A Gift or not a Gift? That is the Question


Written on August 24, 2016 – 12:12 pm | by Anna Alizadeh

Many people transfer assets to an adult child, but they often do not clearly express why they have done so. The transfer may be meant as a gift, a way of avoiding probate fees, or to simply allow access to a bank account so that their child may help manage their finances. Unfortunately, or fortunately (as the case may be), if a parent transfers an asset to an adult child, the law presumes that the adult child holds the asset in trust for the parent and his or her estate on death. As the recent decision in Falagario v Falagario highlights, if it is your intention to make a gift of a joint asset to your adult child (or adult grandchild), you should ensure your wishes are made clear to family, friends and your lawyer.

Michele Falagario (the “Deceased”) and his wife had three children: Frank and Pamela (the “Plaintiffs”) and Apollonia (a defendant, along with her children, Nicole and Michael). In 1967, the Deceased and his wife purchased the Highfield property as joint tenants, where they raised their family. The Plaintiffs moved out of the family home after they each married. Apollonia, however, continued to live at the property for most of her life, even though she married and had children. The Deceased’s wife died in 1984, and the Deceased became the sole owner of the property.

Eight months before his passing in December 2010, at age 87, the Deceased transferred the property to himself and Apollonia’s son, Michael, as joint tenants. The issue at trial was whether Michael held the property in trust for the Deceased’s estate.

At trial, the Plaintiffs relied on the presumption of resulting trust, and also argued undue influence. The court, however, found sufficient evidence to show that the Deceased intended to gift the property to Michael and found no evidence of undue influence.

As Apollonia lived with the Deceased, she prepared his meals, took him to his appointments and generally took care of him. By 2003, the Deceased was completely dependent on Apollonia for his day-to-day care. In October 2003, the Deceased executed a last will and testament, whereby he distributed 2/3 of his estate to Apollonia, 1/6 to Frank and 1/6 to Pamela (the “2003 Will”). The lawyer who prepared the 2003 Will had satisfied himself that the Deceased had testamentary capacity. The 2003 Will revoked the Deceased’s 1984 last will and testament, whereby he distributed his estate equally among his three children.

The Deceased was proud to have paid off the mortgage on the property (his only significant asset). In 2005, however, Nicole, Apollonia’s daughter, and Nicole’s boyfriend fraudulently registered a mortgage against the property without the Deceased’s knowledge or approval. The mortgage came to light in 2007, when the mortgagee sent a demand letter to the Deceased. There was no evidence that Apollonia had knowledge of the mortgage prior to receiving the demand letter.

Apollonia was living on government assistance at that time and could not afford a lawyer’s legal fees to defend against the mortgage dispute. She, therefore, asked the Plaintiffs for financial assistance, but they refused to help. As a result, Michael stepped in and contributed approximately $20,000.00 toward the legal fees, which was ultimately repaid to him. The mortgage was eventually discharged in the ensuing litigation.

In November 2008, not long after the mortgage dispute, the Deceased contacted a solicitor to transfer the property from the Deceased to Michael for “natural love and affection.” Roughly 14 months later, in February 2010, the Deceased attended at the solicitor’s office to complete the transfer. A handwritten note from the meeting, found in the solicitor’s file, stated that the Deceased originally wanted to transfer the property to Apollonia because she was the only one who took care of him. However, the Deceased changed his mind because she received government assistance. Instead, the Deceased left the property to Michael because he had come through for him and “saved the house,” while his other children had not.

The transfer was registered on March 5, 2010, after which Michael informed Apollonia about the transaction. The Plaintiffs became aware of the transaction after the Deceased’s death in December 2010.

The court cited Pecore v Pecore, as authority for the presumption of resulting trust, which applies to gratuitous transfers between a parent and an adult child (equity presumes a bargain, and not a gift). The court further noted that the presumption of resulting trust also applies to transfers between a grandparent and an adult grandchild.

However, the court found that Michael had met his onus of proving that the Deceased intended to gift the property to him. The most significant evidence was Michael’s role in saving the property in the mortgage dispute. The court accepted the evidence of a number of witnesses who explained that the Deceased believed that Michael had “saved the house,” for which the Deceased was profoundly grateful.

The court also accepted the solicitor’s testimony that the property was put into joint tenancy, and not gifted to Michael outright, because the solicitor had suggested joint tenancy to protect the Deceased during his lifetime.

If you wish to gift an asset to an adult child (or an adult grandchild), you should make your wishes clear. You can do this by telling your family and friends, leaving a handwritten note (preferably signed) and by addressing the issue explicitly with your lawyer.

TRUST INSTALLMENT REQUIREMENTS, INTEREST AND PENALTIES


Written on August 23, 2016 – 7:00 am | by Steven Frye

One of the many tasks associated with the administration of trusts is making sure all tax payments are made on a timely basis to protect the trust and its beneficiaries from avoid interest and penalties. In this regard, most trusts are required to make installment payments.

Prior to 2016 only inter vivos trusts (other than grandfathered inter vivos trusts) were legislatively required to make instalment payments under the relevant sections of the Income Tax Act. For the 2016 and subsequent taxation years, all inter- vivos trusts and testamentary trusts (other than a graduated rate estate trusts) are required to make instalment payments.

Recently, the Canada Revenue Agency (“CRA”) was asked whether it will continue with its practice of not assessing interest and penalties where a trust does not make instalment payments as required under the relevant sections of the Income Tax Act.

In response, the CRA will continue to not assess interest and penalties where a trust does not make sufficient instalment payments consistent with the current administrative practice.

However, the CRA stated that all administrative practices related to the new trust rules announced in Budget 2014 would be reviewed and that any changes to these practices would be introduced in conjunction with these new rules. If there is any change to their administrative practices in the future, the CRA indicated that sufficient information will be made available to trustees and estate administrators to assist in meeting the instalment filing requirements.

Happy Reading

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