A recent decision highlighted in Investment Executive underscores a recurring and costly mistake in family wealth transfers. Families assume informal gifts will be treated as gifts when things fall apart.
They often are not.
The Case Good Intentions Bad Documentation
In Johnston v. Song, a dispute arose after assets were transferred within a family for a shared purpose. When the relationship broke down, the court had to answer a simple question.
Was the transfer a gift or something else
The answer carried real consequences.
Courts do not rely on what families thought they were doing. They rely on what can be proven.
The Legal Trap The Presumption of Resulting Trust
Canadian law starts from a position that surprises many clients.
Transfers to adult children are presumed not to be gifts.
Instead, the law presumes a resulting trust. This means the recipient may be holding the asset for the benefit of the person who transferred it unless proven otherwise.
To prove a gift, the recipient must establish
- a clear intention to gift
- acceptance of the gift
- sufficient delivery or transfer
Miss any of these and the gift can unravel.
Why This Matters in Family Law
This issue shows up regularly in separation and divorce cases.
Parents advance funds for
- down payments
- business ventures
- property purchases
Years later, during a separation, one party takes a different position.
That was not a gift. It was a loan or held in trust.
Now the court must decide
- whether the asset is excluded from net family property
- whether there is a repayment obligation
- or whether it was a true gift
Without documentation, the result becomes unpredictable and expensive.
The Real Risk Litigation Driven by Ambiguity
The takeaway from Johnston v. Song is straightforward.
Ambiguity creates litigation.
Even when intentions were aligned at the start, a lack of documentation allows people to rewrite history when relationships break down.
Courts are then left to reconstruct intent using
- witness credibility
- financial records
- surrounding evidence
That is not a position anyone should want to be in.
Practical Takeaways for Clients and Counsel
If you are advising clients or structuring your own affairs, this is where discipline matters.
- Document the intention: Even within families. Especially within families.
- Be explicit: State clearly whether the transfer is a gift, loan, or trust.
- Keep the paper trail consistent: Bank transfers, emails, and conduct should align with the stated intention.
- Consider family law exposure: A gift to a child may become divisible in a future separation if not structured properly.
- Think beyond tax planning: Tax efficiency without legal clarity creates risk.
The Bigger Picture
Asset transfers within families are rarely just financial. They involve trust, relationships, and assumptions.
That is exactly why they break down.
The law imposes structure where families rely on trust. When the trust fails, the lack of structure becomes the problem.
Good intentions are not enough.
If you intend a gift, document it clearly and structure it properly. If you do not, you are leaving the door open for dispute, especially when relationships change.
These issues rarely surface when things are going well. They surface later, in the middle of a separation, when the stakes are high and positions harden.
At that point, it is no longer about what was intended. It is about what can be proven.
That is a much harder place to win from.
If you are advancing funds to a child, helping with a property purchase, or structuring family wealth transfers, take the time to get it right on the front end.
A short, properly drafted agreement now can avoid significant legal fees and uncertainty later.
If you are already dealing with this issue in the context of a separation or dispute, early advice matters. The way the transaction is characterized can materially impact the outcome.
Russell Alexander Collaborative Family Lawyers regularly advises clients on these issues from both a family law and practical planning perspective.
For more insights, visit FamilyLLB.com or reach out to discuss your situation before assumptions turn into litigation.
