Sneaky Trusts: The Legal Plot Twist with Gratuitous Property Transfers

It is increasingly common for families to make financial decisions aimed at minimizing probate fees and income tax. However, these arrangements can have unexpected legal consequences. In this blog, we explore one such outcome: the presumption of resulting trust.

PRESUMPTION OF RESULTING TRUST

The presumption of resulting trust applies to gratuitous transfers of property. It presumes that the transfer is not a gift to the recipient but is rather held in trust for the transferor. Two key elements give rise to a presumption of resulting trust:

• there is a gratuitous transfer of property, either as a gift or through the purchase of property in someone else’s name; and
• there is no clear written or oral reason for why the transfer or purchase was made.[1]

Unless there is clear evidence of a gift, the transferor is presumed to have intended to retain the beneficial ownership of the property (i.e. the right to benefit from the property), while only transferring legal title (i.e. the right to manage and control the property) to the recipient.[2] This presumption arises primarily because, in the absence of a clear explanation for the transfer, the law does not assume generosity.

The presumption of resulting trust can be rebutted with evidence that the transferor intended to make a gift to the recipient at the time of the transfer. It is important to note that once a transferor has transferred title with the intention of making a gift, they cannot later retract that intention.

COMMON SCENARIOS WHERE THE PRESUMPTION MAY APPLY

Resulting trusts can arise in a number of situations, including:

• a parent adding an adult child as a joint holder on a bank or investment account;[3]
• a parent transferring title to their home into joint tenancy with an adult child;[4] and
• a will-maker naming their executor as a beneficiary of their registered accounts.[5]

In each of these cases, the absence of clear evidence of donative intent may trigger the presumption that the recipient holds the property in trust for the original owner.

Joint Tenancy Between Parents and Children

Consider Bob, an elderly parent seeking to minimize future probate fees. To achieve this, he contemplates transferring assets into joint tenancy with his independent adult daughter, Ellen. In this case, the presumption of resulting trust stands unless Bob clearly documents an intention to gift a beneficial interest in the assets to Ellen.

Despite the presumption of resulting trust, Bob’s decision to hold assets in joint tenancy may, in fact, reflect one of several goals:

1. to form a true joint ownership with immediate effect where both legal and beneficial title would pass to Ellen;
2. to form a trust where Ellen holds legal title in trust for Bob;
3. to gift only the right of survivorship where neither legal nor beneficial title pass immediately to Ellen but Ellen will receive beneficial ownership on Bob’s death; or
4. to form a bare trust, a trust where Ellen has no substantive duty as a trustee and simply holds legal title in trust for Bob who retains effective control over the asset.

Given the range of intentions behind a joint tenancy, it is essential that Bob clearly documents his intention at the time of the transfer. Failure to do so may result in the application of the presumption. To avoid unintended legal consequences, transferors should take proactive steps to record their intentions in writing and seek legal advice where appropriate.

Designating the Executor as a Beneficiary of Registered Accounts

Imagine a different scenario: Bob appoints Ellen as the executor of his Will and also designates her as the beneficiary of his registered retirement income fund (“RRIF”). While Bob may have genuinely intended for Ellen to receive the RRIF proceeds and serve as his executor, the absence of clear language in the RRIF designation confirming that intent could trigger the presumption of resulting trust.

This arrangement can be likened to a secret trust, where a named beneficiary under a will is, in fact, a trustee who has agreed to hold the property for someone else’s benefit. In both cases, legal title may appear to vest in the transferee or beneficiary, but the beneficial interest may remain elsewhere (unless clear evidence of donative intent is provided).

EXCEPTION TO THE PRESUMPTION OF RESULTING TRUST

There are certain situations where the law presumes the opposite of a resulting trust, i.e. that the transferor intended to make a genuine (outright) gift. This typically occurs where the presumption of advancement applies and has not been rebutted.

The presumption of advancement primarily applies to gifts from parents to their minor and dependent children. A less common, and arguably outdated, application of this presumption is in transfers from husbands to wives. While courts across Canada increasingly recognize the discriminatory nature of this common law principle and its limited relevance in modern contexts, it has not yet been abolished in British Columbia (with the exception of the question of ownership of property under the Family Law Act). As a result, the presumption of advancement remains a potential factor in property disputes, albeit one that is increasingly scrutinized.

Ultimately, even if there are grounds for the presumption of advancement to apply, it may be rebutted by evidence that the transferor intended to create a resulting trust.

IMPORTANT CONSIDERATIONS

It is essential to seek legal advice if you are planning to transfer assets into joint tenancy or believe that the presumption of resulting trust may already apply to your situation. To avoid the uncertainty that this presumption can create (leading to litigation after death), parents (as transferors) may consider the following options:

• confirm a bare trust in writing, whereby the children hold legal title as trustees, while the parents retain beneficial ownership; or
• execute a deed of gift, clearly documenting the intention to transfer both legal and beneficial title to the children, thus rebutting the presumption of resulting trust.

Parents may also choose to transfer legal ownership of property to their children while deferring the transfer of beneficial ownership. To properly document this arrangement and avoid the presumption of resulting trust, parents can execute both of the following:

• a deed of gift, granting the child the right of survivorship, which takes effect upon the parent’s death; and
• a bare trust agreement, confirming that the child holds legal title as trustee during the parent’s lifetime, while the parent retains beneficial ownership.

If you have any questions about familial property transfers in the context of estate planning or administration, please contact a member of our Wills, Estates + Trusts Group.

[1] See Oord v. Oord, 2012 BCSC 1857.

[2] See White & Ors v. Vandervell Trustees Ltd. (No. 2), [1974] Ch. 269, [1974] EWCA Civ. 7, Pecore v. Pecore, 2007 SCC 17, Nishi v. Rascal Trucking Ltd., 2013 SCC 33.

[3] See Madsen Estate v. Saylor, 2007 SCC 18.

[4] See Petrick (Trustee) v. Petrick, 2019 BCSC 1319.

[5] See Neufeld v. Neufeld, 2004 BCSC 25, Simard v. Simard Estate, 2021 BCSC 1836.