Dividing an Estate: Gift During Lifetime of Parent to Adult Child

When dividing an estate in BC, it is essential to determine what property of the will-maker forms part of the estate. If a will-maker made a valid gift of property during his or her lifetime, that property does not fall into the estate and the terms of the will do not apply to it. This article by our team of BC estate lawyers provides an overview of the law of gift as it applies between a parent and an adult child. After the overview of the law, this article then provides an analysis of McMurtry v. McMurtry, 2016 ONSC 2853, appeal dismissed, 2017 ONCA 296, a fairly recent Ontario case in which the law of gift was applied to resolve a family’s dispute over the dividing of an estate.

Valid inter vivos gift

An inter vivos gift is intended to take effect when a person is alive. The essential elements of such a gift are well-settled. There must be:

1. an intention to make a gift on the part of the donor (gifter) without consideration or expectation of remuneration;

• an acceptance of the gift by the done (recipient); and

• a sufficient act of delivery or transfer of the property to complete the transaction.

Gift from parent to adult child

Where it is alleged that a parent gratuitously transferred property to an adult child, the analysis required is as follows:

1. Begin with the presumption that the child holds the property on a resulting trust for the parent.

• A resulting trust arises when title to property is in one person’s name, but that person is actually holding the property for the benefit of another person who had paid for the property or who was the original owner of the property. See here for our estate law team’s discussion of Pecore v. Pecore, 2007 SCC 17, the landmark case on the presumption of resulting trust, concerning the distribution of a deceased father’s assets to his adult daughter.

• The adult child to whom the property was transferred has the onus of proving, on a balance of probabilities that the parent’s intention was to transfer the property as a gift.

• The evidence required to rebut the presumption of resulting trust depends on the facts of each case. Regardless, the common law requires corroborating evidence to rebut the presumption. The corroborating evidence can be direct or circumstantial. It can consist of a single piece of evidence, or several pieces of evidence can be considered cumulatively. See here for our estate lawyers’ discussion of a case in which the evidence was sufficient to rebut the presumption of resulting trust when dividing an estate in BC.

• All of the evidence must be weighed in an effort to determine the actual intention of the parent at the time of the transfer.

• Consideration can be given to the transferor parent’s post-transfer conduct, as long as it is relevant to the parent’s intention at the time of the transfer. See here for our discussion of the critical time for determining to intent to make a gift. The reliability of evidence as to post-transfer conduct must be assessed and a determination made as to the weight to be given to that evidence. A trial judge is to guard against such evidence that is self-serving or that tends to reflect a change in intention.

Dividing an estate in BC: Applying the law of gift

McMurtry v. McMurtry, 2016 ONSC 2853, appeal dismissed, 2017 ONCA 296, involved a dispute concerning the control of a family company, Mic Mac Realty (Ottawa) Ltd. (“MMR”). Mildred McMurtry and Keith McMurtry were married and had six children. Out of a total of 22 shares, Keith gave four shares to each of his three sons, John, Jim and Michael. Keith retained the remaining ten shares. After Michael died in 1983, Jim and John each received half of Michael’s shares; each then had six shares as of August 1984. Keith died in 1998. Under his will, Mildred was the residual beneficiary of Keith’s estate. The will made no mention of Keith’s ten shares (the “Disputed Shares”). Mildred and her son John each claimed ownership of the Disputed Shares. Mildred claimed that as the residual beneficiary of her husband’s estate, the Disputed Shares were hers. John claimed that his father gifted the Disputed Shares to him before he died (i.e., via an inter vivos gift) or that his father had an intention to give the Disputed Shares to John that persisted until Keith’s death.

Evidence insufficient to support claim of gift

John relied on what transpired at two meetings that he attended with one or both of his parents in the 1980s to support his claim that his father had made him the majority shareholder in MMR during his lifetime. The court found that John’s evidence was inconsistent and unreliable. The court also found that John’s conduct, as evidenced by documents such as tax returns prepared in the time between those meetings in the 1980s and his father’s death in 1998, was not consistent with John’s position that ownership of the Disputed Shares had been transferred to him during his father’s lifetime. John failed to meet the evidentiary burden for rebutting presumptions in the context of the law of gift and the law of resulting trust. Keith did not make or intend to make a gift of the Disputed Shares to John. As of the date of Keith’s death in 1998, Keith remained the owner of the Disputed Shares, and pursuant to the terms of the will, on Keith’s death the shares fell into and remain part of the residue of the estate. Mildred became the beneficial owner of the shares as the residual beneficiary under the terms of the will. However, that did not end the matter on the facts in McMurtry v. McMurtry – check back for next week’s discussion of the law of constructive trusts.

Bottom line on the law of gift and dividing an estate

If a will-maker made a valid gift of property during his or her lifetime, that property does not fall into the estate and the terms of the will do not apply to it when it comes to dividing an estate. If the disputed property was not gifted during the will-maker’s lifetime, it does fall into the estate and is divided in accordance with the terms of the will. Where it is alleged that a parent gratuitously transferred property to an adult child during his or her lifetime, there are specific rules and presumptions that apply and the outcome of the dispute will depend on the sufficiency of the evidence that purports to establish the making of a valid inter vivos gift.