{"id":470330,"date":"2023-08-28T00:06:00","date_gmt":"2023-08-28T04:06:00","guid":{"rendered":"https:\/\/www.investmentexecutive.com\/?p=470330"},"modified":"2023-08-29T17:05:01","modified_gmt":"2023-08-29T21:05:01","slug":"gift-or-loan-court-case-shows-importance-of-documenting-intentions","status":"publish","type":"post","link":"https:\/\/www.investmentexecutive.com\/newspaper_\/comment-insight\/gift-or-loan-court-case-shows-importance-of-documenting-intentions\/","title":{"rendered":"Gift or loan? Court case shows importance of documenting intentions"},"content":{"rendered":"

This article appears in the September 2023 issue of <\/em>Investment Executive. Subscribe to the print edition<\/a>, read the digital edition<\/a> or read the articles online<\/a>.<\/em><\/p>\n

The Ontario Court of Appeal upheld a lower court\u2019s decision in July that found a father who transferred over $10 million in cash and real estate to his son had done so by way of gift rather than by loan.<\/p>\n

Want more immediate, memorable insights? Listen to this Soundbites episode<\/a>, featuring Vince Childers of Cohen & Steers. <\/em><\/div>\n

The case law suggests that property transferred to an adult child is presumed to be in trust unless the adult child can prove the transfer was intended to be a gift.<\/p>\n

In Falsetto v. Falsetto<\/em>, a teenage son began working in his father\u2019s Ottawa business in the late 1990s, maintaining rental properties. At that time, the father and son had reconciled after years of estrangement following the father\u2019s separation from his wife, the son\u2019s mother.<\/p>\n

The father didn\u2019t pay his son even though the son worked six days a week in the business. Instead, the father told his son he intended to eventually give him the business.<\/p>\n

The son started his own flooring business in the early 2000s. After that, he began buying, renovating and selling homes, and then building and selling his own properties. The father visited the son on job sites almost daily.<\/p>\n

In 2010, the son told his father about a property he was thinking of buying. The father supported the idea and provided him with $475,000 to help with the purchase.<\/p>\n

Between 2010 and 2016, the father transferred other assets to his son, including money from a settlement agreement, cheques from personal accounts and titles to property. At trial, the son testified that before each transfer, he verified with his father that the transfer was a gift.<\/p>\n

In 2022 the father sued his son, saying the transfers were not intended as gifts. Instead, he said he wanted his son to use the transferred amounts to buy property in the father\u2019s name or in trust for the father\u2019s benefit. The father further alleged that the son had breached his fiduciary duty as the father\u2019s power of attorney for property.<\/p>\n

In the lower court\u2019s decision, the trial judge relied on the 2007 Supreme Court of Canada decision in Pecore v. Pecore<\/em>, in which the top court held that when a parent gratuitously transfers property to an adult child, the law presumes the child holds the property on trust for the parent.<\/p>\n

However, the adult child can rebut the presumption of trust by providing evidence that the parent intended to make a gift of the property; that the child accepted the gift; and that there was \u201ca sufficient act of delivery\u201d to complete the gift transaction.<\/p>\n

In Falsetto<\/em>, the lower court judge found the father\u2019s testimony regarding the transfers wasn\u2019t \u201ccredible or reliable,\u201d while the son\u2019s was \u201cconsistent and credible.\u201d Independent witnesses also testified that the father told them he had intended to make or had made gifts to the son.<\/p>\n

The trial judge found the evidence also showed the son accepted the transfers and used the money to acquire properties, and that he received and deposited the cheques in his account or that of his company.<\/p>\n

Finally, the trial judge found there had been no breach of fiduciary duty.<\/p>\n

On appeal, the higher court declined to review the evidence on whether the transfers were gifts, stating it would not \u201cre-try the case\u201d where the trial judge had made no \u201cpalpable or overriding\u201d error in applying the law or reviewing the facts. And while the higher court agreed with the father\u2019s contention that the son had a fiduciary duty, it found the son had not breached it.<\/p>\n

The Falsetto<\/em> decision is a further reminder of the importance of documenting financial transactions, \u201ceven between family,\u201d said Matthew Urback, partner with Shibley Righton LLP in Toronto. \u201cSo many people don\u2019t know about this presumption of resulting trust\u201d set out in Pecore.<\/p>\n

Even when a gift is clearly contemplated, Urback said, it\u2019s a good idea to document the gift \u201cas a way to rebut the presumption.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Property transferred to an adult child is presumed to be in trust unless proven it was intended as a gift<\/p>\n","protected":false},"author":73592,"featured_media":470539,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3014,3013],"tags":[2396,2870,2600],"yst_prominent_words":[11820,85290,43881,24528,20294,18947,18929,16006,14383,13450,11972,10514,8353,6270,6029,5435],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/470330"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/73592"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=470330"}],"version-history":[{"count":4,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/470330\/revisions"}],"predecessor-version":[{"id":470841,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/470330\/revisions\/470841"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media\/470539"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=470330"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=470330"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=470330"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=470330"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}