Think You’re a Gift-Giver? Think Again
It seems like a straightforward scenario: Parents, perhaps now in their twilight years, decide to give a substantial gift to their married adult offspring, in the form of a large sum of money, land, a family cottage, or another asset (large or small). There is nothing in writing because – after all – it’s a gift between close family members.
But would it surprise you to know that absent a contract or other clear indication otherwise, the law actually presumes not that a gratuitous gift has been made from a parent-to-adult child, but rather that the adult child holds the item/property on the parents’ behalf unless there is evidence to the contrary?
The law on this perhaps confusing presumption was made clear in a recent Ontario decision called Barber v. Magee.
There, the couple had met in 2000, married in 2002, had a child together, and ultimately divorced in 2011. During the marriage, the husband had received $90,000 from his father toward the purchase of the matrimonial home, and another $67,000 later on. There was never a demand for repayment, nor any attempt to actually repay this $150,000 to the father. Nor were there any documents available: The husband claimed that his mother was the custodian of them, but had destroyed them in a “document purge”. He was thus unable to give the court evidence on the details of the purported loan, including the terms, interest rate, or repayment schedule.
Still, as part of settling their financial affairs during the divorce proceedings, the husband claimed that this $150,000 was merely a loan from his father which he still had to repay; from a family law perspective, this meant it would still form a liability and be deducted from his net family property.
As part of evaluating the husband’s position, the court revisited the current law on gifts-versus-loans in the context of these sorts of family law proceedings.
The court helpfully summarized the principles this way:
• In a scenario involving a gratuitous transfer of property from any one person to another (which for convenience we will still call a “gift”), the law of “resulting trust” applies. The law presumes that the actual intent of the gift-giver is to retain the gift but put in the hands of another person for “safekeeping” (so to speak), and not actually give it away.
• This also applies to gratuitous gifts between parents and adult children: The presumption is not that the parent intends a gift, but rather that the adult child is holding the property in trust for the aging parent. In other words, the assumption is that the gift-giving parents nonetheless hold an interest in the asset, even after placing it in the hands of the adult child.
• However, that presumption is rebuttable by putting forward evidence to the contrary. The burden is placed on the recipient adult child to show that an actual gift was intended, i.e. that he or she gets to keep the item.
• In the case of a dispute, the judge hearing the matter must begin with the presumption, and then weigh all the evidence in an attempt to determine the parents’ actual intent at the time of the transfer. The precise nature of the required evidence will depend on the facts of the case.
• There are various factors to consider:
o Whether there were any contemporaneous documents evidencing a loan;
o Whether the manner for repayment is specified;
o Whether there is security held for the loan;
o Whether there are advances to one child and not others, or advances on equal amounts to various children;
o Where there has been any demand for payment before the separation of the parties;
o Whether there has been any partial repayment; and,
o Whether there was an expectation or likelihood of repayment.
(A court will also take into account the fact that what started off as more of a “gift” to one spouse in a newly-separated couple may prompt the parents to suddenly collude in the claim it was a loan, to help out their son or daughter in the face of threatened litigation. This may be particularly so if the alleged debt is old, the parents do not need the money, and there has been no demand for repayment until after separation).
All of these principles stem from the law of equity, which focuses on what is fair. Those principles presume the existence of bargains, not gifts.
Returning to the Barber v. Magee facts, the court found that the $150,000 advanced from the husband’s father were gifts, with no clear intention or expectation that it be returned. Among other things, the court considered the fact that the wife had no idea during the marriage that the money was supposedly a loan; it was never discussed. She never saw or had knowledge of any documentation, and learned of the alleged loan only after she and the husband separated.
For the full text of the decision, see:
Barber v. Magee, 2015 ONSC 8054, 2015 CarswellOnt 19620, [2015] O.J. No. 6818
