Inter vivos gifts are a common tool in estate planning used by parents to pass on assets to their children during their lifetime. This allows parents to exercise more control over their assets and save on estate administration taxes. However, using inter vivos gifts in estate planning also comes with risks, particularly if the intentions of the donor are unclear or ambiguous. If inter vivos transfers are challenged, courts may be asked to determine whether the transfer was intended as a gift to the recipient, or if it was merely given to the recipient to hold in trust for the estate.
Justice Flaherty addressed such a dispute in the recent Ontario Superior Court decision of Playford v. McRae,[1] released on September 27, 2024 and amended on November 20, 2024. Here, the Court was asked to determine whether three transfers amounting to $776,000 from an elderly father to his son constituted valid gifts or if the funds were held in resulting trust for the estate.
Facts
Lorne McRae (the “Deceased”) died on March 22, 2017 at the age of 87. At the time of his death, he had been showing signs of dementia and memory loss. In the 20 months prior to his death, his son, Bruce (the “Respondent”), received $776,000 in funds from his father, including:
- A $98,000 cheque in April 2015;
- $500,000 from the Deceased’s investment account in September 2015; and
- 89 separate e-transfers from the Deceased’s bank account from September 2016 to March 2017 totalling $178,000.
The Deceased’s daughter, Patricia (the “Applicant”), objected to the transfers. She applied for a declaration that the inter vivos transfers and the funds were subject to a resulting trust. She also alleged that the Respondent exercised undue influence over their father.
The Respondent stated that their father intended to gift this money to him, had capacity to make these gifts, and that any allegation of undue influence has been rebutted by the evidence that he provided.
Decision
An “inter vivos” gift, as opposed to a testamentary gift, is one that is intended to take effect during the lifetime of the donor. There are three elements required to establish an inter vivos gift:
- an intention to give by the donor;
- delivery of the gift to the recipient; and
- acceptance of the gift by the recipient.[2]
Two presumptions apply to inter vivos gifts from a parent to their adult child:
1) Presumption of Resulting Trust: when a parent gratuitously transfers property (i.e. transfers property without consideration) to an adult child, the law presumes that the child holds the property on resulting trust for the parent. This means that the recipient is presumed to be merely holding onto the property for the benefit of the donor, and that the donor still retains ownership of the property. To establish that the property was a gift, the adult child must rebut this presumption by proving their parent intended the property to be a gift on a balance of probabilities.[3]
2) Presumption of Undue Influence: a presumption of undue influence applies to inter vivos transfers if there is a potential for domination in the relationship between the donor and recipient. The individual challenging the transfer does not have to establish the presence of undue influence; if there is a potential for dominance in the relationship, then the presumption will apply. Here, the recipient must prove, on a balance of probabilities, that the gift was the result of the donor’s free and informed thought.[4]
This presumption does not automatically apply to a parent-child relationship, unless there is a potential for the child to dominate the will of the parent. This potential may arise if the relationship between an elderly parent and their child is characterized by dependency or dominance.[5] Whether the presumption arises is a question of fact and depends on whether the parent can assert their will and act independently of the child.[6]
If either of these presumptions apply, the recipient must rebut the presumptions with corroborating evidence. Corroborating evidence is also required pursuant to section 13 of the Evidence Act, R.S.O. 1990, c. E.23 if the donor is deceased. Courts have accepted the following evidence to rebut the above presumptions in inter vivos transfers:
- post-transfer conduct of the parent, if the conduct is relevant to the parent’s intention to make a gift;[7]
- written confirmation from the parent that the property is a gift;[8] and
- evidence that the parent received qualified and independent advice.[9]
A. Was the $98,000 Cheque a Valid Transfer?
No. The Respondent failed to provide sufficient corroborative evidence to demonstrate that his father intended to gift him the $98,000.00. The Respondent testified that the funds were initially given to him by his father for home renovations prior to the sale of his home. After the house was sold, the Respondent offered to repay the funds, but the Deceased wished for the funds to be given to the Respondent’s son, Branson, who was looking to purchase his first home. However, the Respondent did not give the entirety of the funds to Branson and kept some for himself.
While the Deceased had a history of giving financial gifts to his children, $98,000 is much larger than any gift he had given in the past. Moreover, the only direct evidence that the loan was a gift, and that the Deceased never sought repayment of the loan, was from the Respondent and was not corroborated.[10]
B. Was the $500,000 from the Deceased’s Investment Account a Valid Transfer?
Yes. The Respondent provided sufficient evidence to rebut the presumption of a resulting trust and show that the transfer was a valid inter vivos gift. The transfer was executed pursuant to a RBC Gift Letter filled out by the Respondent and signed and dated by the Deceased. The Respondent and his father also met with his father’s investment advisor to discuss the transfer and its potential tax implications. The investment advisor stated that the Deceased led the meeting and provided him with clear instructions.[11]
Further, Justice Flaherty found that at the time of the transfer in September 2015, the relationship between the Deceased and the Respondent was not characterized by dependency or a potential for dominance. While the Deceased suffered from incidents of memory loss, he was still living independently, managing his own affairs, and had minimal cognitive impairment. As such, the presumption of undue influence did not apply.[12]
C. Were the E-Transfers totalling $178,000 Valid Transfers?
No. The Respondent did not provide sufficient corroborative evidence to rebut the presumption of resulting trust. The Respondent provided no evidence to prove his assertion that the money was intended as a gift. Moreover, at the time of the transfers, the Deceased had significant dementia and memory loss such that it is unlikely that he could recall the e-transfers, or take steps to seek their repayment.[13]
Conclusion
Justice Flaherty found that one of the three inter vivos transfers was a valid gift. She ordered that the first transfer of $98,000 and that the balance of the third transfer of $178,000 (less deductions for eligible expenses incurred by the Respondent for the Deceased’s care) be returned to the Deceased’s estate.
This case demonstrates the importance of making your intentions clear if you plan to make use of inter vivos transfers in your estate planning and gift your children property during your lifetime. Mere testimony from your child about your intentions to gift them your property will likely be insufficient and may result in your gift being declared invalid. Instead, courts are more likely to rely on evidence from unrelated third parties, documentary evidence, and proof of independent professional advice, whether from a financial advisor or legal professional, to validate a gift.
If you have any questions about estate planning and the use of inter vivos gifts, please contact experienced wills and estates lawyer, Esther Abecassis, at 416-446-3310 or esther.abecassis@devrylaw.ca, or our other lawyers at Derfel Estate Law.
This blog was co-authored by Articling Student, Leslie Haddock.
This article is intended to inform. Its content does not constitute legal advice and should not be relied on as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.
[1] 2024 ONSC 5374 [Playford].
[2] Foley (Re), 2015 ONCA 382 at para 25 [Foley].
[3] Ibid at paras 26-27.
[4] Ibid at para 28.
[5] Playford, supra at para 20; Pandke Estate v. Lauzon, 2021 ONSC 123 at para 13.
[6] Playford, supra at para 20.
[7] Pecore v. Pecore, 2007 SCC 17.
[8] Ibid.
[9] Foley, supra at para 28.
[10] Playford, supra at paras 38-44.
[11] Ibid at paras 60-62.
[12] Ibid at paras 53-59.
[13] Ibid at paras 63-66.
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