This blog post was written by Mohena Singh, Associate at Fasken LLP

In the realm of family law and financial planning, the case of Klemensiewicz v. Klemens et al sheds light on the intricacies of familial financial support, particularly the distinction between gifts and loans.

Often as estate planners, we see that individuals want to provide for their family members both during their lifetime and through their estate after passing. Many individuals prefer to see their loved ones benefit from their generosity while they are alive, allowing them to witness the positive impact of their support. This desire can sometimes lead to misunderstandings or disputes, as seen in this case, where the intention behind a significant financial contribution was contested.

Marcel Klemensiewicz (“Marcel”) provided his son and daughter-in-law, Marc and Lorraine Klemens (“Marc” and “Lorraine”) with $525,000 to assist with purchasing a home. Marcel later claimed the money was a loan, while Marc and Lorraine maintained it was a gift. Marcel sought a declaration that the funds are to be held in a constructive or resulting trust for his benefit.

When property is transferred with no consideration, there is a presumption of resulting trust that the property is held by the transferee for the benefit of the transferor. The onus then shifts to the transferee to prove that there was a gift intended by the transferor.[1]

The facts of this case clearly show that Marcel’s intention at the time of the transfer was to gift the funds to Marc and Lorraine. A “gift letter” signed by both parties confirmed the funds were a non-repayable gift. The court found no evidence of repayment requests, reinforcing Marc and Lorraine’s claim that the money was a gift. Additionally, Marcel knew he was not on legal title to the property and did not object at the relevant time, which further emphasized that the funds were intended as a gift rather than a loan (and were not a payment for an interest in the property). The court concluded that the presumption of resulting trust was rebutted due to, among other considerations, the explicit documentation indicating the intention at the time of the transfer, and the lack of repayment requests or other reliable evidence contradicting the documentation.

The facts of this case were particular to the family’s personal circumstances and the change in Marcel’s intention years after the gift was made. However, it raises an important question on how a person can ensure that funds provided to a family member are characterized appropriately and as per their intentions.

Suppose at the time of the transfer, Marcel intended the funds provided to Marc and Lorraine to be a loan. He could have entered into a loan agreement with Marc and Lorraine, which could have been registered on title. He could have insisted that his name be on title to the property, demonstrating that the property transferred was consideration for an interest in the property.

It is important to clearly document and communicate intentions when making either a loan or a gift to a family member. Sometimes we assume a verbal agreement is sufficient but having clear written documentation removes uncertainty and mitigates the risk of disputes arising after the fact.

When providing for loans or gifts to family members during a person’s lifetime, it can be helpful to make a note of such transfers for estate planning purposes as well. If someone wishes to take into consideration any loans or gifts made to family members in their estate planning, it is important that such amounts are clearly documented. It is then easier to incorporate such amounts in the will, including in any equalization provisions so that all beneficiaries are treated equitably. Accurate characterization of amounts paid to family members is also critical to determining whether there are additional assets of an estate, such as loans owing from family members.

Whether it be a loan or gift, time and time again we are reminded that documenting the intentions of the parties is important for future planning and dispute resolution, especially when it comes to family affairs.

Thank you for reading.

[1] An exception is where the presumption of advancement applies, in which case the individual who gratuitously transfers property is presumed to have intended to make a gift to the transferee and the onus is on the individual challenging the gift to prove that the transfer was not a gift. This presumption has been limited to gratuitous transfers from a parent to a minor child.