ESTATE DILEMMAS

Recent Court Decisions

How Mak and Hertendy v. Gault affect family transfers

The recent Ontario case of Calmusky v. Calmusky caught many by surprise, as the Court applied the presumption of resulting trust to override a Registered Retirement Income Fund (RRIF) beneficiary designation. For readers not familiar with this decision, it involved estate litigation relating to one family member ’ s entitlement to the proceeds of the deceased father ’ s RRIF pursuant to a beneficiary designation.

The estate successfully argued that the presumption of resulting trust should govern ownership of the RRIF proceeds. This presumption applies where a gift is made to an adult person, placing the onus on that person to prove that a gift was intended. As a result of the application of the presumption in this case, the RRIF proceeds fell back into the estate to be distributed in accordance with the father ’ s will and became subject to probate fees.

Advocis and the Conference for Advanced Life Underwriting (CALU) have been working together with other professional organizations to reverse the impact of the Calmusky decision.A submission was made to the Ontario government requesting legislative amendments that would confirm the presumption of resulting trust does not apply to statutory designations. So far, no action has been taken by the Ontario government and we continue to push for a legislative resolution.

In the meantime, a new Ontario court decision, The Estate of Mak v. Mak, offers strong judicial support for these advocacy efforts. In a very similar fact situation, the Court chose not to follow Calmusky on the basis that the presumption of resulting trust only applies to inter vivos gifts, and not to gifts pursuant to a beneficiary designation. In reaching its decision, the Court took note of legal commentary that was critical of the Calmusky decision, which indicated there is usually no need to determine the owner ’ s Court agreed with these views, saying

“the whole point of a beneficiary designation … is to specifically state what is to happen to an asset upon death. ” It therefore concluded that this presumption did not apply to the RRIF beneficiary designation (and presumably to insurance designations). The onus therefore fell on the other estate beneficiaries to establish that a gift of the RRIF proceeds was not intended, which they were unsuccessful in doing.

While the Mak decision is a positive development, it does not conclusively deal with this issue. As both the Calmusky and Mak decisions originate from the same court, an Ontario Court of Appeal decision or legislative changes are still required to confirm the presumption of resulting trust does not apply to adult beneficiary designations. As well, the Mak decision would not necessarily have any impact in other provinces such as British Columbia,Alberta, and Manitoba, where courts have accepted that this presumption does apply to statutory beneficiary designations. Therefore, professional advisors still need to document their client’ s intentions about making a gift when designating an adult beneficiary (other than a spouse).

HERTENDY V. GAULT DECISION

This court case involved a dispute between a mother and her adult daughter as to the effect of the transfer of a residential property to the daughter. The mother (Marian) claimed that she did not intend to make a gift of the property to her adult daughter (Beverley). Marian gave testimony that she did not understand or appreciate the legal effect of signing documents transferring her home to the daughter. She also argued that Beverley provided no consideration for the transfer, and therefore the presumption of resulting trust should apply, with the onus being on the daughter to prove that a gift was intended.

Beverley argued that the transfer was intended as an advancement of the bequest to her under her mother ’ s will, and in any event, she provided consideration by agreeing to pay for certain home expenses such as property taxes (which in fact were subsequently paid by Beverley). She further argued that due to an ongoing dispute with her mother, Marian was now trying to “ unravel the gift. ”

The Court had to sift through conflicting and ambiguous evidence to determine whether the presumption of resulting trust should apply, and if it did, if there was sufficient evidence that Marian intended to gift the property to her daughter. The Court accepted that some element of consideration had been received on the transfer, with Beverley undertaking to pay household expenses while allowing her mother to continue to live in the house. As such, the presumption should not apply. However, the Court also felt the overall evidence supported the daughter ’ s version of events, and that a gift had been intended by her mother. As a result, the Court held that the daughter was the legal owner of the home, with Marian only retaining a life interest in the property.

This case once again affirms the need for parents (with the help of their advisors) to carefully document the underlying rationale for the property transfer — such as bank accounts, investments, or real estate — into sole or joint ownership with their adult children. Communicating these intentions to other family members may also help avoid costly litigation and possible damage to family relationships,which unfortunately arose in this particular case.

KEVIN WARK, LLB, CLU, TEP, is the managing partner of Integrated Estate Solutions and tax advisor to CALU. He is the author of the bestselling consumer book, The Essential Canadian Guide to Estate Planning (2nd Edition). For a limited time Advocis members can get a signed version of this book for a special price of $20 plus HST, including delivery. Please contact kwark@integratedestate.ca for ordering details.