank cheques that were cashed after Eda was assessed as incapable of managing her property were held to be invalid, and Brenda was ordered to repay the amounts withdrawn.
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I was surprised to learn of a recent statistic indicating that about half of all singles in Toronto under age 34 are living with their parents – I thought this was just the way we do things in my family! But seriously, if you are a parent longing to cut the ties that bind, or if you just want to help your adult child get a head-start in life, you have probably considered doing so by way of a gift or loan. To avoid any confusion or worse, litigation, it is important to document the transaction and record the intention.
If the intention is to loan, a loan agreement should be used. If, however, the intention is to gift, keep in mind that to have a valid gift there are three necessary elements: (i) intention to donate; (ii) acceptance by the donee; and (iii) sufficient act of delivery and transfer. The onus of proving that a gift is valid is on the recipient of the gift, who must show a clear and unmistakable intention by the donor to have voluntarily given the gift. In order to ensure legal clarity, using a deed of gift is ideal.
The benefit of using a deed of gift is that it can provide an answer to any challenges that others may have to the transfer in question, which we often see in situations of transfers of property (bank accounts, real property etc.) into the joint names of the parent and child. Otherwise, upon death, the gift is usually presumed to form part of the parent’s estate unless proven otherwise by the child.
Other potential benefits to using a deed of gift include increasing the chances of protecting the funds upon marital breakdown (e.g. if the deed of gift stipulates that the funds are for the child alone, and not the married couple, this may prevent the monies from forming part of the family assets). It can also assist an estate trustee to correctly apply a hotchpot clause (which often requires the executor to take inter vivos gifts into account when making an equal distribution amongst the beneficiaries) and distribute the assets as the testator intended.
Thanks for reading and have a great day,
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You may also enjoy the July 7, 2017 interview of Nicole Ewing, a TD Wealth business succession advisor and tax and estate planner, which can be found on www.moneytalkgo.com.