The law is suspicious of gifts. After all, who gives away property to strangers for free? Thus, when a person transfers property to another without receiving payment, it is generally presumed that the transferor did not intend to gift that property, but that the recipient accepted the property to hold in trust for the transferor. This is called the “presumption of resulting trust”. In legal terms, while the transferee accepted legal title, the beneficial interest in the property remained with the transferor. This presumption can be rebutted if the transferee proves that the transferor intended to make a gift.
Of course, not everyone is a stranger. Historically, when a parent transferred property to his or her child or spouse without receiving payment, the law presumed that a gift was intended. This is called “the presumption of advancement”. This presumption could be rebutted if the transferor proved that they did not intend to make a gift. However, in 2007, the Supreme Court of Canada made changes to the presumption of advancement to better reflect modern customs and family arrangements. Now, when a parent transfers property to an adult child without payment, the presumption of advancement does not apply. But what happens when the transfer occurred before 2007?
In a recent decision of the British Columbia Supreme Court, Master Scarth considered this question. During a bankruptcy proceeding, the issue was whether a mother had intended to gift property to her now bankrupt son when she transferred a residential property and a term deposit into their joint names (transfer into joint ownership is a transfer of property because, on one owner’s death, the other owner becomes the sole owner). If she had intended a gift, the son’s portion of the property and term deposit would be sold to cover outstanding debts. Under the post-2007 law, the presumption of advancement does not apply and, without evidence that the mother intended to make a gift, the presumption of resulting trust would reign supreme – while the son would have a 50% legal interest in the assets, the mother would remain the sole beneficial owner.
However, the transfers occurred long before 2007. The trustee in bankruptcy, who sought to have the assets included in the son’s assets to make them available to creditors, argued that because the presumption of advancement would have applied when the transfer was made and because the mother had legal advice at that time, a gift can either be presumed or must have been intended. The mother, on the other hand, was adamant that she never intended to make a gift. She explained that the transfer was made so that her son could assist in dealing with the property (each joint owner can control the jointly owned asset). Under all of the circumstances Master Scarth held that, although the transfers were made prior to 2007, the presumption of advancement did not apply and the assets were held on a resulting trust in favour of the mother.