Estate disputes can result due to several reasons. One common issue occurs when the willmaker (testator) gives an alleged gift prior to their death and their estate subsequently claims that the transaction was not intended to be a gift and the property must be transferred back to the estate.In response to these issues, the law has developed the concept of a resulting trust. Under the presumption of a resulting trust, the person receiving the “gift” may be required to prove that the transfer was intended as a gift.
This article looks at the presumption of resulting trusts, how they operate, and when the presumption applies. It also considers circumstances where the presumption does not apply, and looks to various case law examples which have helped the courts develop this concept over the years.
What is a resulting trust?
A resulting trust can arise when title to a piece of property is held by someone who did not give any value to obtain it.
The person who received the property may have to return it to its owner, in which case the property “results,” or goes back to, the person who initially transferred it, upon request.
But what happens if the person who transferred the property did intend for it to be a gift?
How does the presumption of a resulting trust operate?
Following the decisions from the Supreme Court of Canada in the cases of Pecore v. Pecore and Madsen Estate v. Saylor, the presumption of a resulting trust has been a common assertion in estate litigation.
The courts have developed the presumption of a resulting trust to help manage such situations. In the case of Archer v St. John, the Court of King’s Bench of Alberta in described the presumption as follows:
“The presumption of resulting trust arises in circumstances in which a challenged transfer of property, purportedly a gift to the recipient, has been made for no consideration. The onus is on the recipient to show that a gift was intended; otherwise, it is presumed that it was not a gift but that the recipient is merely the holder of the property on behalf of the transferor or, as in this case, the transferor’s estate.”
The Supreme Court of Canada has provided additional guidance on the matter of resulting trusts, stating that the presumption applies when transfers are made between family members.
When does the presumption not apply?
The presumption of a resulting trust does not apply when the property is transferred to a spouse or minor child. Instead, the presumption of advancement applies to these cases, whereby, absent any evidence to the contrary, a transfer of property between these parties is considered to be intended as a gift.
Further, under Alberta’s Wills and Succession Act, a designation of beneficiaries is testamentary in nature and therefore, the presumption does not apply. This is because a beneficiary does not benefit from a beneficiary designation during the owner’s lifetime. Further, the designation is revocable at any time by the owner.
Can you rebut the presumption of a resulting trust?
The person who receives the transfer can rebut the presumption of a resulting trust by providing evidence to establish that the transferor truly intended to gift the property to them.
Of particular importance is evidence which can help show the transferor’s intention at the time of the transfer, such as a declaration or act that happened around the time of the transfer.
Estate sought return of land held by deceased’s sister
In the decision of Courtoreille v Melchior, representatives of the estate brought a claim against the deceased’s sister seeking the transfer of land back to the estate. Alternatively, the beneficiaries sought for the deceased’s sister to pay fair market value for the land to the estate. The beneficiaries under the deceased’s will included many of his nieces and nephews.
The deceased owned two adjacent pieces of land near Crooked Creek, Alberta. In 2007, his sister, along with her then-husband, loaned the deceased $60,000 to help him discharge the mortgage on one of the pieces of property. The deceased subsequently signed a land transfer, granting his sister and her husband legal title to the land, however, the deceased continued to live on the land rent-free.
Testator’s sister claimed her brother intended for her to keep the land
In April 2010, the deceased sold the other piece of land and repaid his sister $60,000. The deceased’s sister’s husband later obtained half of this money and transferred the land title into her name only. The deceased’s sister testified that she had an agreement with her brother under which he would continue to live on the land rent-free, however, he wanted her to retain title to the property. However, the sister’s now ex-husband claimed that the plan was to transfer the land back to the deceased once the advance had been repaid.
The Court decided that the presumption of a resulting trust applied to these circumstances.
The deceased’s sister and husband considered the advance to be a loan at the time, thereby making the transfer of title a form of security, rather than a gift or sale. After the deceased repaid the advance, his sister and her husband continued to hold the land for no consideration.
Therefore, in order to maintain title to the land, the deceased’s sister was required to provide evidence to support the suggestion that the deceased intended for this transfer to be a gift.
Presumption of a resulting trust successfully rebutted
The Court found that the deceased’s sister met the onus of rebutting the presumption. The Court was satisfied that at some point after the transfer of title, or repayment of the advance, the deceased intended that his sister would become the legal and beneficial owner of the land after he died.
The Court also noted that the testimony of a friend of the deceased corroborated the evidence of the deceased’s sister as it confirmed the close relationship the deceased had with his sister and supported the idea that the deceased intended to “sell” the land to his sister in exchange for being entitled to live at the property for the remainder of his life. Further, the land was not included in the deceased’s will to be distributed.
Ultimately, the Court held that the deceased’s sister was allowed to retain title to the land.
Contact DBH Law in Calgary for Advice on Estate Planning and Resolving Complex Estate Disputes
The skilled team of estate lawyers at DBH Law provides clients with access to a full range of services in relation to estate matters, including proactive estate planning to contentious estate litigation disputes. If you are an executor, beneficiary, or third party involved in an estate dispute, our lawyers will advocate to ensure your rights are protected. We guide clients through each stage of the process and ensure that they understand their options with respect to dispute resolution. To speak with a member of our estate law team, reach out to us through our online form, or call our office at 403-252-9937.